As of December 18, 2022, employees can collect sickness benefits from Canada’s Employment Insurance (EI) plan for an additional 11 weeks, bringing the total period of coverage to 26 weeks (up from 15 weeks).
That sounds like good news for both employees and employers—but is it? As is often the case when there is change, the answer is not clear-cut.
Simply put, the impact of the change is likely not good—unless the employer takes steps—for employees with long-term disability (LTD) benefits and without short-term disability (STD) benefits through their workplace.
On the other hand, there is no rush. Despite the change taking effect on December 18, employers with LTD benefits only can keep the status quo for now—and even indefinitely, if that’s what they decide.
“Employers should not rush into making fundamental changes in their income replacement strategy. You can take the time to review your current plan and goals with a trusted benefits advisor, then plan for changes if required by the next renewal date of your group insurance contract,” advises Martin Papillon, president and CEO of AGA Benefits Solutions in Westmount, Quebec, a member firm of Benefits Alliance.
“This will allow plan sponsors to make informed decisions that support their global HR strategy, and to plan for proper employee communication and support regarding plan changes, if any,” he adds.
Plan sponsors with STD benefits should also consult with their advisor. While employees with STD are not directly impacted by the change in EI, as detailed below, it’s not yet known whether the new 26-week benefit period will affect requirements for the EI premium reduction program for plan sponsors.
Unpacking the impact
The extended EI coverage is a positive for lower-income employees without any disability benefits. “For these employees, such as general labourers and people with casual jobs, this is clearly better. But really that’s the only case where this change is favourable,” says Papillon.
The change has no impact on employees with workplace short-term disability (STD) benefits, whether through salary continuation or insurance administered by a third party. These employees are disqualified from receiving EI—which is not a loss, since private STD benefits are typically much richer than the federally funded EI benefit.
However, employees with LTD coverage but without STD coverage stand to lose if employers automatically adjust their LTD to kick in at 27 weeks, after the extended EI coverage ends.
That’s because the EI benefit pays 55 percent of earnings up to a maximum of $638 a week. Those payments are taxed. Whereas LTD benefits typically pay up to 67 percent of earnings, weekly maximums are higher, and payments are usually not taxable.
“Twenty-six weeks is a long time for an employee to live on only 55 percent of earnings. This may lead to the employee drawing on savings, borrowing money or remortgaging their home to make ends meet,” says Sabat.
Moreover, the financial strain may worsen their health and lead to additional illnesses, such as depression. The employee becomes more likely to go on long-term disability or not return to work at all. That likelihood is compounded by the fact that EI does not provide case management support, unlike STD and LTD benefits. “For six months the employee does not get help with treatment options and the return to work will be much harder,” explains Sabat.
As a result, any savings may be short-lived. “Some insurers have said that if the waiting period for LTD is extended to start after the 26 weeks of EI coverage, they may reduce rates a bit. But the number of LTD claims may increase due to the lack of medical management and support during the EI benefit period,” notes Sabat.
It’s also important to consider the ramifications of attraction-and-retention strategies. “At first plan sponsors may think this is great because they don’t have to pay LTD for another 11 weeks. But that means another 11 weeks at $638 for employees. Is that what you really want as an employer?” asks Papillon. “It’s a tight employment market, you’re trying to recruit people, and suddenly your LTD program is really unattractive.”
Plan sponsors who decide that the extended EI coverage is not in their best interest essentially have two options:
- Maintain the status quo – Keep the current waiting period of 16 or 17 weeks for the LTD benefit indefinitely. This is the easiest option for employers; however, the onus is on employees to report to EI when they start receiving their LTD benefits, since they cannot receive EI and LTD benefits at the same time.
- Implement Short-Term Disability – Implement an STD plan that aligns with the LTD waiting period. The advantage here is that the employer can obtain an EI premium reduction rebate on the employer paid EI premiums that offsets a large portion of the employers cost of STD. This leaves the employees with far better coverage than EI and the employer with a potential competitive advantage in the marketplace when recruiting and retaining employees.
This content is powered by the Benefits Alliance Group.
Cox Financial Group is a proud member of the Benefits Alliance Group, a national organization consisting of 28 independent firms with more than 200 advisors. Collectively, we administer over 8,000 employee benefit plans with $1.4 billion of group insurance premiums, as well as 1,500 group retirement plans that have over $3.5 billion in plan assets. Learn more at benefitsalliance.ca.