Module 3 - Optimizing Canada’s Social Security System— Employment Insurance and Workers’ Compensation Flashcards
Explain who has jurisdiction over the EI program.
EI falls under federal jurisdiction and operates under the legislated authority of the Employment Insurance Act (the “EI Act”). The Canada Employment Insurance Commission (CEIC) is the body that provides much of the oversight of EI. Its mandate is to annually monitor and assess the EI program, while actual delivery of the EI program is handled by Employment and Social Development Canada (ESDC), through Service Canada.
Identify the responsibilities of WC Boards/Commissions.
WC Boards/Commissions are responsible in their own jurisdiction for the administration of WC. Operating on a nonprofit basis, they collect contributions from employers and pay benefits from the fund for work-related injury/disease. Some WC Boards/Commissions also have responsibility for the administration of the provincial occupational health and safety legislation.
Under WC legislation, WC Boards/Commissions have exclusive jurisdiction to deal with all matters pertaining to injuries that arise “out of or in the course of employment.” Generally, WC Boards/Commissions decide the level and nature of “adequate compensation” for all work-related injuries, determine whether workers or their dependents are entitled to compensation and rehabilitation, administer claims, adjudicate claims and disputes, and establish regulations and appeal procedures for operating the WC program, including the form and use of payrolls, records, reports, certificates, declarations and documents. They determine, review and approve operating and capital budgets and develop contribution and investment policies to ensure adequate funding of WC.
Describe how the EI program is funded and the factors that are used in determining premium rates.
The EI program is funded by employer and employee contributions (i.e., premiums), with such premiums being directed to the EI Operating Account. The premium rate is expressed as a percentage of each $100 of employee insurable earnings, with employers paying higher premium rates than employees. Note that EI premium rates are lower in Québec than in other jurisdictions, reflecting the existence of QPIP.
Each year, CEIC receives an actuarial report from the EI Senior Actuary. The report is intended to provide the CEIC with actuarial forecasts and estimates to be used when setting the year’s maximum insurable earnings (MIE) and EI premium rates. Factors that affect the setting of premium rates include:
(a) Assumptions of future demographic and economic conditions
(b) Premium rates, which are intended to be sufficient to cover expected EI benefit payouts
(c) The funded status of the EI Operating Account, since the objective for the EI Operating Account is to operate on a break-even basis.
Explain how a WC assessment premium is generally calculated.
Employer contributions to WC (also called premiums) are generally wage-related, calculated as a rate per $100 of assessable earnings. This rate per $100 is called the “assessment rate” (or “premium rate” depending on the jurisdiction). Assessment rates vary by jurisdiction and can vary by employers within a jurisdiction. An employer’s contribution is determined by multiplying its “assessable earnings” by its assessment rate. Assessable earnings generally include most types of income. All jurisdictions include regular salary or wages, overtime, gratuities, commissions, bonuses, advances of future earnings and vacation pay in determining assessable earnings. Many jurisdictions include earnings in the form of profit sharing, paid layoff, maternity or sabbatical leave, taxable benefits and the employer’s contribution to employee benefits. All jurisdictions set their own maximum assessable earnings (i.e., the amount of earnings a WC Board/Commission will insure). Maximum assessable earnings limit the payroll amount reported by employers for the purpose of calculating their WC premiums as well as limit earnings loss benefits for injured employees in most jurisdictions
Identify factors that influence WC assessment rates.
Several factors influence assessment rates set by the WC Boards/Commissions, such as recent accident cost experience in each industry class, the financial position of the WC Board/Commission, prevailing economic and labour conditions and current adjudication policies. Each WC Board/Commission has its own unique method of calculating the amount of premiums to be collected from employers to fund the program, reflecting its own situation. Each year’s assessment rates must generate enough funds to contribute toward any funding deficiencies from previous years’ assessments; all current costs; reserves for compensation payable in future years, so as not to burden employers unduly or unfairly in the future; some or all of the expenditures for safety prevention; and all administrative requirements for the WC Board/Commission and related organizations such as appeal tribunals and advocacy groups.
