Short Term Disability verses Employment Insurance Sickness Benefits

Unforeseen illness or injuries happen—daily. These can result in extended periods of leave, which usually have multiple negative consequences for all parties involved. The employee can incur financial hardship and experience lost wages, while the employer suffers from disruption in workforce productivity.

While both employment insurance (EI) sickness benefits and short term disability (STD) work to protect an employee’s weekly salary when they cannot work due to illness or injury by providing income replacement, there are some significant differences between the two.

For those companies who participate in the program, provincial worker’s compensation provides coverage for those employees who are injured on the job. The coverage is not 24/7 and unforeseen illness, injury, or accidents that happen outside work aren’t covered.

The strategic advantage of STD is how it fills the gap between injury/illness and recovery, allowing employees to focus on returning to work health and “fit for duty”. EI Sickness with its longer waiting period, lower percentage of income, lower maximum and tax status is a less robust plan and often does not meet the needs of the employee to focus on recovery. 

EI sickness benefits are only accessible to workers who have worked at least 600 hours in their current job in the previous 52 weeks and have exhausted the sick leave offered by their employer.

$695 Taxable

The amount received through EI Sickness depends on a person’s insurable earnings before taxes in the past 52 weeks or since the start of the last claim, whichever is shorter. Consider, can an employee sustain themselves for months for a maximum of $18,070 which will be taxed at their current tax rate which will reduce their “take home” to at least $15,359 (based on 15% of the first $57,375), compared to $17,000 non-taxable income from their employer sponsored STD plan?

Put another way, could your family pay all their bills and maintain their current lifestyle if you were unable to work for up to 26 weeks with only EI Sickness benefits available?

Taxation for STD

Whether STD is considered taxable or not in the event of a claim depends on who paid the disability insurance premium. 

·      If an employee (through payroll deductions) pays the premium, the disability benefits received at the point of claim are non-taxable. 

·      If the employer pays the disability premium in part or full, the disability benefits will be subject to income tax at the point of claim for the employee. 

Corporate Benefits of STD

·       Attract new talent

·       Promotes employees to return to work, instead of seeking employment elsewhere, knowing there is a lack of income protection

·       Focus on recovery verses finances

·       Retention of staff 

·       Improve employee engagement

• Enhanced employee financial wellness

A STD claim includes three statements:

·       A Physician’s Statement, detailing the nature of the disability and any doctor’s recommendations.

·       Employer’s Statement, confirming details about your position, such as salary, hours worked, and your duties and responsibilities.

• Claimant Statement, which details the nature of the disability, claim information, and more.

A word of warning integrating Long Term Disability and EI Sickness 

If your plan only offers Long Term Disability (LTD) and is dependent upon EI Sickness to fill the elimination period gap, employees on sickness leave could collect up to 26 weeks of EI benefits, then begin receiving LTD benefits after 17 weeks (depending on the elimination period—always consult your benefit policy booklet/contract). If the employee does not declare to the insurer for LTD that they are presently on EI benefits, this could result in the two plans overlapping from week 17 to the maximum duration. However, in general, insurers are the first payers, so employees will need to declare their LTD benefits and vice versa, for adjustment purposes.

According to 2023 survey published by the Government of Canada “Disability Insurance—Canada.ca”, Long Term Disability Insurance is one of the most sought-after benefits by employees.

Let’s have a conversation. Give us a call. 

Note: this was written without the aid of Artificial Intelligence (AI)

Disclaimer: Please note that the information provided, while authoritative, is not guaranteed for accuracy and legality. The site is read by a world-wide audience and employment, taxation, legal vary accordingly. Please seek legal, accounting and human resources counsel from qualified professionals to make certain your legal/accounting/compliance interpretation and decisions are correct for your location. This information is for guidance, ideas, and assistance.