Summative Evaluation : Employment Insurance Premium Reduction Program, December 2009

Recommendation 1

«Based on findings from the employer survey, awareness of the PRP is low or non-existent among non-participating employers, some of whom have PRP-eligible short-term disability plans. The current advertising program of the PRP to employers needs to be investigated to ensure that all employers are aware of the PRP and what they are entitled to.»

We agree with this recommendation.

An employer who is granted an Employment Insurance (EI) premium reduction remits to the Canada Revenue Agency (CRA) through the employer's payroll account. The CRA has a publication titled Employers' Guide - Payroll Deductions and Remittances which provides information for employers on remittances to CRA and includes information on the PRP and how employers can reduce the rate of their EI premiums if they have a short-term disability plan. All employers with a payroll account with the CRA are provided with this information.

The PRP publishes a guide for employers titled EI Premium Reduction Program. This guide is available at local Service Canada offices and the information is also on the website for employers.

The Canadian Payroll Association is an association representing employers' payroll interests. Every year, PRP representatives from Service Canada participate in their annual conference to raise awareness of the Program.

In response to the evaluation, we communicated with Marketing and Communications to see how the visibility of the Program can be further enhanced.

As a result, further steps will be taken to increase the visibility of the program. They include: 1) adding Internet links to our Program wherever possible; 2) including information on the Program in the Employer's kit that is available to employers through Outreach sessions conducted by Service Canada staff (this employer's kit will soon be available in Service Canada Centers), and; 3) the introduction of a 1-800 telephone line for employers. Its phone script for agents will include PRP information.

Recommendation 2

«Evidence from the technical report, «Analysis of the Application Process» suggests two viable options for the initial application process - streamlining the current initial application form to include only relevant fields, or providing for electronic applications. For the renewal application process, similar suggestions are made, as well as i) extending the renewal application period for registered employers; ii) sending renewal application forms to employers by registered mail; and iii) removing the obligation for employers to return the renewal application form every year if their approved plan is deemed to have not changed, which would results in savings of over $27,000. Whichever options are selected, it is recommended that employers not currently enrolled in the PRP be notified of all changes, as employer survey findings suggest that some employers are not enrolled because of the inefficiency of the application process. By making the process more efficient, some employers may decide to take part in the PRP.»

We agree with this recommendation.

A comprehensive review of the PRP Program was conducted in 2007-08 with the objectives of reducing administrative and paper burden for employers. As a result of the review, the initial application was streamlined in August 2008 and is available for employers through the PRP Employer Guide and the Internet.

In addition, regulatory amendments have been passed in time for calendar year 2010 to remove the obligation for employers to renew their application yearly. This means that employers will not be required to complete an annual renewal application because their participation in the PRP will be ongoing until revisions or amendments are made to their plan or until the plan is cancelled. These amendments will be in place in time for the 2010 calendar year.

We are also replacing the current client-server system for one that will permit employers to submit and receive all documentation electronically.

The streamlining of the initial application form, the removal of the obligation for employers to renew their application annually and the possibility of submitting and receiving all documentation electronically will provide incentives for employers to register with the PRP.

The PRP employer guide will be revised to reflect the changes with respect to the renewal application and the provision of electronic services and a one-page information document will be sent to all participant employers to inform them of these changes. The website will also be updated and the information will also appear in a «What's New» section.

We will request that the CRA update their employer guide and website to reflect the changes to the PRP so that all employers having a payroll account with the CRA will have access to this information.

1.1 Overview

Employment Insurance (EI) provides special benefits to people who are not working due to injury, illness or quarantine, while also allowing for maternity, parental and compassionate care benefits. Many employers make similar types of income protection coverage available to their employees, thus reducing the demands made on the EI system by decreasing the amount that employees would otherwise collect from EI.

When employers provide coverage to their employees for short-term illness or injury with an income protection plan, they may obtain a reduction in EI premiums upon application to Human Resources and Skills Development Canada (HRSDC) under the EI Premium Reduction Program (PRP), which was established in 1971. ^Footnote1 This reduction is provided to both the employer and employees by means of a reduction in the employer's EI premium rate. ^Footnote2

1.2 Evaluation Goals

The EI PRP is now being evaluated for the first time. The majority of the work completed for this evaluation will be breaking new ground and will focus mainly on different rationale issues surrounding the PRP, the level of take-up of the PRP, details of employer-based plans, the interaction between employer plans and EI sickness benefits, administrative costs, and different aspects of program delivery.

The overall objective of this evaluation is to provide information on program take-up and awareness, specifically the reasons for why some employers do not take part in the PRP. It also considers different aspects of the current functioning of the program. Moreover, since the overarching goal of the PRP was not to change employer behaviour, the evaluation has not focused on any behavioural change (although it is quite possible that the PRP is having some influence).

A Steering Committee was created to oversee and guide the evaluation, with all questions developed as part of a consultation process with the program area. ^Footnote3 The Steering Committee decided to focus the analysis for the formative evaluation on 10 questions related to evaluation issues and 7 questions related to program delivery. The questions fall into five broad categories:

• Program Rationale;
• Achievement of Program Objectives;
• Impacts and Effects of the Program;
• Cost Effectiveness and Program Alternatives; and
• Program Delivery.

The key evaluation questions and the methods of research adopted to provide evidence are listed in Table 1. This summary report discusses the outcome of each evaluation question.

1.3 Lines of Evidence

Wherever possible, the evaluation project used multiple lines of evidence to help answer these evaluation issues and questions. Some of the analysis was performed by consultants, while other analysis was performed in-house by the Evaluation directorate. The analysis performed by consultants (firm name in brackets) was comprised of:

• A survey of employers (Mercer Limited);
• Key informant interviews (Cathexis Consulting); and
• A literature/file review (Arun Roy).

The work conducted in-house by HRSDC Strategic Evaluation consisted of an analysis of administrative/Canada Revenue Agency (CRA) data. Findings from a separate study completed by the Coverage and Premium Policy area of Service Canada will also be used in the report.

1.3.1 Survey of Employers

The online survey of employers ^Footnote4 involved a sample of four different categories of employers:

1. Recent PRP joiners - employers who joined the PRP during 2006 or 2007 and who had not previously been registered (as far back as 1996).
2. Mature PRP participants - employers currently registered under the PRP and who had been so registered since at least 2000.
3. Recent PRP leavers - employers who left the PRP during 2007.
4. Non-participants - employers currently not registered under the PRP and who had not been registered at any time since 1995.

An invitation was sent on departmental letterhead to 1,000 employers in each of the four categories, for a total of 4,000 invitations. Four identical but distinct websites were set up, with each group of employers being directed to a site which transparently allowed them to be identified as recent joiners, mature participants, recent leavers or non-participants. In addition, an e-mail address was provided on the websites for enquiries or comments.

After the mailing, employers were given two full calendar weeks to respond (up to July 4, 2008). The survey was later left open for an additional week to accommodate late responses. As it turned out, most responses were made within the first week after the mailing and the one week extension only brought in an additional two percent of the responses (13 out of 557).

