The holiday season is upon us and so is festive cheer. Employment Insurance (“EI”) may not be at the top of, if at all on, employer holiday and New Year’s checklists, however, aiming to save in the New Year may well be.
The EI Premium Reduction Program (the “Program”) allows employers to save on their annual EI premium contributions. Employers who provide a short-term disability plan to their employees are eligible for the Program if the plan meets the prescribed requirements.
Employment Insurance: Program Overview
EI is the federal government program that provides Canadians with temporary income replacement as a result of interruptions in earnings. EI benefits include unemployment benefits to persons who have lost their job through no fault of their own, sickness benefits, maternity and parental leave benefits, and family medical leave benefits.
An employee’s income is insured by the EI program if she has been employed in insurable employment. Most employment relationships in Canada qualify as insurable employment. The EI program is financed through mandatory employee and employer premium contributions calculated as follows:
- The employee’s premium is based on the annual EI rate as determined by the Canada Revenue Agency (the “CRA”).
- The employer’s premium is 1.4 times the amount of the employee’s premium.
For 2015, the EI rate is 1.88% of income. For every $100 of income, an employee therefore contributes $1.88 and the employer contributes $2.63 to EI. For 2015, the maximum annual insurable income is $49,500. As a result, the maximum employee and employer EI premium contributions are $930.60 and $1,302.84 respectively.
N.B. The province of Quebec has its own provincial insurance plan. Consequently, different EI rates apply to employees in Quebec.
Premium Reduction Program
The provision of short-term disability plans reduces the demands EI: employees with disability coverage may not need to collect EI benefits or may collect for shorter periods of time. As a result, employers who provide employees with disability coverage for short-term illness or injury may be eligible for annual reductions in EI premium contributions under the Program.
The Program provides two types of qualifying plans:
- Weekly indemnity plans pay weekly disability benefits to ill or injured employees. These plans may either be self-insured plans or set up through a third-party underwriter such as an insurance company or a plan administrator.
- Cumulative paid sick leave plans allow employees to accumulate sick leave credits which they can then use when ill or injured.
If an employer provides one or more short-term disability plans, the employer may qualify for the applicable reduced premium rate. The reduction rates are established annually. The Program only reduces employer premium contributions and requires employers to remit a portion of their savings to employees covered under the short-term disability plan. Employers are also required to notify Service Canada of subsequent changes to their approved short-term disability plan; such changes may affect continued entitlement to the reduced rate.
Requirements for the Short-term Disability Plans
There are both general requirements for all qualifying plans and specific requirements unique to each plan. General requirements include:
- new employees covered by the plan must be eligible to claim benefits after three months of continuous employment;
- benefits under the plan paid to employees must be at least equal to what employees would receive from the EI program;
- benefits must be paid no later than 15 days following the start of the employee’s illness or injury;
- the plan cannot allow employees to claim EI benefits as part of its payment structure; and
- the plan must provide employees with 24-hour coverage.
To apply for the Program and receive the reduced premium rate, employers must complete the application form and provide: (a) a formal written commitment to provide a short-term disability plan to employees, and (b) an undertaking to provide eligible employees with a benefit in an amount at least equal to 5/12 of the reduction.
Employers are encouraged to submit an application as soon as possible even if not all supporting documentation is ready as the effective date of the reduction is dependent on the date the application is submitted. Employers who are already registered with the Program and have since made changes to or cancelled their approved short-term disability plan must notify Service Canada as such changes impact continued entitlement to the EI premium reduction rate.
If savings and cost reduction are part of employer New Year’s resolutions, rethinking the items on the New Year’s checklist may well mean thinking of EI.
With thanks to Jennifer Bernardo for her assistance in drafting this blog.