COMMERCE 2BC3 Chapter Notes - Chapter 10: Adverse Selection, Canada Revenue Agency, Co-Insurance

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Published on 15 Apr 2013
McMaster University
Employee Benefits - part of an organization's total compensation package and include both mandatory
government-sponsored benefits and voluntary benefits such as life and disability insurance
- Cost objectives: controlling labour costs is not possible without controlling benefit costs
- Behavioral objectives: benefits influence whether employees come to work for a company, whether
they stay, when they retire etc
- Employees look for different types of benefits so employers need to re-examine their benefits to see if
they meet today's needs.
Flexible Benefits Plan - Benefits plan design that provides employees the chance to choose among
benefit s offered by the employer.
Aspects of Benefits
- Legal Compliance - although direct compensation is subject to government regulation, the scope and
impact on benefits is great
- Some benefits are mandated by law while others are subject to significant regulation and must
meet a certain criteria
- Benefits have become institutionalized - some benefits are so typically offered [medical/retirement
benefits] and not providing them is highly unusual --> can lead to trouble attracting and retaining a
quality workforce
- Complexity compared to other forms of compensation - Employees might not be aware of the value of
their benefits or even that they have certain benefits. Thus return on employer’s investment will not be
great. Some employers are giving employees more choice but employees might not fully understand
the implications of their choices.
Tax Advantages of benefits
1. Significant growth occurred following WWII during which there were wage and price controls
and labour market shortages.
2. Tax treatment of benefits is often better than the tax treatment of wages and salaries for both
employee and employers.
1. Cost advantage that groups realize over individuals. Bulk Buying Power
2. Growth of organized labour from the 1930s to 1950s.
3. Employers might use benefits to differentiate themselves from other employers.
4. Keeping employees at work
Benefits Programs : Mandatory Government sponsored, Employment Insurance, Workers'
Mandatory Government-Sponsored Benefits
Canada/Quebec Pension Plan (CPP/QPP) - Mandatory government sponsored pension plan funded by
employees and employers that provide a basic level of income security for working Canadians when
they retire
- CPP/QPP is designed to replace about 25% of a person's earnings from employment up to a maximum
Behavioural consequences: Because they are legally mandated employers don't have discretion in
designing this aspect of their benefits programs.
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- Recent changes in eligibility age and benefit levels will help older Canadians who wish to remain in the
workforce longer
Employment Insurance (EI)
Main Objectives:
1. Offset lost income during involuntary unemployment
2. Provide maternity and parental benefits off the job
3. Help unemployed workers find new jobs
4. Provide an incentive for employers to stabilize employment
5. Preserve investments in worker skills by providing income during short-term layoffs [allows
workers to return to their employer]
- Financed through federal and provincial funding supported by payroll deductions of employee and
employer contributions
Unemployed workers are eligible for benefits if they:
1. Have a prior attachment to the workforce
2. are available and willing to work each day
3. are actively seeking work
4. were not fired for misconduct
Workers' Compensation
Four Main Categories
1. Wage loss benefits
2. Health care
3. Survivor benefits
4. Rehabilitative services
- Financed by employers who pay premiums
Cost to Employers is based on:
1. Nature of the occupation and risked attached
2. Province where the work is located
3. Employee experience rating
Voluntary Employer Sponsored Benefits
Private Group Insurance
Group insurance rates usually lower than individual rates due to economies of scale, the ability to pool
risks and the greater bargaining power of a group.
Two Major Types:
1. Extended Medical Insurance
- Most important benefit to the average person
- Covers: hospital expenses not covered by provincial plans, Dental/Vision care, Prescription
drug programs
2. Disability Insurance
Short Term Disability Plan: Benefits plans that provide income security to employees for short
periods [6 months or less] of absence from work due to non-work-related illness or injury
Long Term Disability Plan: A form of income for longer periods of absence from work due to
non work related chronic illness or disability
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