Subsequent to the initial mailing, it was decided to proceed with a second mailing of 3,000 additional invitations, but this time only to employers classified as non-participants. The reason for this was the low response rate (1.9 percent) registered for this group in the first mailing. These employers were also given two full weeks to respond (up to August 14, 2008), with the deadline again being later extended by one week to accommodate late responses. ^Footnote5 The second mailing produced 136 responses or a 4.5 percent completion rate, of which 118 responses or 87 percent were completed in full.

Table 2 shows that, from these two mailings of 7,000 invitations, there were 693 responses to the survey, out of which 592 responses were completed in full (85 percent) and 101 were completed to varying degrees (15 percent). For those who did complete the survey in full, the survey took a median time of just over six minutes. Those who were non-participants in the PRP took just over four minutes, as they had fewer questions to complete. These response times and the 85 percent completion rate provide an indication that the questions posed were sufficiently clear to most respondents and not too difficult to complete. Fourteen of the 693 responses were rejected outright as they provided too little information to be of use.

• Source from the above table Source : Wage Loss Protection Survey (un-weighted data), July 2008 (Mercer Limited).
• Source from the above table ^* Note that 14 responses were rejected outright as they had too little information to be of use.

Thus, out of these initial invitations, the effective response rate was 10 percent overall. ^Footnote6 For each of the four employer categories, the response rates were 19 percent for recent joiners, 25 percent for mature participants, 10 percent for recent leavers and 4 percent for non-participants. Due to these low response rates, no serious statistical analysis is presented in this report.

The low response rate registered by non-participants is likely due to the fact that most of them do not provide short-term disability (SD) coverage and to their consequential lack of interest in the PRP itself. Their high «full completion» rate and short «time to complete» both support that opinion. The group's low response rate might be partially attributed to reduced availability of Internet access, but this should not be a major factor given that Statistics Canada's Survey of Electronic Commerce and Technology indicated that 79 percent of small businesses and almost all medium and large businesses already had such access in 2005. ^Footnote7 Although the low response rate may prevent any serious statistical analysis from being undertaken, the results can still be used to establish rough orders of magnitude.

Finally, Table 3 below shows the proportion of respondents who reported an SD plan. Amongst firms classified by HRSDC as non-participants, 42 percent indicated that they had such a plan, a proportion that is likely not typical of all non-participant firms in Canada, given that those who do not offer a plan are probably less likely to have responded to the survey.

• Source from the above table Source: Wage Loss Protection Survey (un-weighted data), July 2008 (Mercer Limited).

1.3.2 Key Informant Interviews

In order to gather additional information on information related to program rationale, ten telephone interviews were conducted between January and April 2008 with academics/researchers that have intimate knowledge of EI.

HRSDC provided a list of potential interviewees who were selected purposefully for their background in labour policy, particularly as it relates to EI. Most of the potential experts were professors at Canadian universities. A total of forty-five potential interviewees were contacted to participate in an interview, of which ten experts agreed to take part. Many declined due to a lack of knowledge about the PRP and/or not having time in their schedule for an interview.

A major limitation of the key informant interviews is that, with the exception of one interviewee, the interviewees had little specific knowledge regarding the PRP (even though they were all considered experts of the EI system). ^Footnote8 The majority of the answers given during the interviews were based on experts' estimations, given their limited knowledge of the PRP.

1.3.3 Literature/File Review

The literature/file review for this evaluation focused on the following:

• Similar programs that are in place in Canada and other Organization for Economic Cooperation and Development (OECD) countries that lower employer contributions (such as premiums for some sort of social safety net) because the employer offers benefits that reduce the demand for social programs (such as unemployment insurance); and
• Reasons for why employers add non-salary benefits to their compensation package, such as medical/dental benefits.

The methodology used for the literature/file review consisted of examining the following relevant documents:

1. HRSDC Annual Reports;
2. Reports of the Chief Actuary to the EI Commission on the EI Premium Rate;
3. The White Paper on Unemployment Insurance (1970), which was the basis for the 1971 Unemployment Insurance (UI) Act;
4. House of Commons debates on UI;
5. Senate Committee hearings on UI;
6. The Comprehensive Review of the Unemployment Insurance Program in Canada, Unemployment Commission, 1977;
7. Reports of the Auditor General;
8. UI Program for the 80's (Gershberg Task Force Report); and
9. OECD publications relevant to the program (Internet and libraries).

In addition to the above, contacts were made with the Chief Actuary to the EI Commission for clarification and details of the methodology for estimating the premium reduction under the program. Contacts were also made with the HRSDC Bathurst offices for some administrative data on the PRP.

1.3.4 CRA/Administrative Data Analysis

This line of evidence involved aggregate data that is derived from two main sources:

• Service Canada:
  • Premium Reduction System database
  • Information from the Registrar of Appeals
• Canada Revenue Agency:
  • T4 Summary file

The Premium Reduction System database contains information dating back to 1995 on employer applications, the extent of employee coverage per employer (i.e. the average number of employees covered per firm, the number of employers having more than 100 employees covered, etc.), a breakdown of the methods used to return EI savings to employees, and a summary of the types of plans offered by employers.

Information from the Registrar of Appeals includes data on the number of employers that appealed an application rejection, as well as data on the number of won and lost appeals. The T4 Summary file contains data from 1994 to 2006 that provides detailed information on PRP take-up rates by firm size, industry and province.

2.1 Background

Under Section 69 of the EI Act (and Sections 62-76 of the EI Regulations), an employer's EI premiums may be reduced when employees are covered by a qualified SD plan which reduces EI benefits that would be payable if such a plan did not exist. ^Footnote9

For each calendar year, the rates of premium reduction are established based on four categories of qualified plans, with a distinct rate for each category. These categories of qualified plans are identified as follows:

Category 1 - This is a cumulative paid sick leave plan which allows an employee to accumulate a minimum of one day of sick leave for each month worked, up to a minimum of at least 75 days (15 weeks) of sick leave, for use in case of illness or injury. Some plans may also allow for the use of paid sick leave credits for pregnancy, caring for a newborn or newly adopted child, or compassionate care. The maximum premium reduction for a Category 1 plan is $111.38 in 2008 (employer portion of $64.97 and employee portion of $46.41). ^Footnote10

Category 2 - This is a cumulative paid sick leave plan which allows for a minimum monthly accumulation of one and two-thirds days and a minimum accumulation of at least 125 days (25 weeks). The maximum premium reduction is $163.87 in 2008 (employer portion of $95.59 and employee portion of $68.28).

Category 3 - This is a weekly indemnity plan with a maximum benefit period of at least 15 weeks. Plans provide full entitlement to sick coverage that is effective from the date an employee is hired. Such entitlement remains fixed thereafter no matter how long one works. The maximum premium reduction is $155.56 in 2008 (employer portion of $90.74 and employee portion of $64.82).

Category 4 - This is a weekly indemnity plan with a minimum benefit period of at least 52 weeks. ^Footnote11 The maximum premium reduction is $169.29 in 2008 (employer portion of $98.75 and employee portion of $70.54).

