Employer Health Tax – Who is the Employer in a Tripartite Relationship?

The Court of Appeal has rendered a decision concerning the Employer Health Tax (“EHT”) and in particular, where an employee is hired through a Temporary Placement Agency, who is responsible for paying this tax.

In the case of Azur Human Resources Ltd. v. Ontario (Minister of Revenue) the case dealt with an appeal by a placement agency (the “Agency”) regarding Employer Health Tax. The Agency supplied temporary workers to the Public Service of Canada and federal agencies under agreements between the Agency and the Government of Canada. The function of the Agency was simply to pay the worker and administer the payroll on the basis of time sheets that were signed by the Government.

The Agency appealed the decision that they should be liable for the Employer Health Tax, on account of the fact that they were only the payors, and the clients (the Government of Canada) actually managed, and directed the workers while they carried out an assignment.

The Court of Appeal determined that the original appeal judge correctly decided that the workers, the Agency and the government were in a tripartite relationship. As a result, both the government and the Agency had some aspects that made each party an employer. However, after analyzing the Employer Health Tax Act (EHTA), the appeal judge indicated that the legislation provides that “the employer is the party who pays remuneration to the employee”. In this regard, the Agency would be the employer for the purposes of the EHTA. The Court of Appeal agreed with the decision.

The result is that in such tripartite relationships, the payor of the salaries will be required to pay the EHT.