The majority of employers I work with have the employees pay some portion of the premium for their Employee Benefit Plan. Other than sharing the cost of the benefit plan, there are some tax advantages for Employees. If an employee pays 100% of the premium for the Pooled Benefits, with After Tax Dollars, the benefits will be Non-Taxable upon claim. The Pooled Benefits are as follows:
- Dependent Life,
- Critical Illness,
- Short Term Disability, and
- Long Term Disability.
These are the benefits we call, true insurance. Unless you are a large employer with several hundred employees, you are not, what we call Experience Rated for these benefits. Factors that do impact on the rates include:
- Age of members – The cost of the benefit usually increases as the member’s age increases.
- Male/Female Mix – The cost of life insurance is generally higher for males than females while the cost of loss of income and health insurance is higher for females than males.
- Benefit Level – The amount of benefit is used to calculate the expected claims for each member.
- Location – Mortality and disability rates vary in different geographic areas due to economic conditions or the availability of medical treatment.
- Occupation – More hazardous occupations create a higher risk of injury or death while occupations that are tedious or highly stressful may increase disability claims.
Should you have to claim on any of the above benefits, the payouts have the potential to be quite large and being able to receive them tax free is an advantage to the employees and/or their beneficiaries.
The Extended Health and Dental benefits, which are normally the more expensive benefits, can be paid by the Employer with before tax dollars and a write off to the business. Both the premium and the benefits received by employees are Non-Taxable to them.
Be careful if you are splitting the total premium 50/50 with your employees, Revenue Canada could look at the possibility the Pooled Premiums were paid 50% by the employer with before tax dollars. That would make these benefits taxable to employees at time of claim. It is always important to ensure that it is very clear what benefits the money from the employees is being used for.
The other area to review is how are your benefits handled at Maternity Leave of Absence? If an employer pays 100% of the Extended Health and Dental benefits and an employee waives their Pooled Benefits at time of leave, the Employer is still responsible for 100% of the Extended Health and Dental throughout the leave.
If you would like to review the options available to you and your employees, please contact Glendinning Insurance Services, Your Resource Specialist.