An example of a non-qualifying SD plan would be one which allows employees to accumulate one sick day (i.e. one sick leave credit) for every two months worked, or one that allowed a maximum accumulation of only 50 sick leave days.

In November of each year, the annual reduced rate applicable to the following calendar year for each plan category is calculated by Actuarial Services based on statistical data. When the Program grants a premium reduction, it is applicable from January 1 to December 31, regardless of when the employer qualifies. The reduced rate is based on the date that an employer meets all the requirements and on the date the employer submitted the application. If an employer qualifies for a reduced rate part-way through the year, the employer's reduced rate would be retroactive to January 1 and is therefore applicable to the employer EI premiums the employer pays for the entire year.

Rates of premium reduction are expressed as a percentage of employee insurable earnings. A corresponding multiple must then be used by the employer to calculate the employer premiums payable based on the employee premiums. The multiple that is used by an employer who does not have a reduction is 1.4. ^Footnote12

Effective January 1, 2006, the Quebec Parental Insurance Plan went into effect, replacing EI in providing maternity, paternity, adoption and parental benefits to residents of Quebec. Now, employers and employees in Quebec contribute less in EI premiums to offset the premiums that they pay into the Quebec Parental Insurance Plan fund. This means that the rates of premium reductions for employers participating in the PRP with some or all employees in Quebec are recalculated based on their reduced EI contribution rate. To ensure that their savings would be the same as that for participants with employees elsewhere in Canada, the multiple used by employers with employees in Quebec is lower.

2.2 Objective

The original objective of the PRP was to recognize employer-based plans that already existed and to ensure that they would not stop being offered as Unemployment Insurance sickness benefits came on stream. As stated in the 1970 White Paper on Unemployment Insurance, «cost concerns and a desire to recognize the role of existing wage-loss replacement plans contributed to the decision to supplement rather than pre-empt those plans». Many workers were already covered against loss of wages due to non-occupational illnesses or accidents.

It was thus decided that the EI program would adopt a «second-payer» position relative to group wage-loss replacement plans, whose benefits would be deductible from EI sickness benefits. This implied that employees who became ill would first make use of their employer's SD plan (if their employer had a plan) and secondly make use of EI sickness benefits if they are still sick and have exhausted benefits from their employer's SD plan. It was hoped that wage-loss replacement plans which generally met or surpassed EI benefit standards would be maintained, and that employers and unions would be encouraged to upgrade other plans or to establish new plans.

To this end, premium reductions would be granted corresponding to the estimated savings (or EI cost reductions) generated by plans that met minimum standards. By eliminating most of the cost duplication to employers and their employees, such premium reductions would effectively create an opting-out situation. ^Footnote13

2.3 Eligibility

To qualify for a premium reduction, the employer must:

• Provide SD coverage that meets the requirements of the EI Commission (i.e. fall into one of the four categories of eligible SD plans);
• Apply for a reduction;
• Demonstrate to HRSDC that at least five-twelfths of the reduction will be passed on to the employees covered by the approved plan; and
• Remit to the Canada Revenue Agency (CRA) under separate payroll deduction accounts, if necessary.

To be considered for a premium reduction, a plan that provides SD benefits to employees must:

• Provide for the accumulation of at least 15 weeks of benefits for SD;
• Match or exceed the level of benefits provided under EI;
• Pay benefits to employees within 14 days of illness or injury;
• Be accessible to employees within three months of hiring; and
• Cover employees on a 24-hours-a-day basis (i.e. if they become sick away from work they are still covered).

To participate in the PRP, an employer must register by submitting an initial application. Employers who are already participating in the PRP must renew their entitlement to the reduction by completing a renewal application, which is issued every year.

When applying for a premium reduction, the employer must provide evidence of a formal written commitment made to employees to supply them with an SD plan (i.e. paid sick leave or weekly indemnity benefits) if they are unable to work because of illness or injury.

The formal commitment is the document (or documents) containing or detailing the SD plan provided to the employees. This document takes various forms and may be recorded in a number of ways. For instance:

• A union or association agreement;
• An industry-wide trust contract;
• A private carrier's insurance policy;
• An administrative measure contained in an employee handbook;
• A Board of Directors' minutes indicating that employees are provided with an SD plan;
• A statement contained in a personnel policy bulletin; or
• Any commitment in writing by the employer to employee(s).

The formal commitment must include a complete description of the benefits provided and meet the conditions as set by Service Canada, based on the type of plan provided.

In addition, employers must satisfy HRSDC that they have made effective arrangements for returning the employees' portion of the savings obtained through the premium reduction. Acceptable arrangements include:

• A written mutual agreement between the employer and employees or their representatives on the method of returning the employees' portion of the premium reduction;
• A cash rebate in an amount equivalent to 5/12 of the reduction savings (considered taxable and insurable income);
• New employee benefits provided as a result of the premium reduction, such as a dental plan or group life insurance; or
• Increased employee benefits or upgrading of existing benefits, such as more holidays, more time off work or increased life insurance.

2.4 Program Activity

The first year for which official statistics on the PRP were made available was in 1973. During 1973, there were 12,600 employer units that received premium reductions and $48 million in premium reductions were paid (see Table 4). ^Footnote14 This equated to an average reduction of $3,810 per employer unit and covered employees whose combined insurable earnings totalled $19.4 billion.

• Source from the above table Source: Wage Loss Protection Survey (un-weighted data), July 2008 (Mercer Limited).
• Source from the above table ^* Forecasts only, as actual insurable earnings (derived from CRA data) are only known with a 3-year lag.
• Source from the above table ^** Represents the insurable earnings of employees eligible to the EI premium reduction.

Program activity continued to increase in each subsequent year until 1993, during which employer unit participation peaked at 40,000. The number of employer units registered in the PRP has fallen consistently since 1993, with participation forecasted to be 32,500 in 2008. The reason for this decline is that CRA introduced new remittance methods that made it easier for companies to amalgamate their payrolls. ^Footnote15 Thus, although the number of employers units decreased, the number of employees covered did not (as evidenced by the fact that employee wages covered increased from $156.1 billion in 1993 to an estimated $218.0 billion in 2008). ^Footnote16

The total value of premium reductions paid also fell after 1993, but managed to surpass the 1993 total in 2004 ($571 million) and is estimated to be almost $800 million in 2008 (average of $24,462 per participating employer). ^Footnote17

3.1 Program Rationale

Q-1: Is it fair to reduce the premiums of employers participating in the PRP ?

