Employee Benefits Notes

Employee Benefits Overview

• Definition of Employee Benefits:

  • Segment of total compensation beyond direct salary, covered by employer payments.

  • Typical contents:

  • Life insurance

  • Pension plans (PP)

  • Disability insurance (short-term/long-term)

  • Critical illness plans

  • Dental plans

  • Cost Implication:

  • Approximately 40% of total payroll costs.

  • Perception Issues:

  • Seen as entitlements rather than components of a compensation package.

  • Employees are increasingly seeking more choice in benefits rather than just additional benefits.

Types of Employee Benefits

• Legally Required Benefits:

  • Pension Plans: Canada/Quebec Pension Plan (CPP/QPP):

  • Employers and employees contribute around 5.95% (2025) of pensionable earnings.

  • Provides retirement, disability, and survivor benefits.

  • Employment Insurance (EI):

  • Contributions by both employees and employers based on maximum insurable earnings.

  • Offers temporary income replacement for various interruptions (sickness, unemployment).

  • Worker’s Compensation (WC):

  • Employer-funded insurance covering work-related injuries or illnesses.

• Retirement Plans:

  • Types include:

  • Defined Benefit (DB) Plans

  • Defined Contribution (DC) Plans

  • Plans with both DB and DC Features.

• Insurance Benefits:

  • Group Life & Accidental Death and Dismemberment (AD&D) Insurance

  • Medical Insurance:

  • Extended Health Care (including vision and dental).

  • Income Security Plans:

  • Sick leave, Short-term Disability (STD), Long-term Disability (LTD) plans.

Pension Plans

• Defined Benefit (DB) Plans:

  • Guarantees a specific payout at retirement.

  • Funding complexity: Employer bears investment risk.

• Defined Contribution (DC) Plans:

  • Retirement payouts depend on contributions and investment performance.

  • Simpler to administer, but employees bear investment risks.

• Combination Plans:

  • Feature elements of both DB and DC plans, such as hybrid plans or cash balance plans.

Group Life and AD&D Insurance

• Purpose:

  • Common employee benefit covering basic and additional life insurance.

  • Can be term life (renewable annually) or whole life insurance.

• Insurance Provisions:

  • Benefits often based on employee earnings or flat amount.

  • Contributory (employee pays part) or non-contributory.

  • Lump sum payment on death by accident.

  • Ancillary benefits can include transportation and rehabilitation.

Sick Leave and Disability Plans

• Sick Leave Benefits:

  • Provides income for employees with non-work-related long-term illness.

  • Generally has a waiting period before benefits kick in (e.g. 26 weeks).

• Long-term Disability (LTD):

  • Full pay for initial weeks, then reduced pay thereafter.

  • Application for benefits can be complex.

• Salary Continuation:

  • Immediate full pay for brief periods (e.g. up to two weeks).

Extended Health Care (EHC) Plans

• Key Features:

  • Covers medical expenses for employees and dependents.

  • Might include reimbursements for prescription drugs, hospitalization above ward level, paramedical services, etc.

  • Deductibles and maximum payout limits often apply.

Health Care Spending Account (HCSA)

• Definition:

  • Individual accounts for health-related expenses not covered elsewhere.

  • Unused credit can roll over for up to 24 months.

  • Employer-funded.

• Advantages:

  • Flexible benefit administration.

  • Limits employer exposure to healthcare inflation.

  • Potential testing ground for broader benefits rollout.

Dental Plans

• Overview:

  • Emphasis on preventive care leads to reduced long-term costs.

  • Typical categories of coverage include preventive, basic, major restorative, and orthodontic care.

  • Usually more predictable costs influenced by employee utilization.

Other Employee Benefits

• Examples Include:

  • Childcare and eldercare assistance.

  • Financial and retirement planning services.

  • Company vehicles or allowances.

  • Educational reimbursements (tuition).

  • Wellness programs and recreational benefits.

  • Executive perks (e.g., group legal insurance).

Benefit Plan Administration

• Responsibilities Include:

  • Enrollment of employees and dependents.

  • Claims processing and verification.

  • Ongoing communication and education about benefits.

  • Monitoring plan costs and effectiveness.

• Methods:

  • Administration managed in-house, through insurer, or a third-party administrator.

  • Essential for maintaining employee satisfaction and plan sustainability.

Conclusion

• Employee Benefits Impact:

  • A crucial component of the employer's total compensation package and employee satisfaction.

  • Requires careful planning and administration to meet employee needs while controlling costs.