Employee benefits are a crucial aspect of any business, big or small.
They can help attract and retain top talent, improve employee morale and productivity, and even reduce absenteeism.
In Canada, small businesses have a wide range of employee benefits options to choose from, but juggling the legal requirements and cost considerations can be challenging.
This blog post provides a comprehensive overview of employee benefits for small businesses in Canada, including common types of benefits, legal requirements, cost considerations, and the advantages of offering benefits.
Types of Employee Benefits
To attract and retain top talent, small businesses in Canada commonly offer a variety of employee benefits. These benefits can be categorized into mandatory and supplementary benefits.
Mandatory Benefits
These benefits are legally required and regulated by government agencies:
a). Provincial healthcare insurance
All Canadian residents have access to healthcare through the public healthcare system, known as Medicare.
Medicare covers a range of healthcare services, including doctor visits, hospital stays, and emergency medical care, with specific coverage varying slightly by province.
It’s funded through taxes and managed at the provincial level.
Although employers don’t directly contribute to Medicare, it’s a critical component of Canada’s social benefits infrastructure, reducing the healthcare burden on employees and enabling employers to focus supplemental health benefits on areas not covered by the public healthcare system, such as dental, vision, or prescription drugs.
b). Canada Pension Plan (CPP) / Quebec Pension Plan (QPP)
These mandatory pension plans cover employees who work outside of Quebec (CPP) and those who work in Quebec (QPP).
Both plans require contributions from employers and employees throughout their working lives, based on the employee’s earnings.
The CPP replaces part of an employee’s income upon retirement, with the amount determined by their average earnings, contributions, and the age they start receiving the pension.
The QPP provides similar benefits, with the amount calculated based on earnings recorded since 1966 and the age at which the pension begins.
Both CPP and QPP include survivor’s pension benefits, which provide financial support to the family or dependents of a deceased employee.
To qualify for survivor’s pension, the surviving spouse or common-law partner needs to have been legally married to or the common-law partner of the deceased CPP contributor.
c). Employment Insurance (EI)
EI provides temporary income support to unemployed workers while they look for employment or take time off due to specific life events.
This includes illness, pregnancy, caring for a newborn or newly adopted child, or a critically ill or injured person.
EI benefits entitle the recipient to income replacement as a result of sickness, maternity, parental leave, or compassionate care leave.
The maximum yearly insurable earnings amount for EI as of January 1, 2024, is C$65,700, which means that an employee can receive a maximum amount of C$668 per week.
The maximum benefit period varies from 14 to 45 weeks, depending on regional unemployment rates and the number of accumulated hours of employment.
Workers receive EI benefits only if they have paid premiums in the past year and meet certain entitlement conditions.
Under EI sickness benefits, employees can take up to 26 weeks’ leave, receiving 55% of their earnings. Caregiving benefits (which include compassionate care leave) provide between 15-35 weeks’ leave, which includes time off to take care of a sick family member. Under these benefits, employees can receive 55% of their earnings.
Quebec operates under its own set of EI premium rates.
d). Workers’ compensation insurance
This insurance provides coverage for medical treatment and salary protection for employees who experience workplace injuries or illnesses.
Benefits vary by province and industry.
e). Legislated leaves
Canada has one of the highest counts of government-regulated and legislated leaves globally.
These include sick leave, vacation leave, and parental leave, which are legally required and vary by province.
Canadian employees can take a range of different types of leave, including medical or sick leave, maternity, paternity and parental leave, personal leave, family violence leave, critical illness leave, compassionate care leave, leave for legal proceedings, and leave for the disappearance of a child.
Old Age Security (OAS)
In addition to the CPP/QPP, Canadian employees are also eligible for Old Age Security (OAS) benefits. OAS is a monthly payment available to most Canadians aged 65 or older.
It’s paid from general tax revenues and is not something that Canadian citizens contribute to directly.
Income from OAS can start as early as age 65 or be deferred to age 70.