The original rationale for the PRP was equity and fairness for employers who provided coverage (outside of the EI system) for employees for short-term wage loss due to sickness. ^Footnote18 When the PRP was introduced in the 1971 UI Act, many workers were already covered against loss of wages due to non-occupational illnesses or accidents. It would have been unfair for both employers and employees who had special coverage under any wage-loss replacement plan for wage loss due to sickness to be required to pay the same insurance premiums as others who did not have this kind of coverage. Consideration for equity and a desire to recognize the role of existing wage-loss replacement plans contributed to the incorporation of the PRP. A House of Commons speech noted that provincial plans would also be recognized were any to be introduced. ^Footnote19

Findings from the key informant interviews revealed divergent opinions on the notion of fairness. Some of the experts believed that fairness should be a consideration, indicating that public policy has to make sense and programs need to be equitable. However, other experts agreed that fairness should not be a consideration when designing policies. They argued that policy decisions should be driven by efficiency, while another thought decisions should be based on policy objectives like improving sickness benefits, which can be done through offering employers an incentive.

Q-2: Does the existence of the PRP encourage more firms to offer their own SD plans ?

As the analysis for Question 2a (below) shows, only 8 percent of employer survey respondents with an SD plan listed the availability of the PRP as the main reason for why they began to offer an SD plan for their employees.

In addition, Question 2b clearly indicates that there is no business case, from a strictly monetary standpoint, for smaller firms to offer their own SD plan simply to receive a premium reduction. Information provided by the Canadian Life and Health Insurance Association indicates that, in 2006, the average premium costs per worker for SD insurance issued on a group basis was $300. By comparison, the maximum employer share of EI premium reductions for any category of plan had a value of less than $100 in 2008. However, the mere existence of the PRP will likely encourage a few firms to offer their own SD plans who, in the absence of the PRP, would have found it too expensive.

Q-2a: Why do employers offer their own SD plans ?

The literature review of the PRP revealed that there are several reasons for why employers offer their own SD plans. First, some earnings-related benefits are not taxed. Thus, as taxes have increased over time, this has made non-wage benefits an increasingly preferred form of compensation. Secondly, there are economies of scale and administrative advantages for group purchases through the employer of such items as pension and health insurance plans. In group pension and insurance plans, the premiums that are payable are lower. Employers also prefer earnings-related benefits because they provide incentives to employees to stay with the firm, thereby reducing employee turnover. In the long run, earnings-related benefits such as SD plans reduce the costs of hiring and training new employees. ^Footnote20

Results from the employer survey indicated that the most likely reason that an employer will offer an SD plan is that it is good employer practice, as shown in Table 5. ^Footnote21 Roughly 42 percent of employers mentioned this is their main reason - 65 percent of non-participants listed this as their main reason, compared to about 40 percent for the other three groups.

• Source from the above table Source: Wage Loss Protection Survey (un-weighted data), July 2008 (Mercer Limited).
• Source from the above table ^* Note: A "-" indicates less than 5 observations.

The two other most important reasons for why a firm will offer their own SD plan are to attract new employees and/or retain current employees (17 percent) or due to collective bargaining (13 percent). It is worth noting that the availability of EI premium reductions via the PRP was listed by 8 percent of employers as the main reason for why their firm offers a plan.

Findings from the key informant interviews essentially confirmed those from the literature and employer survey. According to the labour policy experts, the most common reasons employers offer their own plans are:

• It assists in attracting/retaining employees;
• Employees like being offered a plan;
• It is more cost-effective (e.g. better deals are available with insurance companies for group plans and paying out of pre-tax dollars is cheaper than post-tax dollars);
• Group plans help with the employer's public image as a good employer; and
• The group plan may have been negotiated with a union or collective bargaining unit.

Q-2b: Is there a business case for employers to offer their own SD plans ?

A «business case» is an action which, if undertaken, will be profitable to the firm or at least cost neutral. On those grounds, it is clear that the employer share of EI premium reductions, whose maximum value is less than $100 in 2008, can rarely cover or even come close to covering the total costs of an SD plan, with annual costs that average $300 per covered individual. While there may be a broad business case when viewed in terms of employee welfare, goodwill and attracting talented workers, the monetary case, in isolation, appears to be weak.

Some evidence of the significance of the cost factor can be found in the fact that, for the 115 respondents who said that their firm did not offer any SD coverage (across all categories), the main reason they reported was that it was too costly, as quoted by 43 percent of respondents. The next reported reason was «other» (20 percent), followed by firms indicating that there are few employee absences due to illness (17 percent). This latter reason may also be cost-related, in that some firms may not be offering SD coverage because the fixed and/or variable costs are too high for a firm with only a few employees and, thus, few employee absences. These results are shown in Table 6.

• Source from the above table Source: Wage Loss Protection Survey (un-weighted data), July 2008 (Mercer Limited).

The higher costs of private plans are due to their short waiting period (most often zero or seven days, as compared to the EI waiting period of two weeks ^Footnote22 ), their higher benefit rate ^Footnote23 than the standard EI benefit rate of 55 percent, and their longer benefit duration than the EI period of 15 weeks for sickness benefits. ^Footnote24

Another factor in the higher costs of private plans is a higher utilization of available benefits by persons covered by private plans, as noted in a Statistics Canada study in 2006: «The combination of two job-related factors - belonging to a union and having medical or disability insurance coverage - also significantly increased the likelihood (1.7 times) of a leave from work for personal illness when compared with workers who had neither benefit». ^Footnote25

Q-2c: Is there a way to encourage smaller firms to participate in the PRP ?

One way to increase the PRP's attractiveness to smaller firms is to increase the value of the premium reductions, which has been happening since 2004 (see Section 2.4). The increase has come because the estimated amount of cost savings to the EI system that are generated by qualified wage-loss replacement plans in each category has been increasing annually since 2004. Thus, the resulting changes in actuarial estimates have led to increases in the premium reduction per $100 of insurable earnings. ^Footnote26

To explain further, the rates of premium reduction granted since 1972 reached their lowest point in the late 1990s and early 2000s. One of the reasons for this trend was the reduction in EI benefit rates over the years, from over 66 percent in the 1970s to 60 percent in the 1980s, and falling to 55 percent in 1994. As a result, considering only benefit rates, the scope for premium reductions narrowed by 17.5 percent from the 1970s to recent years, potentially reducing employer interest in seeking premium reductions. Although the value of reductions started moving upwards in 2004, the maximum reduction that an employer could be granted for an employee in 2008 still stood at less than $100 for the year, less than 1/3 of the average cost of $300 for insuring each worker.

Other measures to encourage smaller firms to participate in the PRP involve improving program accessibility, awareness and delivery. For example, the current registration process is still mostly a manual one. Employers must mail in their applications and renewal forms and HRSDC must also contact them by mail to confirm amendments, annual renewals and other matters. ^Footnote27 The rules of the PRP must be set to be as user-friendly as possible, which has been an ongoing process through consultations and feedback from employers, the insurance industry and labour. ^Footnote28 As well, in order to involve more small firms in the PRP, they must first offer an SD plan. But before any of these measures can become effective, overall employer awareness levels of the PRP need to be improved (see Question 11).

Q-3: How does the PRP compare to similar types of programs in Canada and in other developed countries ?

