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Chapter 7

FIN 512 Chapter Notes - Chapter 7: Unemployment Insurance Act 1920, Unemployment Benefits, Disability Insurance

Course Code
FIN 512
Giulio Iacobelli

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Chapter 7: Income Protection Plans
Income protection is crucial for most workers during times of job loss, illness, or sickness because when
someone cannot work, in addition to losing income, there are frequently additional expenses
Income protection plans are even more important than life insurance since a person has a 33% chance of being
off work for at least 6 months due to illness or accident between the ages of 35 and 65 but only 15.6% of men
and 9.4% of women die between those two ages
All government plans are mandatory
Group and individual plans can supplement government plans in those instances where government coverage is
either not available or inadequate
Government Plans: there are 3 government plans that offer income protection for workers who are not
able to work due to the following:
- Ill health, which is covered by Worker‟s Compensation, Employment Insurance, and Canada Pension
Plan disability benefit, and
- Unemployment that is short-term and involuntary and is often covered by Employment Insurance
Social Insurance:
- All of these government programs fall under the descriptor social insurance because their primary focus
is to provide compulsory protection for personal risks
- Other benefits also fall under this heading, such as Canada Pension Plan, retirement benefits, and death
- Social insurance exists for the following reason:
1. To help solve social problems that result from economic changes beyond the control of both
employers and employees.
2. To provide coverage for perils that are difficult to insure privately because they either
a. Affect a large number of people at the same time (unemployment), or
b. Are a result of workplace conditions (health and safety standards enacted by each
3. To provide a base of economic security for employees.
- Social insurance programs share the following characteristics:
1. They are compulsory- all employers and employees must participate unless the coverage is
provided in another form in the organization.
2. They provide benefits that relate to income with a ceiling on both contributions and benefits.
3. The benefits are prescribed by law
4. Benefits are not means-tested, that is, people receive the benefit because they qualify for it, not
because they need it.
5. Contributions are made by employees, employers, or both
6. Benefits are funded, that is, contributions are made for the specific program. The benefits are
paid out of the fund and are not paid out of general tax revenues, as are the benefits under the Old
Age Security Program.
- All three of government programs- Worker‟s Compensation, Employment Insurance, and Canada
Pension Plan- meet all of these criteria
Workers’ Compensation:
- Canada‟s first social program
- It was favoured by both workers‟ groups (unions) and employers hoping to avoid lawsuits
- The system of Canada arose after an inquiry by Ontario Chief Justice William Meredith, who outlined a
system whose workers could be compensated for workplace injuries but they had to give up their right to
sue their employers
- Workers‟ Compensation is a provincial and territorial responsibility and, as a result, each jurisdiction
has its own legislation

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- It was introduced at different dates in each province and territory- Ontario was first in 1915, Manitoba in
1916, B.C. in 1917
- In most provinces it is solely concerned with insurance
- However, in some jurisdictions, the program also has a preventative role to ensure workplace safety
- The objectives of Workers’ Compensation are as follows:
To provide:
o Substantial replacement of lost employee earnings for occupational injury and disease,
o Medical care and rehabilitation services,
o A pension if an injury results in a permanent disability, and
o Pensions to dependents of employees who are fatally injured in the course of employment
To encourage safety
To reduce lawsuits
- There are 4 underlying principles to Workers’ Compensation:
1. Employers bear the direct cost of compensation, that is, employers pay the premiums based on
payroll, job classifications, and their history of accidents, receiving in return protection from
lawsuits arising from injuries.
2. Workers give up the right to sue their employers and receive in return compensation benefits at
no cost for work-related injuries.
3. Negligence and fault for the cause of injury are not considered except as premiums are increased
to reflect experience.
4. The system is administered by a neutral agency having exclusive jurisdiction over all matters
arising out of the enabling legislation.
- The Government Employees Compensation Act provides for workers‟ compensation to all federal
government employees, including employees posted outside Canada, and to employees from outside
Canada who are locally engaged and are injured in the course of their duties and are not covered under
any local legislation
Industrial and occupational diseases are treated the same way as work-related injuries
Operations of Boards
- Workers‟ Compensation in each jurisdiction is operated by a board (WCB) that has a different name in
some jurisdictions, like the Workplace Safety and Insurance Board (WSIF) in Ontario (sometimes
called commissions)
- The Association of Workers’ Compensation Boards of Canada (AWCBC) was founded in 1919 as a
non-profit organization to facilitate the exchange of information between Workers‟ Compensation
Boards and Commissions in different jurisdictions
- AWCBC refers to individuals Boards and Commissions collectively as WCB/Commissions
- These WCB/Commissions compensate employees for lost income, permanent disability, cost for
survivors, and rehabilitation due to work-related injuries
- Jurisdictions having a large proportion of self-employed people, such as fishers and farmers, have lower
rates of participation in Workers‟ Comp. (Table 7.1 page 232)
- The WCB/Compensation charge employers to cover their employees and pay the insured worker or
survivor directly
- A few employers are self-insured, meaning the Board of Commission pays the cost of benefits provided
to their injured workers‟ plan and the employer reimburses the Board
- Workers‟ Compensation is a large industry receiving some $9 billion a year in total income and paying
$9.6 billion in benefits in 2007 (it also invests in Occupational Health and Safety (OHS) to reduce
worker injury
- Table 7.1: Workers’ Compensation Boards and Commissions Income and Expenses, 2007 (page
Employers’ Costs:
- In 2007 weighted average premium rate for Canada is $1.98 for every $100 of gross insurable earnings
before deductions

