Payroll primarily experiences Employment Insurance as a series of source deduction and reporting requirements. However, EI is also an employee benefit plan, in much the same way that WCB coverage and employer-sponsored disability plans are other types of employee benefit plans.
Because it’s a statutory program, employers don’t have much direct control over the type and level of EI benefits paid. But HR might be surprised to discover the extent to which employer compensation policies can impact the EI benefits which might otherwise be paid.
These impacts are reflected in the insurable hours and dollars reported on employee ROEs. The hours reported in Block 15A on the ROE determine whether employees qualify for EI benefits and for how many weeks any such benefits might be paid. By contrast the dollars reported in Blocks 15B and C determine the weekly rate at which EI benefits will be paid.
Understanding the impact of employer compensation policies on EI benefits, in part then, means understanding whether earnings contribute to both hours and dollars on an ROE or only to dollars. The two most important areas where employer compensation choices affect employee eligibility for EI are probably those related to vacation pay and wage-loss replacement or disability plans.
If vacation pay is accrued and paid, for vacation time taken, the time taken is ROE reportable as insurable hours. By contrast, if vacation pay is paid every pay period, there are no insurable hours when such employees take what is then unpaid vacation time. Similarly, there are no insurable hours if accrued vacation pay is paid out without taking any time off work, such as on termination.
These rules mean that employees, who take vacation time and are paid either accrued vacation pay or regular wages for that time, earn the equivalent of at least 2 extra weeks of insurable hours, as compared to employees paid vacation pay every pay period. Those extra weeks of insurable hours, reported on an ROE, could be the difference between employees qualifying for EI benefits or not. Where employees qualify for benefits, the payment of vacation pay for time taken could be worth an extra week of regular EI benefits, on top of that available to employees whose vacation pay is paid every pay period.
For example, employees need 600 hours to qualify for special benefits, such as maternity, parental, sick or compassionate care. An employee, since the last ROE was issued, may only have worked 590 insured hours. If the employee plans a maternity leave at that point, the person will not qualify for EI maternity or parental benefits. However, if there is accrued vacation pay owing and the employee is given the equivalent time off as paid vacation, that time off will count as EI insurable hours. These additional insured hours would presumably help to qualify the person for up to 50 weeks of maternity and parental EI benefits.
Whether employees earn insured hours while on short or long-term disability is also determined by how the related disability plans are structured. To be insurable, disability plan:
- Costs have to be at least partly borne by employers. Disability plans that are ‘employee pay-all’ are not insurable; and
- Benefits must be self-insured by employers. In other words, if plan benefits are provided under the terms of an insurance contract with an insurance carrier, the benefits paid are not insurable. Note, ‘provided under the terms of an insurance contract’ is different than disability plans for which a self-insured employer outsources administration to a 3rd party, termed Administrative Services Only (ASO). Plans that are administered on an ASO-basis by a 3rd party, even an otherwise insurance company, are insurable, so long as they are not ‘employee pay-all’.
For example, if an employer self-insures short-term disability and bears the full costs of the benefits provided, when employees are being paid such benefits, the benefits paid are reportable in ROE Blocks 15B and C. Similarly, the hours that would otherwise have been worked are reportable in Block 15A. If an employee returns to work after such short-term disability and is subsequently laid off due to lack of work, the short-term disability contributes insured hours that may qualify the person for regular EI benefits. Had the short-term disability benefits been ‘employee pay-all’ or had they been provided by an insurance carrier under the terms of an insurance policy, these disability benefits would not have been insurable and the employee may not have been able to qualify for EI regular benefits.
Alan McEwen is a Vancouver Island-based HRIS/Payroll consultant and freelance writer with over 20 years’ experience in all aspects of the industry. He can be reached at email@example.com, (250) 228-5280 or visit www.alanrmcewen.com for more information.