There is no other social or economic program in Canada that is comparable to the PRP. One program that has some similar aspects is the Canada Pension Plan (or Quebec Pension Plan in Quebec), which is a contributory retirement benefit program that provides pension benefits to all Canadians after retirement. ^Footnote29 The first similarity is that both employers and employees are required to make contributions into the Canada Pension Plan. Secondly, like the maximum insurable earnings threshold under EI, the Canada Pension Plan has a maximum threshold up to which contributions must be paid by both employers and employees. For 2007, for instance, contributions are payable on the maximum pensionable earnings of $43,700 at the rate of 4.95 percent for employees and employers. However, there are few other similarities between the two programs - unlike the PRP, Canada Pension Plan contribution rates do not differentiate between employers who provide pension benefits (e.g. under a registered pension plan) and those who do not. Thus, employers are not entitled to lower contribution rates if they have defined pension plans. ^Footnote30

A second program that has some similarities with the PRP is the Workers Compensation program in Ontario. Although Workers Compensation is not a tax program, employers can pay reduced premiums if their industry has a history of low injury rates and getting injured workers back to work quickly.

In terms of other countries, a global literature search was conducted to examine the comparability of the PRP with programs in other OECD countries. Findings suggest that no other comparable programs exist. A weak parallel can be drawn between the PRP and the experience rating of unemployment insurance in the U.S., in that fairness and equity for employers is the central issue in both. In the U.S., unlike in Canada, employers alone finance the unemployment insurance system. Their contributions or taxes are partially experience-rated or impacted by their previous layoff activity. Depending on the state, as the amount of previous layoff activity rises, tax rates for employers also rise. This is somewhat similar to the PRP in Canada - as the generosity of SD coverage for employees rises, premium reductions for employers also rise (up to a limit). ^Footnote31

3.2 Achievement of Program Objectives

Q-4: What is the take-up rate of the PRP and what factors influence take-up ?

Data from the CRA T4 Summary File in Table 7 below indicates that 2.9 percent of all CRA-registered business numbers were enrolled in the PRP in 2006 (employer take-up measured in terms of employers with eligible SD plans is estimated in Appendix 2). Overall, the share has been declining steadily since 1995, dropping roughly 0.1 percentage points each year. As mentioned in Section 2.4, the main reason for this decline is that CRA introduced new remittance methods that made it easier for companies to amalgamate their payrolls, leading to a decline in the number of employer units enrolled, but not necessarily the number of employers.

• Source from the above table Source: T4 Summary File - Canada Revenue Agency (columns 2-4); Premium Reduction System Data - Bathurst, New Brunswick (column 5); Labour Force Survey - Statistics Canada (column 6).
• Source from the above table ^* The number of employers is based on the number of business numbers that have been registered with the CRA. Thus, an employer can appear more than once in a given year.
• Source from the above table ^** In general, CRA data lines up well with HRSDC data - in most cases, to within 4 percent (e.g. HRSDC data indicates that there were 33,860 employers enrolled in the PRP in 2006).
• Source from the above table ^*** This column is based on annual averages of the employed population (does not include self-employment).

However, although only a small portion of all Canadian employers are enrolled in the PRP, they cover more than two-fifths (41.3 percent in 2006) of all workers (excluding the self-employed) in Canada. Although the share of covered workers in Canada has stabilized over the last four years, it is down 5.5 percentage points from the share of workers covered in 1997 (46.8 percent).

PRP registration is influenced by an employer's willingness to offer an SD plan. The reason that some employers do not offer their own SD plan is due to their high costs, there not being enough absences within the firm to justify offering an SD plan, or the employer relying on EI sickness benefits for its employees (see Table 6 for more information).

Another factor that would influence PRP registration is awareness levels of eligible firms who are not enrolled in the PRP. Employer survey data suggests that 72.3 percent of non-participating employers who offer their own SD plan (although not necessarily an eligible plan) reported being unaware of the PRP (see Question 11 for more information). It is quite likely that some of these employers who offer eligible plans would enrol in the PRP if they knew about it.

A third factor that has some influence is the difficulty some employers have with the annual renewal process and the understanding of the program rules. Out of a small sampling of 22 employers who recently left the PRP, about one-third indicated that they did so due to the trouble/bureaucracy involved in having to renew each year or because the rules were unclear or too complicated.

Q-4a: How does the take-up rate differ by firm size, industry and province ?

PRP take-up varies dramatically by firm size, with larger firms far more likely to apply for and receive EI premium reductions than smaller firms. Table 8 shows this wide disparity.

• Source from the above table Source: T4 Summary File - Canada Revenue Agency.
• Source from the above table ^* The number of employers is based on the number of business numbers that have been registered with the CRA. Thus, an employer can appear more than once in a given year.
• Source from the above table ^** Represents the share of the entire employer population for 2006 (e.g. 88.1 percent of all employers in Canada in 2006 had fewer than 25 employees).

In 2006, almost 45 percent of large employer units (500 employees or more) received EI premium reductions through the PRP. In contrast, only 1.4 percent with fewer than 25 employees received reductions. As well, similar to the findings presented in Table 6, PRP take-up rates fell steadily over the period for all employer unit size categories. However, the take-up rate declined the least for large employer units, falling only 4.5 percentage points from 1994 to 2006.

There is also significant variation in PRP take-up by industry. ^Footnote32 Some industries have take-up rates of over twenty percent (public administration and utilities), while other industries have take-up rates as low as one percent (agriculture, forestry and fishing; construction; accommodation and food services). Take-up rates for all industries for the 2000 to 2006 period are listed in Table 9. ^Footnote33

• Source from the above table Source: T4 Summary File - Canada Revenue Agency.
• Source from the above table ^* The number of employers is based on the number of business numbers that have been registered with the CRA. Thus, an employer can appear more than once in a given year.
• Source from the above table ^** Includes business numbers that are either not active as of January 2008 or the information is blank from an existing active business number.

While there is significant variation among take-up rates by industry, there has also been substantial change in the level of take-up among different industries over the 2000 to 2006 period. For example, take-up is down by over 20 percent in the transportation and warehousing industry over this seven-year period, as well as in construction and in the health care and social assistance industry. Conversely, take-up rates are either unchanged or higher in the agriculture, forestry and fishing industry, in addition to the information and cultural industry, the management of companies, and public administration.

Finally, Table 10 presents data in the same format as Table 9, except that it is for Canada's provinces and territories. The data shows that employer take-up is highest in Saskatchewan and Manitoba and lowest in Atlantic Canada. During this seven-year period, employer take-up declined in every province except Prince Edward Island.

• Source from the above table Source: T4 Summary File - Canada Revenue Agency.
• Source from the above table ^* The number of employers is based on the number of business numbers that have been registered with the CRA. Thus, an employer can appear more than once in a given year.
• Source from the above table ^** Includes business numbers that are either not active as of January 2008 or the information is blank from an existing active business number.

Q-5: To what extent are different types of SD plans being offered by employers ?

There are four categories of plans that can qualify for a premium reduction. ^Footnote34 Table 11 shows that Category 3 plans, which are weekly indemnity plans with a minimum benefit period of at least 15 weeks, are by far the most common type of SD plan offered by employers. Throughout the 1997 to 2006 period, between 88 and 89 percent of all plans were Category 3. The second most common type of disability plan is the Category 1 plan, although there has been a consistent decrease in the share of Category 1 plans during this ten-year period.

