Recently, the Canadian government has expanded the EI sickness benefit from 15 weeks to 6 months! This expansion is significant for workers who become ill or injured, as it provides them with a longer period of financial support while they are unable to work. However, the weekly EI maximum may not be enough for employees to meet their financial obligation during the period of disability.
Long-term disability (LTD) is widely considered a foundational piece of a benefits plan. So much so that in their 2016 National Survey of Working Canadians, Sun Life Financial found that disability coverage trailed only dental and prescription drug coverage when ranked in order of importance by a large sample of working Canadians.
And why not? Having LTD coverage in place means one less thing to worry about while focusing on recovery and potentially adjusting to changes made to their everyday lives. Simply put, it can save a family from financial ruin during a crisis.
Here’s the thing, even though the financial impact of losing steady income will be felt almost immediately within most households, most LTD payments won’t begin until the affected individual has satisfied a lengthy period of continuous absence from work. And with the changes to the EI Sickness benefit, many employers have extended the waiting period on the LTD benefits to 6 months. So how do organizations bridge the gap?
While most large employers provide some form of income protection through short-term disability coverage or salary continuation, many small and mid-sized employers rely solely on the Employment Insurance (EI) sickness benefit. EI provides limited protection in the form of payments that as of 2023 are equal to 55% of earnings up to a maximum of $650 of taxable income per week. Thus the higher a worker’s salary the lower the replacement percentage of their pre-disability income.
The EI Supplemental Unemployment Benefit, or SUB for short, allows employers to provide all, or a specific group of employees with supplementary income while they satisfy their LTD elimination period. The EI sickness benefit forms the foundation of the employee’s income replacement; employer payments make up any shortfall, up to a maximum of 95% of the employee’s normal pre-disability earnings.
Salary continuation would ordinarily be offset against the EI sickness benefit, so it’s important that SUB plans are registered with the Government prior to being used. Once registered, employees will be entitled to their full EI sickness benefit.
When employers register their SUB they’re provided with a handful of choices that will allow them to dictate how the plan works, for example:
Payments from a registered SUB plan are not insurable meaning EI premiums are not deducted, they are however subject to CPP as well as income tax deductions.
Employers may also take advantage of a SUB to top-up the incomes of employees who are on protected or statutory leaves such as compassionate care, maternity, or parental leave. Unlike a SUB used to supplement income during a period of disability, quarantine, temporary stoppage of work, or training, top-ups for protected leaves do not need to be registered with Services Canada. However, it is important to note on the employee’s Record of Employment (ROE) that benefits will be supplemented during the scheduled leave.
More information on the SUB program and how to register can be found on the Government of Canada website.
Whether an EI SUB program, traditional short-term disability insurance, or salary continuation is best for your organization depends upon a host of factors. One thing for certain is that introducing a SUB program can provide a cost-effective way to help alleviate some of the stress associated with an employee’s disability-related absence from work, allowing them to focus on their recovery. In the absence of salary continuation or a short-term disability plan, it can also represent a meaningful form of security.
Want to learn more about disability benefits in Canada? Get access to our webinar recording below.