Employers do not simply pay the average assessment rate of a jurisdiction since the risk of injury and associated costs vary by industry. There is a significant range between lowest and highest assessment rates in each jurisdiction. Employers’ actual assessment rates depend on:
(a) The industry classification of the employer
(b) Whether the WC Board/Commission applies experience rating to that employer
(c) The existence of any safety-based program incentives in place in the jurisdiction.
Explain the impacts of industry classification, employee class and rate groups on setting WC assessment rates.
Industry classification is a determination of an employer’s type of operation and industry designation. The inherent occupational risk for every industry/occupation varies. As occupational danger increases so does the risk of employee injury. Within their mandate, WC Boards/Commissions have the power to group industries according to their hazard potential.
The North American Industry Classification System (NAICS) Canada from Statistics Canada is used by some WC Boards/Commissions as the basic framework for classifying employers. Other WC Boards/Commissions have their own internally developed classification systems, which are based on the NAICS classifications.
Jurisdictions have their own processes to combine individual industrial classifications (i.e., classification units) into larger “rate groups.” A rate group consists of multiple classification units (or a single large one) that are grouped for the purpose of setting assessment rates. A rate group typically includes industry codes that are similar in nature, but it often includes unrelated industries grouped on the basis of risk.
Describe experience rating as it applies to the WC system.
“Experience rating” means that the assessment rate assigned to an individual employer is impacted by the dollar amount of claims and/or the number of claims made by that particular employer in previous years. Experience rating generally shifts a greater degree of the responsibility for paying for WC costs from an industry classification group as a whole to the particular employers within the group that are actually incurring the costs.
If a WC board/commission applies experience rating to assessment rate determination, an individual employer’s assessment rate may increase or decrease based on how many work injuries/diseases (resulting in paid WC claims) have occurred at the employer’s place of business. Experience rating may be either prospective or retrospective, depending on the jurisdiction.
Prospective experience rating systems consider an employer’s past experience (number of claims and/or dollar amount of claims) relative to its rate group, leading to discounts or surcharges on future assessment rates. If an employer’s WC claims experience is positive, prospective experience rating provides an assessment rate discount. If an employer’s WC claims experience is negative, prospective experience rating provides an assessment rate surcharge.
Retrospective experience rating systems provisionally assess an employer based on expected experience (number of claims and/or dollar amount of claims) and then, at year-end, compare expected experience with actual past experience and based on actual results, provide rebates on paid premiums or premium surcharge billings.
Explain the tax treatment of employee and employer contributions to EI and EI benefits paid.
An employer’s premium contributions are deductible from its taxable income. An employee’s premium contributions give rise to a tax credit to the employee. All EI benefits are subject to income tax.
Outline the tax treatment of WC benefits.
WC benefits are not taxable to recipients. Employer contributions are deductible from income.
Define “insurable employment” under the EI Act.
Under the EI Act, insurable employment is:
(a) Employment in Canada by one or more employers under any express or implied contract of service or apprenticeship, written or oral, whether the earnings of the employed person are received from the employer or some other person and whether the earnings are calculated by time or by the piece, or partly by time and partly by the piece, or otherwise
(b) Employment in Canada as described in paragraph (a) by His Majesty in right of Canada
(c) Service in the Canadian Forces or in a police force
(d) Employment included by regulations made under certain subsections of the EI Act
(e) Employment in Canada of an individual as the sponsor or coordinator of an employment benefits project.
Types of employment that may be included in insurable employment
(a) Employment outside or partly outside Canada that would be insurable employment if it were in Canada
(b) The entire employment of a person who is engaged by one employer partly in insurable employment and partly in other employment
(c) Employment that is not employment under a contract of service if it appears to CEIC that the terms and conditions of service and the nature of the work performed by persons employed in that employment are similar to the terms and conditions of service and the nature of the work performed by persons employed under a contract of service
(d) Employment in Canada by His Majesty in right of a province if the government of the province waives exclusion and agrees to insure all its employees engaged in that employment
(e) Employment in Canada by the government of a country other than Canada or of any political subdivision of the other country if the employing government consents
(f) Employment in Canada by an international organization if the organization consents.