• Source from the above table Source: Premium Reduction System Data - Bathurst, New Brunswick.
• Source from the above table ^* Refers to the total number of business numbers assigned to short-term disability plans. Thus, an employer can appear more than once in a given year.
• Source from the above table ^** Some plans contain elements of more than one category of short-term disability plan.

To extend the analysis a little further, Table 12 presents the trend in the share of employees covered under each plan, while Table 13 illustrates the average number of employees covered under each plan. Table 13 is useful because it gives a sense of which plan is the most likely to be offered given a firm's size.

• Source from the above table Source: Premium Reduction System Data - Bathurst, New Brunswick.
• Source from the above table ^* Refers to the total number of business numbers assigned to short-term disability plans. Thus, an employer can appear more than once in a given year.
• Source from the above table ^** Some plans contain elements of more than one category of short-term disability plan.

• Source from the above table Source: Premium Reduction System Data - Bathurst, New Brunswick.
• Source from the above table ^* Refers to the total number of business numbers assigned to short-term disability plans. Thus, an employer can appear more than once in a given year.
• Source from the above table ^** Some plans contain elements of more than one category of short-term disability plan.

It is clear from Table 12 that, although roughly 88 to 89 percent of all employers who offer a plan offer a Category 3 plan (see Table 11), only about 68 to 69 percent of employees are covered by a Category 3 plan. This implies that employer take-up of Category 3 plans is higher among smaller firms relative to employer take-up by smaller firms of the other types of plans. This is confirmed in Table 13.

The average number of employees per firm that are covered under a Category 3 plan is the lowest among the different plan categories (131 in 2006). In contrast, larger firms are more likely to offer a Category 2 plan relative to their likelihood of offering a different plan, given that the average number of employees per firm that are covered by such a plan is the highest among the different plan categories (1,060 in 2006).

Overall, the average number of employees in a firm that are covered by an SD plan is increasing through time. In 1997, an average of 133 employees per firm was covered by a plan, while in 2006 an average of 171 employees was covered.

Q-5a: What are the specific details of each firm's SD plans ?

The employer survey asked firms about the details of their SD plans, namely the percentage of employees covered; the minimum number of benefit weeks payable; the formula for calculating benefits; and the average percentage of employee wages paid. ^Footnote35

Table 14 indicates that non-participating firms were the most likely to provide coverage for all of their employees (63 percent vs. the next highest of 55 percent for recent joiners. However, it is worth reminding that not all of the SD plans offered by non-participating are eligible for the PRP (Table 15 shows that 61 percent offered fewer than 15 weeks of benefits, the required minimum for PRP eligibility). As well, the results for the non-participating firms may be misleading as they are based on a sample of only 24 firms.

• Source from the above table Source: Wage Loss Protection Survey (un-weighted data), July 2008 (Mercer Limited).

The main reason given for firms not providing coverage to all of their employees is that many felt no need to cover irregular staff (e.g. casual, temporary or part-time workers). This was reported by about 80 percent of firms. However, it is also worth noting that many insurance carriers will not provide coverage to temporary workers.

Of the 568 employers that provided SD plan details, 149 failed to provide any details of the benefits paid, leaving 419 SD plans available for analysis. In terms of the average number of benefit weeks paid under the SD plans, Table 15 illustrates that, with the exception of non-participants, most firms provide SD coverage for more than 15 weeks, with the average being 20 weeks.

• Source from the above table Source: Wage Loss Protection Survey (un-weighted data), July 2008 (Mercer Limited).
• Source from the above table Note: A "-" indicates less than 5 observations.

The most common method used by employers to calculate employee benefits is a uniform percentage of employee earnings (i.e. a certain share of earnings). Of the responding firms, 83 percent stated that this was the formula they used, as shown in Table 16.

• Source from the above table Source: Wage Loss Protection Survey (un-weighted data), July 2008 (Mercer Limited).

Finally, Table 17 contains a breakdown of the average benefit rate paid among the four types of firms surveyed (i.e. recent joiners, recent leavers, mature participants and non-participants). The results show that the average benefit paid is highest among non-participants at 83 percent of an employee's insurable earnings.

• Source from the above table Source: Wage Loss Protection Survey (un-weighted data), July 2008 (Mercer Limited).
• Source from the above table Note: A "-" indicates less than 5 observations.

Q-5b: To what extent do firms offer long-term disability plans ?

Long-term disability plans focus on longer periods of disability. They typically commence payments after the disabled individual has been off the job for a significant period, such as six months, and replace a specified percentage of pre-disability employment income, for example 70 percent. Benefits typically run up to two years for recipients who are unable to perform their own occupations, and continue longer - with a limit of age 65 or the onset of retirement benefits - for recipients who cannot perform any reasonably comparable occupation. Long-term disability plans are typically harmonized with SD plans, providing continuity of income for plan members immediately on the cessation of SD benefits. ^Footnote36

Findings from the employer survey reveal that the vast majority of respondents (84 percent) had a long-term disability plan, as shown in Table 18. Only non-participants scored a relatively low percentage (38 percent). Notably, almost all of the firms that provided an SD plan also offered a long-term disability plan (95 percent), compared to 34 percent of firms without an SD plan.

• Source from the above table Source: Wage Loss Protection Survey (un-weighted data), July 2008 (Mercer Limited).

3.3 Impacts and Effects of the Program

Q-6: How does the PRP interact with other government programs ?

The Premium reduction program (PRP) interacts with Canada Pension Plan Disability (CPPD) benefits in that employees who exhaust the short-term disability benefits of firms enrolled in the PRP can then go on to make use of CPPD benefits if they remain incapable of working due to injury or illness. CPPD benefits are available to people who have made enough contributions to the Canada Pension Plan (CPP), and whose disability prevents them from working at any job on a regular basis, thereby leading to a termination of their employment. The disability must be long lasting or likely to result in death, but it is worth noting that some people who qualify for disability benefits from other programs may not qualify for CPPD benefits.

Aside from CPPD benefits, there may be potential interactions with provincial programs such as Workers Compensation in Ontario and with federal and provincial tax policy regarding the treatment of firm-sponsored short-term illness programs for tax purposes.

Q-7: To what extent do employees exhaust their SD plans and then go on EI ?

Employees who exhaust their employer SD plans and then go onto collect EI sickness benefits can be identified in HRSDC administrative data by those individuals who collect EI sickness benefits without serving the mandatory two-week waiting period. The reason this is the case is because EI legislation states that an individual who receives sick leave pay from their employer following their last day of employment and then goes on EI can have their waiting period waived or deferred.

During 2006, HRSDC administrative data indicates that there were approximately 45,000 claims where the reason for employment separation was injury or illness and where the two-week waiting period was waived. Thus, as a percentage of the 5,768,735 employees covered by an employer enrolled in the PRP, 0.8 percent exhausted their employer's SD benefits and then went on to collect EI sickness benefits.

