How the EI Premium Reduction Program Benefits Employers and Employees With Group Short-Term Disability Insurance
What is the EI Premium Reduction Program?
The Employment Insurance (EI) Premium Reduction Program is a government incentive that allows employers to pay EI premiums at a reduced rate if their employees are covered by group Short-Term Disability insurance. The intention of the Program is to reduce the EI premiums of both the employer and the employees (though, for administrative reasons, legislation reduces only the employer’s premiums). Consequently, the Program requires that the employer return a portion of the savings to all the employees for whom the reduced rate applies. Some of the more popular means of doing this include providing employees a cash rebate (to be considered taxable income), paying for new or enhanced employee benefits, or hosting a staff party – each of which typically has a direct and positive impact on employee morale. Note that only written mutual agreements which identify how the employees will benefit from the reduction will be accepted.
Your company qualifies for the EI premium reduction if it:
- Provides at least 15 weeks of benefits for Short Term Disability
- Matches or exceeds the level of benefits provided under EI
- Pays benefits to employees within 8 days of illness or injury (the elimination period cannot exceed 7 consecutive days)
- Is accessible to employees within three months of hiring
- Covers employees on a 24-hour-a-day basis
How Much Can Your Company Save?
Maximum insurable earnings in 2021 are $56,300. An employee who earns this much (or more) will pay EI premiums of $889.54 (calculated at 1.58%). For the purpose of this calculation, we have used a reduced employer multiplier of 1.166. Note, though, that reduced rates change annually on January 1st and are prorated throughout the year. If, then, you apply effective January 1st, your rate will be slightly lower than if you apply at a later month in the year.
Employer regular premium = $889.54 x 1.4 = $1,245.36
Employer reduced premium = $889.54 x 1.166 = $1,037.20
Amount of total premium reduction = A – B = $208.16
Employee’s portion of reduction = C x 5/12 = $ 86.73
Employer’s portion of reduction = C x 7/12 = $121.43
Assuming the above numbers, then, an employer can save as much as $121.43 annually in EI premiums per employee and can return $86.73 in some form to the employee and/or his or her colleagues. The financial incentives to utilizing the program are clear.
What Must I Do to Participate in the Program?
To participate in the Program, you must register by submitting an initial application form, which is available on Service Canada’s website at www.servicecanada.gc.ca. If you already participate in the Program, you needn’t reapply; your entitlement will continue until you change or cancel your approved plan.
For more information, please contact the EI Premium Reduction Program at 1-800-367-5693 or visit the Government of Canada’s website.
Debra L. Wiegers, GBA, CLU, Ch.F.C.
Managing Principal, Benefits Division
Wiegers Financial and Insurance Planning Services Ltd.