WORKPLACE SAFETY AND INSURANCE APPEALS TRIBUNAL DECISION NO. 2509/15 BEFORE: S. Netten: Vice-Chair HEARING: November 23, 2015 at Toronto Written DATE OF DECISION: December 3, 2015 NEUTRAL CITATION: 2015 ONWSIAT 2756 DECISION UNDER APPEAL: WSIB Appeals Resolution Officer decision dated July 16, 2014 APPEARANCES: For the worker: For the employer: Interpreter: K. Hahn, Paralegal Not participating None Workplace Safety and Insurance Appeals Tribunal Tribunal d appel de la sécurité professionnelle et de l assurance contre les accidents du travail 505 University Avenue 7 th Floor 505, avenue University, 7 e étage Toronto ON M5G 2P2 Toronto ON M5G 2P2
Decision No. 2509/15 REASONS (i) Issue [1] The issue under appeal is the calculation of the worker s pre-injury average earnings, also referred to as the earnings basis. (ii) Overview [2] The worker received benefits under the insurance plan following a workplace accident of November 22, 2008. The Board adjusted the earnings basis retrospectively in February 2010, recognizing the worker as a dependent contractor. The earnings basis was further corrected and revised in March 2010, and, on the basis of new information, in May 2012. Gross pre-injury average earnings were established at $826.27 per week. Following the worker s continued objection to the earnings basis, this amount was confirmed by a Case Manager in February 2014 and by an Appeals Resolution Officer in July 2014. [3] The worker now appeals to the Tribunal. This appeal was selected for a written hearing pursuant to the Tribunal s Practice Direction on Written Appeals. In written submissions dated May 28, 2015, the worker s representative requests that business expenses of $6,051, as well as other items set out in Board policy, be included in the earnings basis. (iii) Analysis [4] The Workplace Safety and Insurance Act, 1997 ( WSIA ) applies to this appeal. All statutory references in this decision are to the WSIA, as amended, unless otherwise stated. The standard of proof applicable in workers compensation proceedings is the balance of probabilities. Pursuant to section 124(2), the benefit of the doubt is given to the claimant in resolving an issue where the evidence for and against is approximately equal in weight. [5] A determination of pre-injury net average earnings is required for a calculation of loss of earnings benefits under section 43. Section 53 addresses the determination of average earnings: 53(1) The Board shall determine the amount of a worker s average earnings for the purposes of the insurance plan and in doing so shall take into account, (a) the rate per week at which the worker was remunerated by each of the employers for whom he or she worked at the time of the injury; (b) any pattern of employment that results in a variation in the worker s earnings; and (c) such other information as it considers appropriate. [6] Average earnings may also be referred to as gross or pre-tax employment earnings. In the next step, net average earnings are determined, pursuant to section 55, by deducting probable income tax and premiums for Canada Pension Plan and Employment Insurance. [7] Section 126 requires the Tribunal to apply Board policy when making its decisions. Board policy titled Determining Average Earnings Exceptional Cases (Operational Policy Manual Document No. 18-02-08, January 3, 2007) describes dependent contractors as follows: The Labour Relations Act defines a dependent contractor as a person, whether or not employed under a contract of employment, and whether or not furnishing tools, vehicles,
Page: 2 Decision No. 2509/15 equipment, machinery, material, or any other thing owned by the dependent contractor, who performs work or services for another person for compensation or reward on such terms and conditions that the dependent contractor is in a position of economic dependence upon, and under an obligation to perform duties for, that person more closely resembling the relationship of an employee than that of an independent contractor. In general, dependent contractors are remunerated based on the gross earnings received for performing a certain contract of work, sometimes referred to as piecework, for a contractor. The contractor does not issue a T-4 statement since payroll taxes are not deducted at the source. A dependent contractor may report as a self-employed individual for income tax purposes with the Canada Revenue Agency (CRA). To be considered a dependent contractor, the worker must be covered under the contractor's WSIB account at the time of injury. [8] It is undisputed that the worker in this appeal was a dependent contractor. As a sub-contracted truck driver from May 2008, he was paid at a rate of $0.24 per mile travelled. The trucking company did not issue the worker with a T4 slip, and the worker reported as a self-employed person for income tax purposes. [9] The above-cited policy stipulates that average earnings be calculated based upon a 12 month period prior to the accident, or a shorter period if there was a break in the employment pattern. There was a break in the worker s employment pattern when he began driving for this trucking company in May 2008; before that, he had no reportable income for approximately six months. As such, the calculation period to determine average earnings was established as May 1, 2008 to November 22, 2008 (the date of accident). [10] The policy provides a specific method of calculating pre-injury earnings for dependent contractors: The decision-maker uses the net business income during the calculation period based on the income reported to CRA or an audited financial statement of earnings prepared by a chartered accountant. The decision-maker then overestimates the net business income by including items such as pension plan and RRSP contributions depreciation and amortization charitable donations expenses arising out of the individual's use of personal home or vehicle for business purposes dividends from the business, and/or other items as appropriate. Any earnings information submitted may be subject to a WSIB audit. [11] The terms gross and net are used differently in the context of personal employment earnings and business income. As noted previously, gross employment earnings are earnings before tax and other statutory deductions. In the self-employment context, gross business income refers to business income before expenses, whereas net business income is business income after deducting business expenses; net business income is thus comparable to the self-employed person s gross personal income, from which taxes and other statutory deductions must be paid.