However, the share is quite likely significantly lower than 0.8 percent for two reasons. First, the 45,000 claims include individuals who collected SD benefits from firms not enrolled in the PRP. Therefore, the 45,000 claims need to be divided by a number larger than 5,768,735. Secondly, although the overwhelming majority of claims without waiting periods are due to those who received sick pay from their employers, there are other reasons that could lead to a waiting period being waived (e.g. quarantine). Thus, there were less than 45,000 claims in 2006 attributable to individuals using up their employer's sickness benefits and then going on to collect EI sickness benefits.

The extent to which employees exhaust their SD plans and then go on EI was also investigated in the employer survey. The employer survey asked employers about the types of benefits paid to employees who had a sickness absence, namely whether any of their employees had received SD benefits, EI benefits, both together (i.e. the employee exhausts their SD plan and subsequently collects EI benefits) or none at all. In total, there were 298 firms able to provide information.

The analysis of these results is complex however, given that employers were allowed multiple responses. For example, an employer could report that some employees received SD benefits alone, that others received a combination of SD and EI benefits, and still others received only EI benefits. Or, the employer could report that employees received no compensation at all. ^Footnote37

Findings indicate that 13 percent of firms reported that some of their employees had received both SD and EI benefits. This would usually represent a situation where some employees had started receiving EI benefits after exhausting SD benefits, but could also represent cases where the employer plan only provided a top-up or supplement to EI benefits (though such plans, as noted in Question 5a, are much less frequent than SD plans and not eligible for the PRP).

Q-8: How does the use of employer SD plans by employees compare to the use of EI sickness benefits by employees not covered by an employer SD plan ?

HRSDC administrative data on the use of EI sickness benefits indicates that the average duration of a sickness claim during the 2006/07 fiscal year was 9.5 weeks, with 32 percent of all sickness claimants receiving the maximum entitlement of 15 weeks. ^Footnote38 Historically, the average duration of sickness claims has been relatively stable, as has the proportion of sickness claimants using all 15 weeks. It should be noted, however, that some EI sickness claimants also collected benefits from an employer SD plan (frequency not available).

As for employer SD plans, the employer survey asked firms about their number of employees and number of sickness absences lasting at least one week. There were 313 respondents who gave information on both counts, from which rates of sickness incidence were calculated (see Table 19).

• Source from the above table Source: Wage Loss Protection Survey, July 2008 (Mercer Limited).
• Source from the above table ^* Note: The figure 4,984 refers to the # of sickness absences lasting 1 week or more that were reported by firms with short-term disability plans who responded in the survey. There can be more than one sickness per firm.

Contrary to expectations, employers were found to register similar rates of sickness absences lasting at least one week whether or not they had an SD plan (6.1 percent vs. 6.3 percent). These results appear to contradict the findings of Marshall (2006) that were mentioned in Question 2c. However, the small number of firms without SD plans warrants caution in the generalization of the results, as does the fact that a significant proportion of firms with SD plans reported only their employee count, and not their sickness absences. ^Footnote39

3.4 Cost Effectiveness and Program Alternatives

Q-9: What are the overall administrative costs of the PRP ?

The overall administrative costs of the PRP for the 2006/07 fiscal year (i.e. April 30, 2006 to March 31, 2007) were $2,319,782. These costs are comprised of the following components:

• Service delivery wage costs of $2,050,570 for a staff of 40 full-time equivalents;
• Actuarial service wage costs of $20,000 (staff of 1/5 full-time equivalents);
• Operations and maintenance costs of $82,212; and
• Policy area wage costs of $167,000 (staff of 2.25 full-time equivalents).

Q-9a: Are there ways to decrease the administrative costs of the PRP by increasing the efficiency of the delivery ?

One of the proposed options for increasing the efficiency of the delivery of the PRP (see Question 17) is to remove the requirement that employers submit a renewal application each year if their approved plan has not changed. ^Footnote40 This new process would lead to annual savings for the administration of the PRP.

The current cost for mailing approximately 33,000 «Conditional Rate Notices» in 2007 has been evaluated at $22,160 (note that this and subsequent estimates do not include salary costs for the administration of these processes). The cost for mailing 33,000 renewal application forms in 2007 has been calculated at $27,510, while the cost for mailing 356 second renewal application forms in 2007 to employers who had not received the first one was $442. In addition, the cost for mailing 2,200 notices of non-return of renewal in 2007 to employers who have failed to return the renewal application form within the 30 days allowed has been determined to be $1,364. Finally, the cost for sending 32,050 confirmation rate notices in 2007 was estimated at $19,711. Overall, these costs added up to $71,187.

Under the proposed process, the renewal application forms would be combined with the information contained in the Conditional Rate Notice, thereby eliminating one mass mailing process. This would represent a savings to the EI Commission of over $27,000.

Q-10: What are the reduced administrative costs to the EI system from having to administer fewer sickness claims ?

Most EI field officers spend between 90 and 100 percent of their time processing EI claims according to a recent report. ^Footnote41 A «straightforward» claim takes anywhere between 15 and 30 minutes to process, whereas a claim that requires additional searching for information can take between one and four hours to process. On average, EI field officers process 10 to 16 claims per day (or 13 claims per day).

Given that the estimated dollar value of premium reductions in 2006 is $649 million (see Table 4) and is essentially based on what would the EI system would have had to pay out in EI sickness benefits had there been no employer-based SD plans, this works out to about 225,000 foregone EI sickness claims. ^Footnote42

Therefore, assuming that there is little difference in the claim processing time between claims for regular EI benefits versus sickness benefits (i.e. an EI field officer can process 13 claims per day), the existence of the PRP has saved 17,308 person-days of claim processing work. ^Footnote43 And, since there are roughly 250 business days during a calendar year, this implies that the full-time work of 69 fewer EI field officers are required each year because of the PRP. ^Footnote44 At an average salary of approximately $50,000 per year ^Footnote45 , this equates to reduced administrative costs to the EI system of $3.45 million annually from having to administer fewer sickness claims. ^Footnote46

3.5 Program Delivery Issues

Q-11: To what extent are Canadian employers aware of the PRP ?

Employer survey respondents were asked if they were aware of the PRP (whether or not they offered an SD plan), with 607 responses being registered. In addition, they were also asked how they became aware of this program. The findings (in Table 20) reveal that only 20 percent of employers who were classified as non-participants were aware of the PRP, as compared to 93 percent for the other three groups combined.

• Source from the above table Source: Wage Loss Protection Survey (un-weighted data), July 2008 (Mercer Limited).
• Source from the above table ^* Note: A "-" indicates less than 5 observations

Among the non-participating firms, of those who do not offer their own SD plan, 84.4 percent reported being unaware of the PRP. Of non-participating firms who do offer their own plan, 72.3 percent reported being unaware of the PRP. However, overall awareness levels among non-participating firms are probably even lower, as it is quite likely that a high share of firms chose not to participate in the employer survey because they did not know anything about the PRP.

