Payroll and Employee Leaves: What Employers Handle Behind the Scenes

Key Takeaways

• A leave is a payroll event, not just an HR one. It sets off a Record of Employment, changes to deductions, decisions about benefits, and a full reset when the employee comes back.
  
• Record of Employment deadlines are not a flat five days. They depend on whether the ROE is filed on paper or electronically, and on the employer's pay period type.
  
• Top-ups to maternity, parental, compassionate care, and family caregiver benefits do not require a registered plan. Top-ups for illness, injury, quarantine, training, or a temporary work stoppage do.
  
• Continuing benefits through an unpaid leave is straightforward in principle and fiddly in practice, because there is no paycheque to deduct the employee share from.
  
• The return from leave needs an active reset. Wage rate, deductions, benefit premiums, and year-to-date figures all have to be checked rather than assumed.
  

Ask a payroll administrator what part of the job most often goes sideways, and leaves come up quickly. Not because the rules are especially complicated, but because a single leave pulls in employment standards, Employment Insurance, the benefits carrier, and the payroll system, and none of those four run on the same clock.

Leaves also arrive unannounced. Someone shares news about a pregnancy, or a diagnosis, or a parent who suddenly needs care. From that conversation forward, payroll carries a set of obligations that can run for eighteen months, nearly all of it invisible to everyone except the person doing it.

What a leave actually sets in motion

Alberta's Employment Standards Code provides a range of job-protected leaves. Maternity leave runs up to 16 weeks and parental leave up to 62, and most leaves require 90 days of employment with the same employer before an employee qualifies. Long-term illness and injury leave, compassionate care leave, critical illness leave, bereavement leave, and personal and family responsibility leave all have their own rules.

Payroll does not go quiet when the leave starts. Several things kick off at once.

Regular pay stops, but the employment relationship does not end. Time on a job-protected leave still counts toward years of service, which feeds vacation entitlement, service-based benefits, and notice periods down the road.

A Record of Employment comes due, on a deadline set by how the employer files and how its pay periods are built, not by when the employee walked out the door.

Benefits need a decision. If coverage continues, someone has to work out how the employee share gets collected, since there is no cheque to take it from.

Deductions need adjusting. Statutory deductions stop along with the wages behind them. Taxable benefits, union dues, and garnishments may not.

And every one of these has to be recorded well enough that it can be unwound correctly a year later.

Records of Employment, and the deadline nearly everyone gets wrong

The ROE is the most important document in the EI system. Service Canada uses it to decide whether an employee qualifies, how much they receive, and for how long. It is also where leave administration most often creates a real problem for a real person.

The deadline gets quoted as five days almost everywhere. That is right for exactly one filing method. Service Canada's employer guide lays out something more specific.

Source: Employment and Social Development Canada, Employers: How to complete the record of employment (ROE) form

Reason codes are fussier than they look. Code F is for someone who is pregnant or has recently given birth. Code P covers parental and adoption leave, including a parent who has not given birth. Code D is illness or injury. Code N is a general unpaid leave of absence, and it specifically does not cover illness, maternity, parental, or compassionate care situations. If an employee goes off sick and then moves into maternity leave, Service Canada says to use whichever code applied first, which is Code D, and no amendment is needed once the maternity leave begins.

The figures matter more than the code. Insurable hours and insurable earnings decide whether an employee qualifies and what they are paid. Get them wrong and the fix is an amended ROE, which means completing every block again, not just the ones that changed. Amendments also drop out of Service Canada's automated processing and go to a person for manual review, which adds more time for an employee who is already going without a paycheque.

One rule catches employers who pay leave benefits directly. If the employer is paying insurable maternity, parental, compassionate care, or family caregiver leave payments, hold the ROE until those payments run out. The last day they apply becomes the last day for which paid.

Top-ups, benefits, and vacation

Three areas cause most of the confusion once the leave is underway.

Top-ups. An employer topping up EI during maternity, parental, compassionate care, or family caregiver leave does not need to register anything with Service Canada. Pay it out of general revenues, meet the conditions, and Service Canada will not claw back the employee's EI. The conditions are worth knowing: the top-up plus the EI benefit cannot exceed the employee's normal weekly earnings, and the top-up cannot be used to reduce banked sick leave, vacation credits, or severance.

For other leave types the answer flips. Topping up during a temporary work stoppage, training, illness, injury, or quarantine requires a registered Supplemental Unemployment Benefit plan, and it has to be registered before it takes effect. Pay before registration and the money counts as earnings, which comes straight off the employee's EI. Registered SUB plan payments cap out at 95 percent of normal weekly earnings once EI is included.