Types of employment excluded as insurable employment
(a) Employment of a casual nature other than for the purpose of the employer’s trade or business
(b) Employment of a person if such person controls more than 40% of the voting shares of the corporation
(c) Employment in Canada by His Majesty in right of a province
(d) Employment in Canada by the government of a country other than Canada
(e) Employment in Canada under an exchange program if the employment is not remunerated by a Canadian employer
(f) Employment in Canada by an international organization
(g) Employment that is an exchange of work or services
(h) Employment excluded by regulations made under certain subsections of the EI Act
(i) Employment if the employer and employee are not dealing with each other at arm’s length.
Outline general eligibility criteria that must be met to be eligible to receive regular EI benefits.
To be eligible to receive regular EI benefits, individuals must meet these criteria.
(a) Their employment qualifies under the EI definition of “insurable employment.”
(b) They have lost their job through no fault of their own.
(c) They have paid EI premiums.
(d) They have been without work and without pay for at least seven consecutive days in the last 52 weeks or since the start of the last EI claim, whichever is shorter.
(e) They have worked for the required number of insurable hours based on where they live and the unemployment rate in their area.
(f) They are actively looking for work (including keeping a record of employers contacted and when they were contacted).
(g) They are ready, willing and capable of working each day.
Describe how the amount and duration of EI regular benefits are determined.
The regular benefit rate is 55% of average insurable earnings, up to a maximum payment per week. Low-income families may be eligible to receive the EI family supplement, which can increase the EI regular benefit rate to a maximum of 80% of the individual’s average insurable earnings.
The benefits calculation considers:
(a) Best weeks earnings in the qualifying period
(b) Regional rate of unemployment for the applicant.
Duration of the benefit period for regular benefits is based upon the number of insurable hours worked—more insurable hours worked means more weeks of benefit eligibility. Duration also depends on the rate of unemployment in the region in which the claim is made. For example, within a 52 week period, regular benefits range from 14 weeks (at lowest number of hours worked and lowest unemployment rates) to a maximum of 45 weeks (at highest number of hours worked in regions with the highest unemployment rates).
Describe how earnings received by an individual receiving EI benefits affect the amount of their EI benefits.
Income earned by an individual who is receiving EI benefits will reduce the amount of the EI benefit payable to the claimant and/or affect the start date of the EI benefit. The types of earnings, their definitions, and the time periods to which EI allocates earnings are very detailed and complicated, but generally fall into two categories as follows:
(a) Earnings allocated to the one-week waiting period. The amount of these earnings is deducted dollar for dollar from benefits payable in future weeks of payable benefits.
(b) Other types of earnings such things as return-to-work and callback pay, wages or salary and commission resulting from employment, self-employment earnings, and most pensions payable from Canada/Québec Pension Plans and employer-sponsored pension and retirement savings plans. These types of earnings either delay the start date of EI benefits or are deducted from those benefits.
While collecting regular, parental, maternity, sickness, compassionate care or caregiving benefits, claimants can keep 50¢ of benefits for every dollar earned, up to 90% of the claimant’s previous weekly earnings (approximately 4.5 days of work). Earnings above this threshold are deducted from EI benefits, dollar for dollar.
Outline circumstances under which an individual must repay EI benefits.
An individual whose annual net income for the taxation year (including EI benefits) exceeds 1.25 times the maximum yearly insurable earnings must repay some or all EI benefits received. The clawback amount is the lesser of either 30% of the EI benefits received or 30% of the amount of net income exceeding 1.25 times the maximum yearly insurable earnings.
Benefit repayment does not apply to:
(a) Special benefits
(b) Regular benefits paid to individuals who received less than one week of regular benefits in the previous ten years.
Describe the special benefits provided through the EI program and QPIP and their general eligibility requirements.
Special benefits are for sickness, maternity leave, parental leave, compassionate care leave and caregiving leave. EI provides all of these special benefits except for those related to maternity and parental leave for Québec residents. The QPIP provides maternity, paternity, adoption and parental benefits for those persons. Although selfemployed persons are not eligible for EI regular benefits, both EI and QPIP provide special benefits for qualifying self-employed persons.