As to how they became aware of the PRP, the single most cited reason was staff knowledge within firms (for 18.6 percent of respondents). Amongst other reasons, the most frequently mentioned situation was that the firm had already been registered before the present respondent took over.

It is also of interest to examine the pattern of awareness among non-participants by firm size. This is shown in Table 21. Not unexpectedly, there is a far lower level of PRP awareness amongst small firms of fewer than 10 employees.

• Source from the above table Source: Wage Loss Protection Survey, July 2008 (Mercer Limited).

Q-12: To what extent are some employers' initial or renewal applications for the PRP approved or rejected ?

Since 1997, between 1,502 and 1,951 initial applications have been processed each year (as shown in Table 22), with the number being significantly lower from 2004 to 2006. Table 22 also shows the share of employers submitting initial applications that are entitled to a premium reduction and the share not entitled to a reduction.

• Source from the above table Source: Premium Reduction System Data - Bathurst, New Brunswick.
• Source from the above table ^* There is one new account that has not yet been finalized.
• Source from the above table ^** There are 53 new accounts that have not yet been finalized.

In any given year, around 80 percent of all initial applications are approved for the PRP, while about 20 percent are rejected. There has been no significant trend over this 10-year period in terms of the percentage of applications that are approved or rejected. ^Footnote47

As for renewal applications, the same data that is presented for initial applications in Table 22 is duplicated for renewal applications in Table 23. Since 1997, between 34,265 and 40,179 renewal applications have been processed each year, with the number declining every year after 2000.

• Source from the above table Source: Premium Reduction System Data - Bathurst, New Brunswick.
• Source from the above table ^* There are 6 renewal applications that have not yet been finalized.
• Source from the above table ^** There are 51 renewal applications that have not yet been finalized.

Roughly 94-95 percent of all renewal applications are approved for the PRP. Renewal applications are far more likely to be approved than initial applications (94-95 percent vs. 80 percent). For renewal applications, the share that is rejected increased starting in 2000.

Q-12a: Why are some employers' initial or renewal applications for the PRP approved or rejected ?

There are some general requirements that an employer must meet in order to be eligible for the PRP. ^Footnote48 However, as Table 24 demonstrates, there are numerous other reasons for being non-entitled to a premium reduction aside from the reasons listed above. In fact, the general reasons comprise only a fraction of all reasons, particularly in the case of renewal applications.

• Source from the above table Source: Premium Reduction System Data - Bathurst, New Brunswick.
• Source from the above table ^* Some applications are later revised from «non-entitled» to «reduction granted». The revisions are not a result of the appeal process.
• Source from the above table ^** Other reasons include a collective agreement not received, a splitting of payrolls, and not an initial application (in the case of initial applications).

The most common reasons (other than «no reason given») for an initial application being rejected are that an employer decides to subsequently cancel their request (18.9 percent), refuses to set up another payroll account for other employees (18.7 percent), does not even have an SD plan (10.5 percent), and supplies no document that describes the disability plan (10.1 percent).

For renewal applications, the most common reasons for being non-entitled to a premium reduction are that the renewal form has not been returned (32.3 percent), an employer changes their business number or transfers their account to a new number (15.8 percent), a payroll amalgamation ^Footnote49 (10.8 percent), and the bankruptcy or sale of the business (10.6 percent).

Q-12b: To what extent are employers submitting appeals upon being rejected for the PRP ?

Employers who do not agree with the decision made concerning their request for a premium reduction have the right to appeal the decision during a period not exceeding one year from the date of the decision. Since 1997, there have been a total of 37 appeals submitted to the EI Commission. Table 25 provides a breakdown, by year, for the total number of appeals submitted, allowed and denied.

• Source from the above table Source: Registrar of Appeals - Appeals, Quality and Premiums Directorate.
• Source from the above table ^* One appeal was subsequently withdrawn by the employer.
• Source from the above table ^** One appeal was partially allowed/denied.
• Source from the above table ^*** One appeal was submitted late and one appeal was partially allowed/denied.

The number of appeals submitted over this 10-year period has fluctuated between zero and nine appeals per year, with 1999 having no appeals. In general, roughly one quarter of all appeals are allowed. As well, it is important to note that about 90 percent of appeals are due to employers not returning their renewal forms within the required 30-day renewal period. Decisions regarding appeals are made by the EI Commission.

Q-13: To what extent are employers returning the employees' portion of the premium reduction ?

Documentation exists which shows that it is unclear to what extent employers are returning the employees' portion of the premium reduction. On many renewal applications, employers write something non-specific such as «Other Benefits» as the method of sharing. It is difficult to identify what these benefits are and if they meet the conditions of the 5/12 sharing.

In some cases, it is also difficult to find written documentation pertaining to the 5/12 sharing and a link between the savings given to the employer and the benefits given to employees. It is only in cases where there is a separate bank account set up for deposit and withdrawal of the 5/12 that a link can be seen (i.e. the amount deposited in the bank accounts exactly matched what was being saved by the employer).

Further, few employers inform their employees that the benefits they are receiving are a result of the savings incurred by having an approved wage loss replacement plan. Thus, it means that employees are unaware that they are receiving a benefit that they are partially or fully paying for themselves.

Q-13a: How are employees being reimbursed ?

Table 26 below provides data on how employees have been reimbursed by employers since 1997. As of 2006, almost one-quarter of all employees were reimbursed via methods negotiated through a written mutual agreement, while almost one quarter were reimbursed via a cash rebate. The remaining more than half of all employees were reimbursed with new or additional benefits. The share of employees reimbursed in this manner increased substantially from 1997, when only about 42 percent of employees received new or increased employee benefits.

• Source from the above table Source: Premium Reduction System Data - Bathurst, New Brunswick.
• Source from the above table ^* Some employers have multiple plans covering different sets of employees. Thus, the total number of groups of employees covered by the EI Premium Reduction Program will differ from the number of participating employers.

Q-14: Is there a way to ensure that agents follow the legislation, policies and procedures when making decisions on applications ?

No evidence.

Q-15: What is the best method of keeping employers informed of their obligations ?

No evidence.

Q-16: How can the current PRP system used for the delivery of the program be improved ?

See Question 17.

Q-17: How can the current initial and renewal application forms be improved ?

According to findings from a report by PRP Coverage and Premiums Policy, ^Footnote50 two options for improving the initial application process and client service have been developed. The first option is to streamline the current initial application form, which contains 23 fields (10 questions) for employers to complete. It was found that seven fields are not relevant in determining if the employer meets the requirements for a premium reduction. The second option is to provide for electronic applications, which would greatly streamline the applicant's initial entry to the PRP by reducing administrative and paper burden. As well, this would increase the speed of communication between employer-clients and the EI Commission.

In terms of renewal applications, four potential options have been suggested - (i) extend the renewal application period for registered employers; (ii) send the renewal application forms to employers by registered mail; (iii) streamline the renewal application form; and (iv) no requirement to submit a renewal application if an employer's plan has not changed. Of these four options, the fourth option was identified to be the best option in terms of cost and feasibility.