To qualify for the maximum OAS payment, you must have been a Canadian citizen for 40 years after your 18th birthday.
Supplementary Benefits
These benefits are not legally required but are commonly offered by small businesses to enhance their compensation packages:
Health and dental insurance
This covers medical expenses not included in provincial healthcare plans, such as dental care, vision care, prescription drugs, and paramedical services like physiotherapy and massage therapy.
In Canada, prescription drug coverage is a key concern for employees and is often referred to as “extended healthcare”.
It provides access to affordable prescriptions, helping employees manage healthcare costs.
A high percentage of Canadian employers offer extended health care benefits, with many paying 100% of the premium for salaried employees.
Vision care
This covers eye exams and provides financial assistance for eyewear like glasses or contact lenses.
Eye exams are usually included as part of an extended health care benefit every 24 months for adults and every 12 months for children under 18.
Vision benefits typically include coverage for eyeglasses and contact lenses.
Life insurance
This provides financial protection to beneficiaries in the event of an employee’s death.
Disability benefits
This replaces income for employees unable to work due to illness or injury.
Retirement savings plans (RRSPs)
These plans help employees save for retirement.
Individual and employer-funded retirement/pension programs are widely popular in Canada to provide a vehicle for long-term savings at a higher rate of return.
Employees often look for employer-sponsored group programs with employer matching schemes as a core component of a total rewards program.
In addition to RRSPs, the two main types of retirement plans in Canada are defined benefit and defined contribution plans.
Defined benefit pension plans provide a fixed, pre-determined pension payment upon retirement based on factors like salary and years of service, with the employer taking on the investment risk.
Defined contribution pension plans have the employee and employer contribute a fixed amount, with the payment at retirement depending on the performance of the investments.
Paid time off
This includes vacation time, sick leave, and personal days.
Wellness programs
These programs may include initiatives like gym memberships, mental health support, and stress management workshops.
Employee Assistance Programs (EAPs)
EAPs can help employees and their immediate family members deal with a host of personal issues. These can include mental health, substance abuse, work-life balance, identity theft, and more.
Due to the sensitive nature of this subject matter, employees are sometimes hesitant to use the services available to them.
Employers may have to communicate the benefits of EAPs and explain that they are confidential to encourage participation.
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Flexible Benefit Plans
Flexible benefit plans are common in Canada and highly desired for their flexibility, ability to address generational differences in the workforce, and attractiveness to employees.
These plans allow employees to choose the benefits that best meet their individual needs and preferences, providing a more personalized and valuable benefits experience.
However, flexible benefit plans are more commonly offered by larger employers due to the administrative complexities involved in managing them.
Smart Business Owner Benefits Plan
The Smart Business Owner Benefits Plan, offered by The Benefits Trust, is a unique and cost-effective option for small businesses in Canada.
This plan allows small business owners to set up a plan for themselves and their employees with controlled costs. It provides comprehensive health and dental coverage, with options for unlimited coverage or set limits for employees.
Benefits for Owners:
- No limits, deductions, or maximums for owners.
- 100% fully tax-deductible business expense.
Benefits for Employees:
- Same coverage as owners, but with total cost control for the employer.
- Offer different amounts by class of employee.
- Monthly detailed billing.
This plan differs from traditional benefit plans by offering more flexibility and cost control for small businesses. It allows owners to have unlimited coverage while setting limits for employees to manage costs effectively.
Legal Requirements for Employee Benefits in Canada
In Canada, the legal requirements for employee benefits are primarily governed by the Employment Standards Act (ESA), which varies by province.
The ESA outlines the minimum standards for employee benefits, including:
Minimum wage
As of April 1, 2024, the federal minimum wage is $17.30 per hour.
However, if the provincial minimum wage is higher, employers must pay the higher amount.
