Most not-for-profit organizations in Ontario currently provide disability benefits for staff through either participation in the Ontario Workers’ Compensation Board (“WCB”) plan and/or through private short and long-term disability benefit plans. The WCB plan will undergo significant changes effective January 1, 1998. Now is a good time to review your long-term disability coverage to ensure that your employees are adequately covered and that your organization is getting the best value for insurance premiums paid.
Changes to the WCB
On January 1, 1998 the Workplace Safety and Insurance Board (“WSIB”) replaced Ontario’s 83 year old Workers’ Compensation Board. Bill 99 made the following adjustments:
- Benefit levels for injured workers were reduced to 85% of net salaries.
- Inflation protection was be reduced for permanently disabled benefit recipients.
- There is no longer compensation for chronic stress.
- Chronic pain benefits are limited.
- New rules were introduced to accelerate the return to work of injured employees. In addition, injured workers are required to consent to the release of medical information by their doctors to employers and/or the WSIB.
As participation in the WSIB plan is optional for childcare centres and the majority of other not-for-profit organizations you should review participation by your organization.
Ask your private benefit plan consultant to prepare for your Board of Directors a comparison of your existing short and long-term benefits with those to be provided by the WSIB. In many cases there is already significant overlap of private plan and WCB coverage. Employees, however, are generally not permitted to claim double benefits even though premiums may have been paid for both plans.
Some private plans are more comprehensive than current WSIB coverage. For example, employees are only covered by WSIB for injuries sustained while on the job during working hours. Typically most private plans cover employees for injuries sustained twenty-four hours a day. On the other hand, some private benefit plans have a limited payment period for long-term disability claims. The WSIB will typically pay claims for the duration of the injury to age 65. In addition, WSIB participation provides some coverage for Directors of Boards as employees claiming coverage must waive rights to claim damages from their employers as a condition of applying for WSIB coverage.
Cancellation of participation in the WSIB plan is often difficult and the exit fee is often significant. Cancellation normally must be done before January 1 of a year. It is next to impossible to terminate coverage in mid-year. Now, therefore, is the time to review your long-term insurance plans.
Taxation of disability benefits
The rules for taxation of disability benefits are as follows:
- If an employer pays any part of the disability insurance premiums on behalf of an employee then disability payments will be taxable to that employee in the year received. The insurance company typically issues a T4(A) each year to employees receiving benefits where employers have paid the premiums.
- If an employee pays his/her own disability insurance benefit premiums then disability benefits received under the plan will not be taxable to the employee.
From the employer’s perspective it is less expensive to have the employees pay for their own long-term disability premiums. This approach can often be sold to employees on the grounds that their disability benefits will be tax-free in the event that they are disabled and unable to work. On the other hand, employees often prefer the short-term benefit of having their employer pay the monthly disability premiums. The personnel committee of your organization should consider the advantages and disadvantages of premium payment options when reviewing disability coverage.