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.