Vacation pay
Employees are entitled to a minimum amount of paid vacation time, which varies by province and length of service.
| Province | Minimum Vacation Time Entitlement by Years of Service |
|---|---|
| British Columbia | 2 weeks up to 5 years of service. 3 weeks at 5 years of service. |
| Alberta | 2 weeks up to 5 years of service. 3 weeks at 5 years of service. |
| Saskatchewan | 3 weeks up to 10 years of service. 4 weeks at 10 years of service. |
| Manitoba | 3 weeks at 5 years of service. |
| Ontario | 2 weeks up to 5 years of service. 3 weeks at 5 years of service. |
| Québec | 2 weeks up to 3 years of service. 3 weeks at 3 years of service. |
| New Brunswick | 2 weeks up to 5 years of service. 3 weeks at 5 years of service. |
| Nova Scotia | 2 weeks up to 9 years of service. 3 weeks at 9 years of service. |
| Prince Edward Island | 2 weeks up to 8 years of service. 3 weeks at 8 years of service. |
| Newfoundland and Labrador | 2 weeks up to 3 years of service. 3 weeks at 3 years of service. |
Statutory holidays
Employees in Canada are entitled to up to 12 paid public holidays, depending on the province.
These include a mix of religious and non-religious holidays.
Employees are entitled to paid time off for specific public holidays, which vary by province.
Sick leave
The entitlement to sick leave varies by province, with some provinces requiring paid sick days and others offering unpaid leave.
| Province | Sick Leave Entitlement | Employee Eligibility |
|---|---|---|
| British Columbia | 5 paid days per calendar year | |
| Alberta | 5 unpaid days per calendar year | |
| Saskatchewan | 12 unpaid days per calendar year | After 13 consecutive weeks of employment |
| Manitoba | There is no provincial law that requires employers to provide sick days in Manitoba | N/A |
| Ontario | 3 unpaid days per calendar year | After 2 consecutive weeks of employment |
| Québec | 2 paid days per calendar year. Up to 26 unpaid weeks over 12 months | After 3 months of employment |
| New Brunswick | 3 unpaid days per calendar year | After 90 consecutive days of employment |
| Nova Scotia | 3 unpaid days per calendar year | After 90 consecutive days of employment |
| Prince Edward Island | 3 unpaid days in a year. After 3 months of employment. After 5 years of continuous employment: 1 paid day in a year | |
| Newfoundland and Labrador | 3 unpaid days per calendar year | After 90 consecutive days of employment |
Parental leave
Employees are entitled to job-protected leave for maternity, parental, and adoption leave, with the length of leave and benefits varying by province and federal programs.
Parental leave in Canada offers two options: standard and extended.
- Standard parental leave provides 55% of income up to a weekly maximum of $695, with up to 40 weeks of shared leave between parents, although one parent cannot receive more than 35 weeks of benefit.
- Extended parental leave provides 33% of income up to a weekly maximum of $417, with up to 69 weeks of shared leave between parents, although one parent cannot receive more than 61 weeks of benefit.
It’s crucial for small businesses to comply with the ESA in their respective provinces to avoid legal penalties.
Labor unions have also played a significant role in shaping the landscape of employee benefits in Canada, advocating for better benefits for their members through collective bargaining.
Understanding provincial differences in employee benefits is crucial for crafting a compliant and attractive benefits package.
For example, Ontario offers unique programs like the Ontario Health Insurance Plan (OHIP), which many employers supplement with private coverage, while British Columbia requires employers to pay an employer health tax (EHT) based on payroll thresholds.
Benefits of Offering Employee Benefits
Offering employee benefits can provide numerous advantages for small businesses in Canada:
- Attract and retain top talent: In a competitive job market, offering attractive benefits can help attract and retain skilled employees . Studies have shown that many employees would choose health benefits over a raise of $10,000 or even more, demonstrating the high value employees place on health benefits .
- Improve employee morale and loyalty: Benefits show employees that they are valued, leading to increased job satisfaction and loyalty .
- Promote a healthier workforce: Health and wellness benefits can contribute to a healthier workforce, reducing absenteeism and improving productivity . Offering benefits can improve employee health and well-being, leading to increased job satisfaction and reduced stress .
