About 3.8 million Canadian adults have a disability of some kind. That's a big deal for you as an employer if your employee becomes unable to work due to a disability.
This is where disability insurance might be able to help both of you--assuming it's the right fit for your company.
Here, we'll walk you through disability insurance benefits and whether your company should offer them.
Before we talk about whether you should offer disability insurance, we should talk about what it actually is.
Disability insurance, as the name suggests, is a type of insurance paid out when an employee is in an accident that causes them to become disabled. This is distinct from workers compensation insurance, which protects employers from lawsuits while ensuring that workers get compensation for medical care and lost wages.
The key difference between disability insurance and workers compensation insurance is context.
Workers compensation insurance covers partial wage replacement if employees get hurt on the job. It's also a safeguard for employers against lawsuits.
Disability insurance offers partial wage replacement when employees become ill or disabled. The difference is that it covers employees disabled while they are away from work.
There's also a difference between a long-term disability plan and a short-term disability plan.
There are only two types of disability insurance: short-term and long-term. The names explain the difference pretty succinctly.
Short-term disability insurance pays out a portion of the employee's income for a period of 9 to 52 weeks, depending on the plan in question. It usually picks up after the waiting period is over. This is when employees will use up their accrued sick leave and PTO, though there isn't always a waiting period.
Then, there's long-term disability coverage, which picks up where short-term disability coverage leaves off. The details of the plan spell out the exact period of time that these plans payout, though it will usually extend for at least a few years.
Some companies offer one or the other, some offer both, and some leave the individual to buy the insurance on their own.
So, what benefits does disability insurance provide?
The biggest benefit that companies and employees concern themselves with is wage replacement.
A disability plan, short-term or long-term, will not pay out the full value of an employee's salary. That would make it very expensive for employers since they're paying for an employee that isn't able to work for them.
Instead, disability insurance offers a partial replacement of employee wages, usually 50-85% of the employee's working salary. This won't be enough to recoup the full loss, but it will help workers avoid drowning in debt due to medical expenses and lost salary.
With that in mind, let's take a closer look at disability insurance benefits and your employees.
The good news for employers is that you have some flexibility when it comes to insurance plans. Plans vary depending on the type of plan you select and how generous you are with benefits (making the plan more or less attractive to your employees).
Let's break it down.
First, let's answer the pressing question: are you required to offer disability benefits to your employees?
Technically speaking, no, you're not legally obligated to offer disability insurance. However, many companies do offer short-term disability coverage as an employee benefit.
You do have a choice in what your coverage looks like. For example, companies can decide whether to have employees pay for coverage. There are various tax implications depending on your choice.
You can also place certain requirements on disability coverage. Some companies require employees to use PTO and sick days before disability takes effect. You could also require documentation from a doctor as proof of illness or injury.
So, should you offer disability benefits to your employees?
First, it depends on how many employees you have. If you have less than ten, a group plan may be too expensive to be worth the trouble.
If you have more than ten, then it may be worth investigating your options for coverage.
There are a variety of advantages to group disability coverage if you choose to go that route.
For example, you're often given a great deal of flexibility for plan options, so you can find something that fits your budget.
Group insurance rates are also usually lower than individual rates, which makes it more attractive for you and your employees.
The premiums are more user-friendly for group plans, as the employer, employee, or both can pay the group premiums using pre-tax or after-tax dollars. If you use pre-tax company money to pay premiums, the premiums become tax deductible.
In addition, offering disability coverage as a benefit for employees makes you more attractive as a workplace. You'll be able to attract better employees in the future.
It's worth noting that there are certain key drawbacks to group disability plans.
One of the biggest drawbacks (on the employee side) is the total disability definition, which demands that employees be totally disabled before receiving benefits. This means that their disability must be so severe that it precludes the possibility of any gainful work.
If your employee broke their leg at home and couldn't work for an extended period of time, they may not receive disability benefits. The insurer might determine that they can work in some other way.
There's also the taxation of benefits. Your offer to pay premiums for employees may make you attractive while they don't need the benefits, but once an employee starts collecting disability, any benefit they receive will be taxable.
In the market for disability insurance benefits?
That's where we come in.
If you need to find disability coverage for your employees, check out our products page to see what we can do for you.