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Catherine Holt: Top 10 things about employer tax that need fixing

British Columbians, employers included, welcomed the news in the provincial budget that we would no longer be the only Canadians who pay a monthly premium for public health care.
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Catherine Holt is CEO of the Greater Victoria Chamber of Commerce.

British Columbians, employers included, welcomed the news in the provincial budget that we would no longer be the only Canadians who pay a monthly premium for public health care. But news that revenue from premiums would be replaced with an employer health tax was a surprise that has left many B.C. employers with sticker shock.

The tax kicks in at 0.98 per cent of payroll when payroll reaches $500,000, and maxes out at 1.95 per cent for a payroll over $1.5 million. A tax of less than two per cent might sound minor until you start doing the math.

Here are some real experiences:

• One of our region’s major private-sector seasonal employers of youth will pay 1.95 per cent EHT — a 260 per cent increase above what they have been paying to cover employee MSP premiums. They will also pay EHT on every employee, even though many seasonal young workers are still on their parents MSP coverage.

“Holy cow, it certainly is a material cost for our company that comes at a tough time when we are in the process of raising our entry pay band to start at $15,” said the CEO of that organization.

• A large public-sector employer in our region will also be paying 1.95 per cent EHT — a $5.8 million expense. That’s more than twice the $2.5 million the employer pays now. Does this mean less service? Higher fees? Or more money from government’s limited budget?

The third example is a well-established, thriving not-for-profit that provides essential services in our region. In 2019, the year when employers inexplicably pay both MSP premiums and EHT, this organization will pay $12,015 in MSP premiums and $21,673 in EHT — three times higher than 2018. And they no longer save costs when employees have spouses whose employer pays the MSP premiums.

“Not only is the government double-dipping in 2019 by charging MSP and the tax, but they are double-dipping by having other spouses’ companies pay for health care, when only one company needs to pay now,” said the organization’s executive director.

• A family-owned company with about 220 local staff did not pay employees’ MSP premiums, as it has always been optional for employers. So they will be hit with an unexpected new expense of $150,000 next year.

“We’re looking for ways to reduce our payroll,” said their CEO.

So, what do employers want the province to do with the EHT? Get rid of it, of course. But, if it is implemented, here are 10 fixes that must be made:

1. Problem: EHT will cost most employers way more than MSP premiums.

Solution: Use other sources of revenue to help pay for health care, as government already does, and reduce the EHT so it is comparable to what employers pay now.

2. Problem: Employers will keep wages and benefits down to avoid higher EHT rates. This means hiring less, no wage increases, hiring contractors rather than employees and eliminating benefits such as extended health care.

Solution: Make the tax comparable to current premium costs, and exempt health benefits.

3. Problem: Employers will pay premiums and EHT in 2019.

Solution: Pretty straightforward — end premiums before implementing the EHT.

4. Problem: Employers with payrolls under $500,000 are exempt, which is intended to protect small business. But $500,000 is a micro-business with fewer than 10 employees. Industry Canada’s definition of a small business is one with less than 100 employees, close to the top tier for this tax.

Solution: Redefine the exemption or eliminate it and have everyone pay a lower tax. See No. 1.

5. Problem: Employers didn’t have to pay premiums for employees with spouses or parents who have an employer who pays for MSP premiums. Now all employers pay for everyone.

Solution: Hard to figure out an exemption so, again, see No. 1.

6. Problem: It’s a big hit all at once.

Solution: Phase it in over years, as with the minimum wage.

7. Problem: A tax on payroll doesn’t account for the health of the business or its ability to pay.

Solution: A modest increase in corporate income tax, instead of EHT, would mean that business pay based on profit rather than adding to their costs.

8. Problem: Municipalities must pay EHT so will pass it on through property tax bills, which businesses already pay at two to five times the rate charged residents.

Solution: If we exempt them, the private sector would need to make up the shortfall. A better approach is a lower tax for everyone.

9. Problem: Taxes paid by public-sector employers such as universities, school districts, and Crown corporations simply transfer government funding for programs and services to the health budget — already a behemoth.

Solution: Manage the health budget better. It’s the only area of government that has never had a budget cut. This would help all of the problems on this list.

10. Problem: The government plans to consult with some employers affected by the EHT, such as municipalities and not-for-profits, but, strangely, not businesses.

Solution: All employers are taking the hit. Everyone should have a chance to be consulted so any changes don’t overlook the impact on the private sector.

People don’t like tax surprises. The government now has less than a year to make a bad tax better. All employers in the province will be watching.

Catherine Holt is CEO of Greater Victoria Chamber of Commerce.

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