- Reduce stress and improve productivity: Benefits like financial wellness programs and mental health support can help employees manage stress and improve their overall well-being, leading to increased productivity .
- Enhance the company’s image: Offering benefits can enhance the company’s reputation as an employer of choice, attracting positive attention and improving its public image .
- Tax advantages: Many employer-provided benefits qualify for tax deductions, reducing the business’s overall tax liability .
- Reduce risk of losing valuable employees: Studies have shown that a significant percentage of employees without health benefits would leave their current job for one with a better benefits plan, highlighting the potential for increased turnover and associated costs .
- Help maintain workplace productivity: Offering benefits can help maintain productivity by improving employee morale and reducing absenteeism .
- Help attract and keep top talent: Offering benefits can help attract and retain talent by making the company more competitive in the job market .
- Provide tax benefits: Premiums paid on group benefits can be tax deductible for the employer .
- Protect your business: Offering benefits can help protect the business by reducing the risk of losing valuable employees to competitors and by fostering a more stable and engaged workforce .
- Help reduce absences: Offering benefits, such as access to healthcare, can help reduce absences by promoting employee well-being .
- Boost morale: Offering benefits can boost morale by making employees feel valued and appreciated .
With rising healthcare costs, employer-provided health benefits are becoming increasingly crucial for employees’ financial security and peace of mind.
Studies have also shown that small businesses without health benefits may experience lower employee productivity and struggle to compete with companies that offer more comprehensive benefits packages .
Cost of Employee Benefits
The cost of employee benefits for small businesses in Canada can vary significantly depending on several factors, including:
- Type of coverage: Basic plans with limited coverage are less expensive than comprehensive plans .
- Number of employees: Generally, larger employee bases result in lower costs per employee due to economies of scale .
- Employee demographics: The age, health status, and lifestyle of employees can influence the cost of benefits .
- Claims history: A history of high claims can lead to increased premiums .
- Industry type: Some industries, such as manufacturing and construction, have higher benefit costs due to increased risks .
- Plan design: Customized plans with more generous coverage levels and features will be more expensive .
On average, employee benefits for small businesses in Canada can range from $80 to $350 per employee per month . Basic plans typically cost $80 to $200 per employee, while enhanced plans can go up to $250, and comprehensive coverage can reach $350 or more . The average annual premium for group insurance typically varies based on the size of the business, usually ranging from 15% of payroll for smaller businesses to as high as 30% of payroll for larger companies .
Here’s a breakdown of estimated monthly costs for different types of benefits :
| Benefits | Estimated Monthly Cost Per Employee |
|---|---|
| Health and dental coverage | $300 – $400 |
| Life insurance | $62.50 – $125 |
| Disability insurance | $62.50 – $125 |
| Extended health benefits | $258 |
| Vision care | $19.50 |
According to Benefits Canada, the average per employee cost of health benefits in 2022 was $3,096 for extended health, $1,212 for dental, and $234 for vision .
| Benefits | Basic Plan | Standard Plan | Enhanced Plan |
|---|---|---|---|
| Employees – Single | $30/month | $60/month | $81/month |
| Employees – Couple | $100/month | $128/month | $140/month |
| Employees – Family | $170/month | $200/month | $250/month |
Cost-Sharing Arrangements
It’s quite common for part of the cost of the benefits program to be paid for by employees via payroll deduction.
This is typically a ‘condition of employment’ and is outlined in a contract of employment . Premium amounts can vary significantly depending on the scope of the program and employee demographics, meaning the dollar amount of the payroll deduction can differ significantly from employer to employer .
Cost-sharing in employee benefits refers to the arrangement where both the employer and the employee contribute to the cost of the benefits program .
It helps strike a balance between providing attractive benefits and managing expenses for the employer .
Several factors influence the cost-sharing ratio, including company size, plan design, benefit premiums, demographics, employee classifications, and tax implications .
