Interpretation Guidelines Manual British Columbia Employment Standards Act and Regulations

EMPLOYMENT STANDARDS REGULATION - PART 6 - INTEREST AND PENALTIES

ESR Section 25 – Interest on money owing by an employer


Contents:

Summary
Text of Legislation
Policy Interpretation
Related Information


Summary

This section establishes the interest rate used to determine accrued interest on money owed by an employer.


Text of Legislation

25. During each successive 3 month period beginning on October 1, January 1, April 1 and July 1, the interest rate payable under section 88 (1) of the Act is equal to the prime lending rate on the 15th day of the month immediately preceding the 3 month period.


Policy Interpretation

Employers are charged interest at the prescribed rates, as shown above.

If the employer fails to pay wages or another amount to an employee, then the employer owes interest in accordance with s.88 (1) of the Act. Interest will accrue from the earlier of the date of termination, or the date a complaint is filed.

Where a determination is issued under s.79, or a settlement agreement has been reached under s.78 requiring payment of outstanding wages, or any other amount, interest does not accumulate until 38 days after the date of the determination or settlement agreement. Interest continues to accrue daily beginning on the 39th day after the issuance of the determination or settlement agreement.

The interest rate is defined in section 1 of this Regulation as “the prime lending rate of the principal banker to government”. The interest rate to be applied is simple, not compound, interest. If compound interest were applied, the amount owing would be greater as time passes, because interest would be charged on the interest as it accrued.

Example

An employer owes $1000 and the interest rate is 10%. The amount owing is not paid for 3 years. Interest is calculated as follows.

  • At end of first year, $100 in interest, for a total debt of $1100.
  • At end of second year, another $100 in interest, for a total debt of $1200.
  • At end of third year, another $100 in interest, for a total debt of $1300.

The interest rate to be applied is annual interest calculated quarterly as illustrated in the example below. The applicable interest rate will be determined using the rate that was in effect on the 15th day of the month immediately preceding the 3-month period.

Example

An employer owes $1000 on January 1st and the interest rate is 10%. The amount owing is not paid until October 1st of that year. Interest is calculated as follows.

January 1 to March 31:

$1000 x 10% x (90 days/365 days) = $24.70

April 1 to June 30:

$1000 x 10% x (91 days/365 days) = $24.70

July 1 to September 30:

$1000 x 10% x (92 days/365 days) = $25.20

On October 1st, $1074.60 is owing.

Interest will not be calculated on any wages earned prior to the date the Act came into force (November 1, 1995).


Related Information

Related sections of the Act or Regulation

ESA

ESR

Other:

See Employment Standards Factsheets

Factsheet

Enforcement Measures and Penalties