Page: 3 Decision No. 2509/15 [12] Rather than simply using net business income to calculate a dependent contractor s gross average earnings, Board policy creates a mechanism by which certain types of expenses are first added back to net business income. As I understand it, the purpose is to better determine a dependent contractor s actual income from employment; in other words, to translate business income into a comparable employment income, for the purpose of fairly compensating workers for accident-related loss of earnings. As stated by the Vice-Chair in Decision No. 1615/14, it is: reasonable to infer that the purpose is to level the playing field in determining the earnings basis of a dependent contractor (who reports his or her income as a self-employed individual, but who is treated as a worker for the purpose of benefits under the WSIA) and a worker who is an employee. [13] Using gross business income for the earnings basis would overstate earnings, since, unlike regular workers, dependent contractors incur specific expenses in order to generate business income. Their personal profit is less than the total revenues of their business. On the other hand, using net business income could understate earnings, since dependent contractors are able to deduct certain types of personal and other expenses that they would incur even if not self-employed. Adding back the latter type of expense, but not the former, serves to reasonably estimate the equivalent employment income. The result is an amount falling somewhere between gross and net business income. [14] The listed add-back items in the policy are all items which a dependent contractor (as a sole proprietorship or corporation) might expense against gross business income, thereby reducing taxable net income, but which are largely personal 1 or theoretical 2 in nature. None are direct business expenses incurred strictly and solely for business purposes, and which can be supported by receipts, such as advertising, insurance, supplies, the allowable portion of meals, travel, etc. [15] As for adding back other items as appropriate, I agree with the Panel in Decision No. 141/09 that this category is not a catch all for all deductions made from the worker s overall business income. To be appropriately added to net business income, these other items must, in my view, have an analogous personal or theoretical component, such that the dependent contractor s real earnings may be said to include those amounts. As an example, mortgage interest was added back to the dependent contractor s net business income in Decision No. 1615/14. I agree with Decisions No. 1615/14 and 141/09 that direct business expenses ought not to be added back to net business income; these expenses are the cost of doing business and are not analogous to the listed add-back items. [16] I also interpret Board policy to require the inclusion of those listed add-back items only to the extent that they have actually been expensed against gross business income. For example, a business owner who reduces net business income to $50,000 by deducting $10,000 in charitable donations within the business would have average earnings of $60,000 (after adding back the donations); this makes sense since he actually had $60,000 in earnings to work with, and chose to donate through his business. If the same business owner donated $10,000 personally rather than through the business, he would have net business income of $60,000; his average earnings should not be bumped up to $70,000 by adding back the donations, since the 1 2 Such as business use of personal assets (home or vehicle), paying dividends to oneself, contributing to one s pension plan, or making charitable donations Non-cash expenses such as amortization of the cost of intangible assets, or depreciation of the cost of tangible assets
Page: 4 Decision No. 2509/15 personal donation has no bearing on earnings from employment. The policy must be interpreted in consideration of the overarching goal of determining a fair estimate of average earnings from employment. It would not be appropriate, pursuant to section 53(1)(c), to consider and add back items which were not first used to reduce business income. [17] Applying Board policy to the facts of this appeal, I find that the worker s earnings basis was correctly calculated. [18] When he initially filed his 2008 taxes in 2009, the worker claimed gross income from trucking of $20, 249.32, and net income of $9,407.51. As for the business part of expenses, he deducted amounts for the business portion of meals, supplies, travel and telephone/utilities, totaling $6051.00. For business-use-of-home expenses, the worker claimed $4,790.81. [19] On the worker s request, Canada Revenue Agency reassessed his 2008 tax return in April 2012 to reflect an increase in gross business income from $20,249 to $30,249, and in net business income from $9,407 to $19,407. There were no changes to the deductions claimed. [20] In accordance with the reassessed amounts, in May 2012 the Payment Specialist calculated gross earnings by starting with the net business income of $19,407 and adding back business-use-of-home expenses of $4,790.81. The total, $24,197.81, averaged over the May to November calculation period, yielded gross average weekly earnings of $826.27. [21] The worker had claimed $4,790.81 in business-use-of-home expenses, and these were correctly added back to net business income, pursuant to Board policy. The worker did not deduct from his gross business income pension or RRSP contributions, depreciation, amortization, charitable donations, business use of a personal vehicle, or dividends, and as such there are no other amounts from the policy list to add back to net business income. Finally, as explained above, there is no basis to add back the specific business expenses of $6051.00 deducted by the worker, which reflect the cost of doing business. I conclude that the sum of the worker s net business income and business-use-of-home expenses is a fair estimation of his gross employment earnings, calculated pursuant to Board policy. Average weekly earnings were correctly determined using the calculation period of May 1 to November 22, 2008. [22] The worker s request for an increased earnings basis, by having additional amounts added to the net business income, is therefore denied. [23] I note that Board policy outlines its authority to audit earnings information submitted by the worker. This decision confirms the method of calculating the worker s gross average earnings, being the sum of the net business income and business-use-of-home expenses, averaged across the period May 1 to November 22, 2008. I make no finding with respect to the accuracy of the revised net business income submitted in 2012. (iv) Conclusion [24] The Board correctly calculated the worker s earnings basis by adding the claimed business-use-of-home expenses back to his net business income, and averaging this across the calculation period of May 1 to November 22, 2008.
Page: 5 Decision No. 2509/15 DISPOSITION [25] The appeal is denied. DATED: December 3, 2015 SIGNED: S. Netten