EI special benefits eligibility criteria
(a) They are employed in insurable employment.
(b) They have paid EI premiums.
(c) Their regular weekly earnings will decrease by more than 40%.
(d) They have accumulated 600 insurable hours in the last 52 weeks or since the start of their last claim.
QPIP provides benefits to all eligible workers who take maternity, paternity, adoption or parental leave. To be eligible for QPIP benefits, the individual must:
(a) Be a parent of a child (born or adopted)
(b) Have contributed to QPIP as an employee or a self-employed worker during the reference period
(c) Have experienced an interruption in earnings or reduction in earnings of at least 40% due to birth or adoption
(d) Have insurable earnings of at least $2,000 during the reference period
(e) Be a resident of Québec at the start of the benefit period
(f) In the case of a self-employed worker, have resided in Québec on December 31 of the year prior to the start of the benefit period.
Outline the duration period for special EI and QPIP benefits. Describe in general terms the difference between the options available to parents under these plans.
Special benefit duration varies by benefit type:
(a) EI sickness benefits are payable for a maximum of 26 weeks.
(b) Maternity/paternity benefits. EI maternity benefits are payable for a maximum period of 15 weeks. QPIP “basic” maternity benefits are payable for a maximum period of 18 weeks and paternity benefits are payable for a maximum of 5 weeks. QPIP “special” plan paternity benefits are paid for shorter periods at higher payment rates.
(c) Parental benefits. Standard EI parental benefits are paid for a maximum of 40 weeks and can be shared between parents, but one parent cannot receive more than 35 weeks of standard benefits. EI parental benefits under the “extended” plan are paid for longer periods at lower payment rates. QPIP “basic” parental benefits are payable for a maximum period of 32 weeks, and adoption benefits are payable for a maximum of 37 weeks. In the case of multiple births or adoption, an additional 5 weeks of parental benefits are available to each parent. Single parent birth or adoptive parents are entitled to an additional 5 weeks of parental benefits. QPIP “special” parental benefits are paid for shorter periods at higher payment rates.
(d) EI compassionate care benefits are payable for a maximum period of 26 weeks.
(e) EI caregiving benefits are payable for a maximum of 35 weeks for caring for a child and a maximum of 15 weeks for caring for an adult.
Explain the premise behind EI-approved wage loss replacement plans and the criteria required for approval.
Many employers sponsor wage loss replacement plans to provide some income replacement for employees who suffer an illness or injury and are absent from work for relatively short periods of time. Examples of these plans are Short-Term Disability (STD)/Weekly Indemnity (WI) plans and cumulative sick leave plans. When one of these plan exists, it pays benefits first and then EI would pay the benefits should the employer-sponsored benefits be exhausted, but disability continues. In this way, the cost to the EI program is lower. For this reason, EI provides for reduced EI premiums for qualifying plans.
In order to qualify for EI premium reduction, an employer-sponsored wage loss replacement plan must:
(a) Provide at least 15 weeks of benefits for short-term disability.
(b) Match or exceed the level of benefits provided under EI.
(c) Pay benefits within 8 days of illness or injury (i.e., the elimination period cannot exceed 7 days).
(d) Provide coverage to new employees within 3 months of hiring, or, if an hourbank system is in place, after 400 hours of active employment. (An “hour bank system” is a method of banking or crediting the hours worked to a person’s account and then drawing out the required hours at each determination date in order to establish or maintain the person’s eligibility for benefits.)
(e) Cover employees on a 24-hour-a-day basis (i.e., regardless of whether the employee is at work or if they are injured while working at a second job.
(f) Include evidence of the employer’s commitment to the short-term disability plan (i.e., written confirmation of the plan).
(g) Ensure that at least 5/12 of the EI premium reduction will be returned by the employer to covered employees.
A wage loss replacement plan can contain limitations to the payment of benefits that will not prevent the employer from qualifying for an EI premium reduction. Identify situations where it is acceptable that benefits are not paid to an employee under a WI plan.
