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Deferred Salary Leave Plan

Policy Statement
Application
Definitions
Responsibilities
Enrolment
Administration
Salary and Benefits During Deferral and Leave Periods
Withdrawal From the Plan
Returning From Leave

Policy Statement

Permanent employees with at least 12 months continuous service may avail of a deferred salary leave plan, designed to help plan and finance a leave of absence for periods of six to twelve months.

Application

This Policy applies to all employees. Bargaining unit employees should also consult their respective collective agreement and the provisions of the collective agreement shall prevail.

Definitions

Deferral Period: The period of time during which participating employees work and defer a portion of their salary.
Leave Period: The period of time, immediately following the deferral period, during which participating employees are on a leave of absence from work.
Taxation Year: The calendar year, January 1 to December 31.

Responsibilities

Departments

It is the responsibility of departments to:

  • ensure that employee participation in the Deferred Salary Leave Plan will not adversely affect operational requirements; and
  • review employee requests and approve requests where feasible.

Employees

It is the responsibility of employees to:

  • review the Deferred Salary Leave Plan options and understand the implications of participation; and
  • ensure that they are financially able to participate in the Plan.

Enrolment

Employees wishing to participate in the Deferred Salary Leave Plan must make written application to their Deputy Ministers, providing as much advance notice as possible.

Deputy Ministers may approve employees' requests based on the operational requirements of the department during the employees' anticipated absence.

Employees will be notified, within three months of their request, whether their participation in the Deferred Salary Leave Plan has been approved.

Approved requests will be sent to the Human Resource Secretariat, Compensation and Benefits Division that administer the Plan. Once the approved request is received, the employee will be placed on the deferred salary payroll.

Administration

The minimum leave period is six consecutive months, except where an employee is attending a designated educational institution on a full time basis; in this case the minimum period of leave is three consecutive months. The maximum period of leave is 12 consecutive months, starting immediately after the deferral period.

The deferral period may not exceed six years.

Employees can defer a maximum of 33 1/3% of their gross salary in a taxation year.

The following table presents examples of calculations for Plan participation:

Plan Option Percentage Of Salary Deferred Deferral Period Leave Period Percentage of Normal Salary During Plan
1 over 1.5 years 33 1/3% 1 year 2nd year (6 mos.) 66 2/3%
2 over 3 years 33 1/3% 2 years 3rd year 66 2/3%
3 over 4 years 25% 3 years 4th year 75%
4 over 5 years 20% 4 years 5th year 80%
5 over 6 years 16 2/3% 5 years 6th year 83 1/3%
6 over 7 years 14% 6 years 7th year 86%

Over the deferral period, an employee's salary plus the percentage of salary deferred must equal 100% of the employee's pre-plan salary.

The percentage of gross salary to be received by the employee is fixed for the deferral period and the leave period.

The deferred portion of an employee's salary will be deposited into an account with the Government of Newfoundland and Labrador. This account accrues interest which must be paid to the employee at the end of each calendar year. This interest is considered to be income from employment, and is therefore subject to income tax for the year in which it was earned. The interest rate, on the deferred portion of an employee's salary will be the rate of interest earned by Government on its bank accounts.

For taxation purposes, the Canada Revenue Agency requires that at the end of the leave period, employees return to the employer under whom they participated in the deferred salary leave plan for at least the same amount of time as the leave period. As such, the Deferred Salary Leave Plan cannot serve as an early retirement program.

Salary and Benefits During Deferral and Leave Periods

During the deferral period, employees continue to receive their normal salary less the amount they have chosen to contribute to the Plan.

During the leave period, an employee's gross annual salary will consist of the sum of the contributions made to the Deferred Salary Leave Plan during the deferral period, plus interest. Salary will be received through the normal payroll procedures.

Income tax information slips (T4) for the completion of the participating employee's tax return will reflect that portion of salary actually received in the taxation year.

The interest earned on the deferred portion of an employee's salary will be considered to be employment income. This interest amount is taxable as employment income and will be included on T4 slips. Income tax information slips will be issued yearly as the interest is paid.

Employment status will be that of “leave without pay”. The provisions and cost-sharing arrangements for employee benefits will be consistent with the Human Resources Policy Manual and collective agreements.

While employees are on the leave period, no payments will be made for:

  • overtime;
  • call back;
  • stand-by;
  • automobile allowance;
  • Labrador allowance;
  • sick leave;
  • family responsibility leave;
  • annual leave;
  • paid leave;
  • statutory holidays; or
  • any other monetary compensation provided to employees who are at work.

No annual leave, sick leave or paid leave will be accrued while employees are on the leave period portion of the Deferred Salary Leave Plan. This time will not be counted toward the requirements for service to achieve additional annual leave or paid leave credits and will not be recognized for severance pay purposes. The leave period, however, will not be considered a break in service.

Upon return to work, employees may have the leave period credited for pension purposes. Employees who elect in writing, within 90 days, may purchase the period of leave by paying contributions that would have been paid had the employee not gone on leave. The employer will match this amount. Employees who elect to purchase pension credits after 90 days will be required to pay the full actuarial cost of the service.

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Withdrawal From the Plan

Once approved for participation in the Deferred Salary Leave Plan, employees may withdraw from the Plan prior to the leave period only under exceptional circumstances such as:

  • extreme financial hardship;
  • death;
  • total and permanent disability;
  • transfer to another position where Plan participation is not approved;
  • lay-off, termination or resignation.

Employees who wish to withdraw from the Plan must inform their Deputy Minister in writing outlining the reasons for the request. The Deputy Minister will then forward this information to the Human Resource Secretariat, Compensation and Benefits Division which will review the case and decide if it meets the criteria for withdrawal.

Employees who are permitted to withdraw from the Plan will receive a refund of their contributions plus the accrued interest on the contributions. Refunds will be provided within 90 days of the approval to withdraw from the Plan.

The lump sum payment refunded to an employee is subject to the Canada Pension Plan (CPP) contribution. This CPP contribution would be based on the gross amount of the payment using the employee contribution rate for the year in which the withdrawal occurs.

Unless specifically requested by the employee, the Human Resource Secretariat, Compensation and Benefits Division will apply the lump sum income tax rate to the refund amount.

Returning From Leave

Employees returning from the Deferred Salary Leave Plan will be:

  • assigned to the same or equivalent position held prior to going on leave; and
  • eligible for the same step in the salary scale paid prior to going on leave.

Last Policy Update: July 25, 2014

 
Last Updated:
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