When it comes to dealing with short-term disability, employers may have more options available than they think.
A company’s goal is to generate revenues that exceed its expenses—a particularly challenging proposition in this economic environment. And what happens if your most valuable employee can’t work? What is the effect on your company’s bottom line?
Suppose your No. 1 salesperson, Joe, hasn’t been feeling well for some time. After months of waiting, the specialist finally confirms the worst. It’s a tumour.
Surgery will be required, but this is still months away. Joe knows he can’t live on the weekly taxable EI benefit until he receives treatment, so he hopes that he’ll be able to work in the meantime. Even so, sales and company revenues will suffer as a result.
And what if Joe can’t work at all? Does he apply for EI benefits? Does his employer have an EI SUB Plan, which would allow the company to top up EI benefits? Does Joe’s company insure short-term disability (STD)? Does it self-insure? Or does it inadvertently pay for some duplicate combination of these options?
It turns out that Joe’s employer uses EI, but it is unlikely that the company will have Joe apply for it. Management is well aware that he can’t live on $435 weekly. Not only does the company want to look after its most valuable revenue-generating employee, it also doesn’t want to be perceived as not looking after employees during their time of need. For these reasons, management will continue to pay most, if not all, of Joe’s salary.
However, in doing so, the company is paying for STD twice—once by having paid the premiums for EI disability benefits that Joe will never collect, and again when it self-insures his claim. If the company is self-insuring anyway, formalizing that policy would entitle it to apply for and receive an EI premium reduction.
On the other hand, since the company is currently paying for EI disability benefits, it would cost no more to register for an EI SUB Plan and top up benefits. While this adds a step, compared to simply continuing Joe’s salary, it achieves virtually the same objective at less cost to the employer.
Now suppose that Joe’s company uses an insurer for its STD benefits. This attracts the insurance company’s fees, broker fees and even retail sales tax in Ontario and Quebec. Granted, the company gains a valuable resource in having the insurer adjudicate claims. Still, if the contract is arranged so that the employer insures only up to the EI maximum and then tops up the insured STD benefits, it would reduce the other costs associated with the self-insured portion, qualify for the EI premium reduction and still retain the insurer’s adjudication services as a resource.
However, these options deal only with Joe’s loss of income. While they may help to mitigate the cost to the employer of replacing Joe’s income, they do not necessarily help to mitigate his employer’s loss of revenue. And they do not help Joe to recover from his disability.
There are also options available that can potentially shorten the time needed to recover from these types of illnesses. When there is a serious health issue, a tax-free cash infusion as paid out by a critical illness plan could help relieve the company from continuing Joe’s salary and also help Joe afford access to treatment available elsewhere.
For that matter, if Joe’s employer has an executive health plan, he could have access to immediate and sometimes superior medical treatment anywhere in the world. Treatment is received more quickly and, in some cases, the actual method of treatment results in shorter recovery times. Joe would receive timely and effective treatment and could concentrate on returning to gainful employment.
Not only do these strategies help the employee and reduce the employer’s expenses, they help protect the company’s bottom line—which, of course, protects everyone.
Dan Napier is a benefits consultant with Focus Insurance Agencies Ltd.
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