Situations where it is acceptable that benefits are not paid to an employee under a WI plan include the following:
(a) The employee is not under the care of a licensed physician.
(b) The illness or injury is covered under WC or CPP/QPP.
(c) The illness or injury is intentionally self-inflicted.
(d) The illness or injury results from service in the armed forces.
(e) The illness or injury results from war or participation in a riot or disturbance of public order.
(f) The illness or injury occurs while on leave of absence or on paid vacation.
(g) The employee is receiving EI maternity, parental, compassionate care or caregiving benefits.
(h) The illness or injury is a result of committing a criminal offence.
(i) The employee is engaging in employment for a wage or profit while receiving disability benefits.
(j) The employee is ill or injured while unemployed during a strike or lockout, provided the right to benefits is reinstated on return to work.
(k) The employee is in prison.
(l) The employee is outside Canada.
(m) The illness results from the use of drugs or alcohol, and the individual is not receiving continuous treatment for use of these substances.
(n) The illness or injury results from a motor vehicle accident covered under a provincial plan that does not take income benefits payable by EI into account when paying benefits.
(o) The employee receives a retirement pension from the same employer.
(p) The employee undergoes plastic surgery solely for cosmetic purposes unless the need for surgery is attributable to an illness or injury.
(q) The employee receives benefits for a recurring injury under a long-term disability (LTD) plan that contains a reinstatement provision where the reinstatement provision does not exceed six months.
Describe short-term disability (STD)/weekly indemnity (WI) and cumulative paid sick leave plans and the specific provisions required for each type of wage loss replacement plan to qualify for a reduction in EI premiums.
STD/WI plans provide benefits in cases of illness or injury through an arrangement set up by an employer (self-insured) or a plan underwritten by an insurance carrier.
To qualify for the EI premium reduction, WI plans must meet the basic requirements established by EI for employer-sponsored STD plans, plus:
(a) Benefits must be payable for at least 15 weeks.
(b) In the event of a new disability, full benefits (i.e., up to 15 weeks) must be reinstated no later than one month after the employee returns to work, or in the event of a recurring disability, full benefits must be reinstated no later than three months after the employee returns to work.
Cumulative paid sick leave plans allow employees to accumulate sick leave credits that they can use when they are ill or injured. Some plans may also allow employees to use paid sick leave credits when they remain at home because of pregnancy, to care for a newborn or newly adopted child, or to care for a gravely ill family member or a critically ill child.
Since cumulative paid sick leave plans provide benefits that may overlap with or duplicate EI sickness benefits, they can also qualify for partial premium reduction. To qualify for the EI premium reduction, cumulative paid sick leave plans must meet the basic requirements for employer-sponsored wage loss replacement plans plus:
(a) The plan must provide one or more days of paid sick leave per month of continuous employment and allow for a minimum accumulation of 75 days of credits. If the plan allows, credits may be used for the employee’s illness or injury, or for when they remain at home for maternity, parental, compassionate or caregiving purposes.
(b) At least 75 days of credits must be maintained for sick leave only. Only credits that are in excess of these 75 days may be used for other absences as noted above, if the plan allows.
c) For new employees still on probation or temporary employees, the use of paid sick leave credits can be deferred by no more than 12 months from when the employee started employment.
Under the EI Act, a fraction of the amount of premium reduction allowed to an employer must be passed on to employees. Explain the premise behind this policy and how it is applied.
To obtain the employer premium reduction, at least five-twelfths of the amount of an employer’s premium reduction must be passed on (in some form) to the employees covered by their employer’s income replacement plan. (The five-twelfths represents the employee share of the total EI premium where there is no premium reduction.) The intention is to maintain the same ratio of employee cost where there is a premium reduction.
Sharing five-twelfths of the savings with employees can be achieved by providing:
(a) A cash rebate equal to five-twelfths of the savings, divided among the employees. This is treated as employment income, subject to source deductions.
(b) New or increased benefits, including upgrading existing benefits or providing more holidays or time off of work.
Employees or their representatives may negotiate or bargain for a method of sharing and include the terms in a written agreement.