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- Premium rates for individual rate groups are recalculated annually based on injury frequency and on
claims costs for individual rate groups
- There are 18 rate groups (Divisions): Table 7.2 Workers‟ Compensation Employer Assessment
Divisions (page 233)
- Each division is subdivided into a Major Group and then further subdivided (for example, Division “A”,
Agriculture and Related Services contains two major groups: Major Group „01‟ is Agriculture, and
Major Group „2‟ is Incidental Services)
- Major Group „1‟ in Division A contains 6 sub-groups (011- Livestock Farms, 012- Other Animal
Specialties, 013- Field Crop Farms, 015- Fruit and Vegetable Farms, 016- Horticulture, 017-
Combination Farms
- Sub-group 011- Livestock Farms is further broken down into 6 categories- Dairy, Cattle, Hog, Poultry
and Egg, Sheep and Goats and Feedlots
- Table 7.3 Employer Assessment Rates for 2009 (page 233) shows the following:
Maximum assessable earnings, the maximum amount of earnings for each employee covered
by Workers‟ Comp.
The highest and lowest rates in each jurisdiction
The rates for each jurisdiction for Major Group „70‟, Deposit Accepting Intermediary in Division
“K”, Finance and Insurance Industries whose rates are the lowest rates in 8 jurisdictions
- Why is it so much more dangerous to work in Financial Services in some jurisdictions? No idea, Rates
are per $100 of assessable earnings and are based, in part, on the experience of each employer and also
of the industry
- Example 1: page 235 (use table 7.3)
Given a small branch which has 5 employees earning an average of $40,000 each in B.C., the
bank will pay Workers‟ Comp a total each year of:
1. 40,000 x 5 = $200,000 [total wages]
2. 200,000 / 100 = $2000 [total wages / 100]
3. $2000 x $0.08 (estimated lowest assessment rate) = $160 in B.C.
Benefit for Injured Workers:
- The maximum amount of an employee‟s earning that are insurable under Workers‟ Comp is called the
maximum earnings covered, and earnings over this amount are not covered
- In all provinces and territories except Manitoba, the Maximum Assessable Earnings shown I Table 7.3 is
also the maximum earnings covered (in Manitoba, there is no maximum earnings Covered even though
there is a maximum assessable earnings)
- The rate charged by the Boards is based on gross earnings before deductibles but benefits are based on
75% to 90% of net earnings (gross earnings minus income tax, CPP, and EI deductions) except in
Yukon where benefits are based on 75% of gross income
- Benefits also have other restrictions in some jurisdiction:
Half of the jurisdiction require the employer to pay the worker for the day of the injury while the
other half do not
Only Quebec requires the employer to pay for the period after the injury, 14 days, but the amount
is then refunded to the employer
Only three provinces have an unpaid waiting period as shown in Table 7.1
In some jurisdictions, some benefits are offset (reduced) by any amounts received from
Canada/Quebec Pension Plan
In most jurisdictions, the benefit may be suspended or paid to benefit a dependent when the
worker is in jail, in an institution, or in a hospital
Maximum compensation rates of 2008 vary from a low of 79.3% of the Average Industrial
Aggregate Weekly Wage in Newfoundland to a high of 124.7% in Manitoba. Ontario is 112.8%
Nine jurisdictions have a minimum amount of weekly payments
Most jurisdictions pay a lump sum to a surviving spouse as well as monthly payments. The
amount and duration of the payments is affected by the number of dependent children and their
ages as well as the age of the spouse
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