Either way, top-ups still attract CPP and income tax. On the ROE they belong in Block 17C, not Block 19. That one gets reversed often.

Benefits. Health and dental coverage usually continues through a leave, either by employer policy or because the plan requires it. That creates a small ongoing puzzle. The employer share keeps getting paid, some coverage generates a taxable benefit, and the employee share has to come from somewhere. Most employers either arrange direct payment from the employee during the leave or let the employee share build up and recover it after the return. Both work. Both need to be written down and explained upfront, because nobody wants to discover a deduction catch-up on their first cheque back.

Vacation. Here is where employees get surprised. In Alberta, leave time counts as continuous service, so vacation entitlement keeps building. Vacation pay is generally calculated on wages earned, and an employee on unpaid leave is not earning any. So someone can come back with three weeks of vacation entitlement and very little vacation pay behind it. Payroll needs to track the two separately and be ready to explain the gap.

Coming back is its own piece of work

The return tends to get treated as a formality. It is not.

In Alberta, an employee returning from a job-protected leave goes back to their previous position or a comparable one, at the same wage rate. If wages went up while they were away, they get the higher rate. Payroll cannot just switch the file back on at the old number. Any general increase, scale movement, or negotiated adjustment made during the absence has to be found and applied.

The rest of the reset includes restarting statutory deductions with the right year-to-date figures, resuming benefit deductions and starting any agreed premium recovery, checking the TD1 is still current, updating vacation entitlement for the service accrued during the leave, and correcting the employee's status in the system so year-end reporting holds up.

Consider someone returning in June after leaving the previous September. Their year-to-date numbers look nothing like a colleague who worked straight through. If those numbers are off, the problem usually stays hidden until T4 season.

Why it trips up in-house teams

None of this is beyond a competent payroll administrator. It trips people up for reasons that have nothing to do with ability.

It happens rarely. A payroll administrator at a 60-person company might handle four or five leaves in a year. That is not enough repetition to build a rhythm, and enough time passes between them that the process gets relearned each time.

It lives in four places. The ROE is with Service Canada, benefits continuation is with the insurer, entitlements sit in the Employment Standards Code, and the mechanics are in the payroll platform. Nothing enforces the sequence end to end.

It has a long tail. The work does not close out in one pay run. It stretches across the leave and surfaces again at the return, months after whoever made the original decisions has moved on to other things.

And the employee sees all of it. A late ROE holds up an EI claim for someone who just lost their income. A missed pay increase on return is not a conversation anyone enjoys.

A managed payroll provider handles this differently mainly because the volume is different. Leaves are routine, so the ROE goes out on the right deadline for the pay period type with verified figures and the right code. Top-up treatment matches the leave type. Benefits continuation and premium recovery run as a defined process rather than something someone has to remember. The return is a scheduled reset, not a reactivation.

Decisions still sit with the internal team. What the leave policy offers, whether to provide a top-up, how generous to be. What changes is who tracks the deadlines and does the work.

Frequently Asked Questions

When does an interruption of earnings happen if the employee is still working reduced hours?

Two rules apply. The general one is seven consecutive calendar days with no work and no insurable earnings. But for leaves tied to illness, injury, quarantine, pregnancy, parental responsibilities, or compassionate and family caregiver situations, an interruption also occurs when the employee's salary drops below 60 percent of their regular weekly earnings. The first day is the Sunday of the week the salary falls below that mark.

Does an employer have to issue an ROE if the employee is not applying for EI?

Yes. Service Canada requires one every time an employee experiences an interruption of earnings, whether or not they plan to file a claim.

Do employees need a paper copy to apply for EI?

Not if the ROE was filed electronically. The data goes straight to Service Canada, and employees can view and print their own copies through My Service Canada Account. Employers filing electronically should tell employees not to send in copies separately. Employers filing on paper give the employee Part 1, and the employee submits it with their application.

Does a maternity or parental top-up need to be registered?

No. Top-ups for maternity, parental, compassionate care, and family caregiver benefits can be paid from general revenues without a registered plan, as long as the conditions are met. Registration is required for top-ups tied to a temporary work stoppage, training, illness, injury, or quarantine, and the plan has to be registered before it takes effect.

How long do payroll records related to an ROE have to be kept?

Six years after the year the information relates to, whether the ROE was filed electronically or on paper.

Does time on leave count toward years of service in Alberta?

Yes. Employees on maternity or parental leave are treated as continuously employed for calculating years of service.

What if wages went up while the employee was on leave?

The returning employee gets the higher rate. Reinstatement is to the same or a comparable position at the same wage rate, and an increase applied during the absence carries over.

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Outsource Payroll Solution provides managed payroll services to organizations across Canada. To learn more, visit payrollsolution.ca