Employers often look to industry benchmarks to ensure their contribution levels remain competitive and appealing to potential employees .
The financial capabilities of the company, combined with its size, can influence the employer’s ability to contribute significantly . Generally speaking, larger, more established companies tend to cover a greater share of benefit costs because they can afford to do so .
Employers can approach cost-sharing in different ways, such as defining specific benefits for employee contribution, applying a percentage to total premium costs, or charging a flat dollar amount .
Each approach has its considerations and implications. Employers must carefully consider these factors to determine an effective cost-sharing arrangement.
Balance employee needs with cost containment when determining cost-sharing arrangements .
Elements like deductibles, co-insurance, and reimbursement limits play a crucial role in promoting informed healthcare choices while managing costs effectively . Employers should regularly evaluate their cost-sharing approach to ensure it remains competitive and relevant .
Small businesses can manage employee benefits costs effectively by:
- Leveraging virtual healthcare: Virtual healthcare options can reduce costs by providing remote access to medical professionals .
- Optimizing benefit structures: Tailoring plans to include only the most relevant benefits for your workforce can help control costs .
- Exploring group plans: Many providers offer group rates that are significantly lower than individual premiums .
- Partnering with a benefits provider: Benefits providers can help small businesses design and implement cost-effective plans .
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Tax Implications of Employee Benefits
Canadian employers should carefully structure benefits packages to account for their tax implications . Employer contributions to statutory benefits like CPP and EI are tax-deductible for employers.
However, some perks, like company cars or housing allowances, may be considered taxable benefits for employees . It’s essential for small businesses to understand these tax implications to ensure compliance and optimize their benefits strategy.
Creative and Cost-Effective Benefits
Small businesses can also consider offering creative and cost-effective benefits to attract and retain employees , such as:
- Flexible work arrangements: Offering flexible work options, such as remote work or flexible hours, can be a valuable benefit that costs little to implement .
- Professional development opportunities: Providing opportunities for employees to enhance their skills and knowledge through training programs or tuition reimbursement can be a valuable and cost-effective benefit .
- Wellness initiatives: Implementing wellness programs, such as gym memberships or mental health resources, can promote employee well-being without significant costs .
- Employee recognition programs: Recognizing and rewarding employees for their contributions can boost morale and improve retention without substantial financial investment.
- Social events and team-building activities: Organizing social events or team-building activities can foster a positive work environment and improve employee relationships.
- Founder’s Day: An additional day off as a token of appreciation for the team .
- Birthday PTO: Giving employees their birthday off .
- Volunteering PTO: Providing paid time off for volunteering .
- Employee prize catalog: Offering unique bonuses based on performance .
- Employee referral program: Rewarding employees for referring successful candidates .
- Wellness reimbursement: Reimbursing employees for achieving wellness goals .
- “Fur-ternity” leave: Offering paid leave for new pet owners .
- Summer camp for employees’ children: Providing childcare assistance during the summer .
- Unlimited sick day policy: Allowing employees to take sick leave as needed .
- Vouchers for massages, osteopath, and chiropractor appointments: Promoting employee well-being .
- Free flu shots: Encouraging preventative healthcare .
- Transgender-inclusive healthcare benefits: Demonstrating a commitment to diversity and inclusion .
- Subscriptions to meditation and wellness apps: Supporting employee mental health .
- Financial planning workshops: Providing financial wellness resources .
- Pet insurance: Covering pet care expenses .
- Paid volunteer days: Encouraging community engagement .
- Continuous education opportunities: Supporting employee growth and development .
While many benefits are not required, small businesses should consider offering the strongest packages possible . Doing so can mean the difference between attracting and retaining top employees or losing them to competitors.
Wrap!
Employee benefit plans can be customized to suit the budget and needs of the business .
To take the next step in implementing a benefits plan, consider contacting a benefits provider or exploring resources available online.
Prioritize employee needs, consider budget constraints, and regularly review the benefits package to ensure it remains competitive and relevant.
