Definitions and types of wage-loss replacement plans

A wage-loss replacement plan (WLRP) is an arrangement between an employer and employees, or an employer and a group or association of employees. A WLRP may provide short-term disability (STD), long-term disability (LTD) or weekly indemnity (WI) benefits. The benefits may be paid by the employer, or by an insurance company, trustee, board of trustees or other independent organization.

A plan is a wage-loss replacement plan when all of the following conditions are met:

  • it is a group plan, in that it covers more than one employee
  • the plan is funded, in whole, or in part, by the employer
  • the purpose of the plan is to indemnify employees against a loss of employment income as a result of sickness, accident or maternity
  • benefits are paid on a periodic basis, not as a lump-sum
  • it follows insurance principles that funds are accumulated, normally in the hands of a trustee or in a trust account, and are calculated to be sufficient to meet anticipated claims

If the plan is not a group plan (that is it is for a single employee), or if the plan is funded entirely by employee contributions (an employee-pay-all plan), it is not a WLRP. Any premiums you pay may be a taxable benefit. For more information, see the following publications:

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