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STAFFING AGENCIES CAUGHT BY EHT!

EMPLOYER HEALTH TAX: THE SMALL TAX WITH THE BIG PUNCH!

As discussed here, our recent file experience demonstrates that provincial governments, like Ontario's Ministry of Finance (“MOF”), are ramping up audits for Employer Health Tax (“EHT”) liability.

One area of recent audit activity has been on Staffing Agencies, temporary employment and similar entities that procure workers for many Canadian and US businesses, contracting them out as effective out-sourced employees.

In an almost counter-intuitive result, recent assessments appear to be targeting Staffing Agencies for EHT due on remuneration paid to remote workers residing outside of the taxing province! (Think of an Ontario Staffing Agency assessed on the wages paid to remote workers residing in BC, with ABSOLUTELY NO connection to Ontario's or its health care services!)

The EHT Framework

Where enacted provincially – there are 7 EHT provinces/territories – the EHT is an employer-paid payroll tax applying to total remuneration paid to current and former employees.  In Ontario, the tax rate scales up to a maximum of 1.95%, and many “eligible” employers qualify for an annual “exemption amount” of up to a maximum of $1,000,000 per year. Other provinces have similar rules and tax rates. While the EHT itself may seem minor, its unexpected application (and huge non-compliance penalties) often catches employers off guard.

Staffing Agency Exposures

The potential difficulties facing Staffing Agencies, in particular as it regards their "outside-of-the-province remote workers", is that the technical taxing rules often simply apply to employees “reporting" to or "paid out" of "in-province" establishments.

What these terms actual mean, is where an Indirect Tax Lawyer comes in – and even for those of us in this particular practice area, the answers are often unclear, especially in the context of Staffing Agencies who themselves are operating completely "remote".

Enforcement Measures

The latent issue for Staffing Agencies and others caught unaware of their EHT obligations is the ability of government entities like the Ontario MOF to assess for multi-year periods (a minimum of four-years and sometimes back "forever" if proper returns have not been filed), and to levy penalties that can be up to 10 times the value of the taxes due (or more).

Example: Acme Inc. is fined for EHT non-compliance, and specifically, failing to file its 2021-2024 monthly returns, or 48 returns in total. The fine is $500 per return per day that the return remained unfiled, with no maximum. An assessment in April 2025 could assess $17,874,000 – just for late filing penalties.

We have checked the math on our example, and if you want to double-check it, take a look at section 32 of the Ontario EHTA.   Regrettably, we also have a real-life Client facing this type of assessment CURRENTLY.

Takeaways

Staffing Agencies are likely have some current EHT exposure, and with this small but highly punitive tax, an ounce of prevention will be worth well more than a pound of the cure.  Even for employers facing assessments or considering a Notice of Objection, NOW is the right time to seek professional advice. 

For help with an EHT matter, please click here.

Download a PDF copy of this Blog here.