The federal government’s EI Premium Reduction Program can benefit employers with short-term disability plans
Employment insurance (EI) premium rates may be frozen at 1.88 per cent for the next year for employers outside Quebec, but some employers will still see lower EI rates in 2016.
Employers that take part in the federal government’s EI Premium Reduction Program (PRP) pay premiums at rates that are less than the standard 1.4 times the employee rate other employers pay.
For 2016, employers registered in the program can expect their employer multiplier to range from 1.203 times the employee rate to 1.296, depending on the category in which Employment and Social Development Canada (ESDC) places them for the rate reduction.
The only catch is that to take part in the program, an employer must offer employees a short-term disability plan that meets specified criteria. Employers without such plans need not bother applying.
If you have not heard of the PRP or are not taking part in it, you are not alone. ESDC says there are about 30,000 employers registered in it. When the department last evaluated the program in 2009, it found that only about 2.9 per cent of businesses registered with the Canada Revenue Agency (CRA) were enrolled in the PRP.
"PRP registration is influenced by an employer’s willingness to offer an SD (short-term disability) plan," says the 2009 report Summative Evaluation of the Employment Insurance Premium Reduction Program.
"The reason that some employers do not offer their own SD plan is due to their high costs, there not being enough absences within the firm to justify offering an SD plan, or the employer relying on EI sickness benefits for its employees."
One reason for the low participation may be that the vast majority of Canadian employers are small businesses, which are less likely to offer short-term disability plans.
In its 2009 report, ESDC says, "PRP take-up varies dramatically by firm size, with larger firms far more likely to apply for and receive EI premium reductions than smaller firms."
Another reason for the low participation is lack of awareness, says ESDC. In employer surveys by the department, it found about 72 per cent of employers with short-term disability plans that were not registered for the PRP had not heard of it, even though it has existed for decades.
The federal government introduced the PRP in 1971 when it first began to allow eligible workers to collect unemployment insurance (UI) sickness benefits if they were off work for illness, injury or quarantine.
To limit the cost of providing the benefits, the government required that employees covered by employer short-term disability plans use up their employer benefits before accessing the UI sickness benefits.
To ensure employers with existing short-term disability plans did not cancel them with the introduction of the sickness benefits, the federal government created the PRP to reward employers with plans.
"It was hoped that wage-loss replacement plans which generally met or surpassed EI benefit standards would be maintained, and that employers and unions would be encouraged to upgrade other plans or to establish new plans," ESDC’s evaluation report says.
To ensure that the plans benefitting from a reduced EI premium rate do help to decrease government EI costs, ESDC has established criteria that all plans must meet to qualify for the PRP. The first requirement is that the plan must be either a weekly indemnity plan or a cumulative paid sick leave plan.
A weekly indemnity plan pays weekly disability benefits to employees who are off work because they are ill or injured. A cumulative paid sick leave plan allows employees to accrue sick leave credits that they can use if they become ill or injured.
General conditions
All plans must meet the following general conditions:
•employees must be entitled to claim benefits on the first day of the month after they have completed three continuous months of employment
•the waiting period for plan benefits cannot exceed 14 consecutive days
•employees must receive at least the same weekly amount of benefits from the plan that they would from EI
•employees must be covered 24 hours a day, whether or not they are at work (some exceptions apply)
•the plan must be the first payer of the benefits, meaning that benefits from the plan cannot be integrated or co-ordinated with EI benefits.
In addition, ESDC requires weekly indemnity plans to meet specific criteria around the length of time benefits are provided and when an employee re-qualifies for benefits after returning to work from a disability leave.
Cumulative paid sick leave plans must adhere to ESDC rules governing how an employee accrues sick leave credits and how long the plan must pay benefits.
Employers that are interested in taking part in the PRP must apply for it through Service Canada.
Besides completing an application form (or submitting a written request on company letterhead), employers must provide proof they offer a qualifying short-term disability plan and show how they will share the premium savings with employees covered by the plan.
Returning premium savings to employees is an important requirement for the PRP. To make the program easier to administer, ESDC provides the reduced premium rate only to the employer, but requires it to share at least 5/12s of the premium reduction with the employees covered under the short-term disability plan.
ESDC says employers can do this by giving the employees cash for their share of the reduction or by offering new or improved benefits. Employers have to share the savings with employees during the year or within the first four months of the following year.
ESDC statistics show most employers use benefits to share the premium reduction with employees. In 2006, 53 per cent of the employers ESDC surveyed said they returned the 5/12s share to employees through new or improved benefits, while about 23 per cent said they did it through cash rebates. Other employers shared the reduction through "methods negotiated through a written mutual agreement."
If ESDC approves the application, it will notify the employer in writing of its reduced EI premium rate. The program provides four premium reduction categories — two that apply to weekly indemnity plans and two for cumulative paid sick leave plans.
ESDC will also let the employer know if it needs to set up another payroll account number with the CRA for remitting source deductions. This would occur if not all of the employees are covered under the approved short-term disability plan since the reduced rate would apply only to employees included in the plan.
The CRA does not permit employers to remit EI premiums at different rates using the same payroll account number.
Each year, ESDC will notify the employer of the reduced premium rate that will apply. Once approved, employers do not have to re-apply for a reduction every year; however, they have to notify the PRP if they cancel or change their short-term disability plan.
Don’t start now
Employers without short-term disability plans that are thinking of setting one up solely to take advantage of the PRP may want to reconsider. While ESDC says the PRP benefits employers that already have a short-term disability plan, it acknowledges that the savings available through the program are likely not enough to persuade employers without plans to establish one.
"While there may be a broad business case when viewed in terms of employee welfare, goodwill and attracting talented workers, the monetary case, in isolation, appears to be weak," the department says in its PRP review.
The review found that the employer portion of the premium reduction was less than $100 per employee in 2008, compared with the annual cost of a short-term disability plan, which it estimated to average about $300 per individual covered.
Employers that already have a short-term disability plan, but are not registered in the PRP, may want to investigate it further. After all, saving money is never a bad thing. For more information on the plan, see www.servicecanada.gc.ca/eng/cs/prp/060.shtml.
Note: The EI rate referred to here is the rate that applies outside of Quebec. Within Quebec, the premium rate is lower to account for the Quebec Parental Insurance Plan.
Employers in Quebec that are registered in the PRP pay lower employer multipliers within each reduced premium category than employers outside of the province.
