It has been several months since Covid-19 forced many people to suddenly shift to working from home. One major benefit of this arrangement is the potential for employers to save on considerable overhead expenses – for example rent and internet connectivity in office buildings. It is important to ask, however, whether these costs are being eliminated, or simply shifted to employees. If it is the latter, employers should consider whether they are inadvertently contravening the established law in British Columbia.
The Employment Standards Act is clear that employees cannot bear any of their employer’s business costs. However, determining if an employer has contravened this rule becomes harder when the employee is bearing costs that used to be purely personal, but are now partially employment-related. An example of this is the question of whether an employer must now reimburse an employee for part of the cost of their internet or rent, since an employee may now be using both to perform their work duties at home.
If a dispute regarding the costs of working from home is brought before Employment Standards, the following non-exhaustive list of factors may be considered:
- whether the employee is required to incur the expense, or if it is voluntary;
- whether there are consequences to not incurring the expense (e.g. loss of employment);
- whether the arrangement is mutually beneficial;
- the reason(s) the work from home arrangement commenced;
- whether extra costs have been incurred by the employee in using their personal property;
- whether the payment obligation is independent of the employment relationship; and
- whether the cost claimed by the employee is notional or definitive.
None of these considerations are determinative. When issues such as bearing employers’ business costs arise, Employment Standards considers the specific facts of the situation to determine whether an employee is, in fact, bearing the costs of the employer. In short, there is no decisive framework to follow at this time.
At this point, employers should be as clear as possible with employees, from the outset, as to what working from home will entail. Open communication about what will and will not be covered by the employer will help alleviate future misunderstandings. As it stands, employees may use their own tools and devices for their work, however, the employer will likely have to pay for the expense of operating such devices. Currently, that notion has not been extended to include an employee’s rent obligations.
Instead of reimbursing employees for specific costs incurred, some employers may opt to pay all employees an allowance, which can be used at the employee’s discretion. Note that an allowance received by an employee is a taxable benefit whereas reimbursements of employment-related expenses are generally non-taxable. However, the Canada Revenue Agency (“CRA”) has recently confirmed that, in the context of COVID-19, a reimbursement not exceeding $500 for the purchase of personal computer equipment will be treated as non-taxable.
Because the law in B.C. has not yet decided several of these issues definitively, many employees may rely on the tax system to claim deductions for working from home expenses in 2020. An employee can deduct (i) the cost of supplies (“Home Office Expenses”); and (ii) a portion of the costs related to the use of a work space in a “self-contained domestic establishment” (“Office Space Expenses”). However, to claim these deductions, stringent requirements must be met.
For example, to deduct Home Office Expenses, the employee must have been “required by their contract of employment” to pay for Home Office Expenses. In light of COVID-19, the CRA confirmed during a consultation hosted by the Canadian Chamber of Commerce on September 11, 2020 (the “Consultation”) that the requirement to work from home and pay for Home Office Expenses does not need to be in writing; rather, this particular requirement will be met provided there is a verbal agreement between the employee and the employer. During the Consultation, the CRA stated that it will provide clarification regarding what expenses qualify for the Home Office Expenses deduction. Under the current rules, an employee may deduct the cost of acquiring stationery items, toner, ink cartridges, and a portion of their basic cell phone service plan (provided certain conditions are met); however, an employee may not deduct monthly access fees for home internet service or the cost of office equipment (e.g. a home computer).
Further, to deduct Office Space Expenses, the employee must be able to establish that the work space must either be:
- used principally for the performance of office or employment duties; or
- used exclusively during the period to which the expenses relate, to earn employment income, and on a regular and continuous basis, used for meeting clients or other persons in the ordinary course of performing the employment duties.
The term “principally” has generally been interpreted by the CRA to mean more than 50% of the time; however, it remains unclear whether the test must be applied on an annual basis (i.e. must an employee work from home for at least 6 months in order to meet this requirement?) or whether the test will be met if the employee worked from home more than 50% of the time in which their employer required them to do so. “Used exclusively” has been interpreted to mean “used only to earn income”. As many employees do not have a segregated workspace (i.e. many employees are working from their kitchen table in the middle of their homes), it may be difficult to qualify under the second alternative.
We will continue to update you on further developments of the law in this area, as we expect this will be a rapidly evolving area of jurisprudence given the current circumstances caused by COVID-19.
Katy Allen is an associate in the Labour, Employment and Human Rights Group in Vancouver. She advises and represents clients regarding a broad range of issues relating to labour, employment, employment standards, human rights, and ...
Kayli is an associate in Lawson Lundell’s Tax Law Group. She advises clients on corporate tax matters including tax planning, mergers and acquisitions, pension fund investment taxation, and sales tax issues. Kayli also assists ...
Lawson Lundell's Labour and Employment Law Blog provides updates on the most recent legal developments impacting the Canadian workplace and offers practical tips for employers. We cover a range of topics, including labour relations, employment law, collective bargaining, human rights, employment standards, employment equity, workers' compensation, business immigration, privacy, occupational health and safety and pensions and employee benefits.