September 5, 2017

Changes to Maternity & Parental Leave Policies

The Federal government announced changes to maternity and parental leave  benefits offered under the Employment Insurance program that are expected to take effect January 1, 2018.  One of the changes is to allow parents a choice:  take a 12-month leave at 55% of earnings or an 18-month leave at 33% of earnings. 

Impact to Top-Up Plans

Some employers top up the EI payments for some or all of the leave to provide financial assistance to their employees as they care for their newborns.
Ambiguous wording of the top-up policy may end up costing employers more once the new EI benefits come into effect. 

A policy that states that the employer will top-up an employee’s leave to 80% of income means that EI pays 55% and the company pays 25% (80% – 55%) for the duration of the leave. 

With no changes to this wording, under the new EI plan, if an employee opts for the 18-month leave, the company is now paying 47% (80%-33%) for a longer duration. 

Consider the case of an employee with annual earnings of $50,000 and an 80% top-up plan with no prescribed time limit.  Under a 12-month leave, the employer would be responsible for $12,500 over 12 months (25% of $50,000).  That number inflates to $35,250 for the 18-month leave.  (47% of $50,000 prorated for 18 months).  That’s an increase of $22,750 for the duration of the leave.

It’s worth noting that employees at a $50,000 income level may not be able to afford the luxury of an 18-month leave especially with the added expenses associated with a baby. 

For those with higher incomes who may be financially able to take advantage of an 18-month leave, the cost differential will be even more pronounced.  This is because they will reach the EI maximum of $453/week. At an income of $100,000, the EI replacement is effectively reduced from 33% to 19% thereby increasing the employer replacement from 47% to 61%.

Review Policies

To avoid unintended budget increases due to a change in the Federal program, review your top-up leave policies and tighten up the language so that it correctly reflects the company’s intent. 

Consider adding a time limit to payments.  Perhaps the plan should mirror the EI plan to offer a reduced top-up amount if the 18-month leave is chosen.  However you decide to modify your policy, be sure that it is compliant with any collective agreements and that it is communicated to employees. 

Other Considerations

While on a parental leave, employers may offer employees other perks such as paying the employee’s share of retirement plan contributions or benefit plan premiums for the duration of the leave. 

If the policy language does not address the duration for this perk, it will apply for the full 18 months if that is the option selected.  Without a change to the policy language, employers must be prepared for these additional expenses. 

Employers cannot unilaterally terminate benefits during a protected leave but they are not obligated to pick up the employee share either.  A review of the top-up plan should also include a review of how you intend to administer these related perks.

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