What would happen to your business if an employee suddenly couldn’t work for several weeks or months because of an illness or injury?
For small businesses across Central Alberta, losing an employee to an unexpected medical absence can create financial pressure for both the employee and the employer. While health and dental benefits help employees manage medical expenses, short-term disability (STD) coverage helps protect their income when they are unable to work.
It can also offer a potential financial advantage for employers through the Government of Canada’s Employment Insurance (EI) Premium Reduction Program.
What Is Short-Term Disability Insurance?
Short-term disability insurance provides eligible employees with a portion of their income when they cannot work because of a qualifying illness or injury, subject to the plan’s terms and conditions.
For example, an employee recovering from surgery, dealing with a serious illness or experiencing an injury may be unable to perform their regular job duties for an extended period.
Without disability coverage, that employee may have to rely on personal savings or government benefits while managing their regular household expenses.
A short-term disability plan can help bridge that financial gap by providing income replacement during recovery.
Why Should Small Businesses Consider STD Coverage?
Short-term disability benefits can offer several advantages for employers and employees.
- Income protection: Helps employees manage their financial commitments while recovering from a qualifying illness or injury.
- Employee retention: Demonstrates that your business values its employees and their financial well-being.
- Recruitment advantage: A comprehensive benefits package can help your business compete for qualified employees.
- Financial stability: Helps reduce the financial uncertainty employees may face during an unexpected absence.
- Potential EI premium savings: Qualifying plans may allow employers to reduce their employer-paid EI premiums.
For smaller businesses, these benefits can be particularly valuable. One employee’s unexpected absence can have a significant impact on a small team’s productivity and operations.
How the EI Premium Reduction Program Can Help Reduce Costs
One benefit business owners may overlook is the Government of Canada’s Employment Insurance (EI) Premium Reduction Program.
Employers who provide qualifying short-term disability coverage may be eligible to pay EI premiums at a reduced employer rate instead of the standard rate of 1.4 times the employee’s EI premium.
This means that adding qualifying disability coverage may help offset some of its cost through lower employer EI premiums.
How much could your business save?
For 2026, employers with an approved weekly indemnity plan providing at least 15 weeks of benefits may qualify for a reduction of up to $261.68 per eligible employee per year, based on maximum annual insurable earnings of $68,900.
For example, a business with five eligible employees could potentially generate up to $1,308.40 in total annual EI premium savings before accounting for the required employee share.
Important: Employers must return at least 5/12 of the savings to the covered employees. Based on the maximum example above, the employer’s share would be approximately $152.65 per eligible employee annually, while approximately $109.03 would need to benefit the employee. Actual savings depend on earnings, plan category and the approved reduction rate.
Eligibility is not automatic. The plan must meet government requirements, and the employer must apply and receive approval before using the reduced rate.
What Are the Requirements?
To qualify, a short-term disability plan generally must:
- Provide at least 15 weeks of disability benefits.
- Match or exceed the level of benefits provided under EI for the purposes of the program.
- Begin paying benefits within eight days of illness or injury, with an elimination period no longer than seven consecutive days.
- Allow eligible employees to access coverage within the required three-month period.
- Provide coverage on a 24-hour-a-day basis.
Additional requirements apply, and the government determines the applicable reduction based on the plan category and other factors.
Where Can Employers Find More Information?
The Government of Canada provides official guidance, eligibility requirements, current reduction rates and application instructions here:
EI Premium Reduction Program — For Employers
Review the program requirements carefully and confirm whether your existing or proposed short-term disability plan qualifies.
Is Short-Term Disability Right for Your Business?
Every business has different needs, employee demographics and budget considerations. The right benefits strategy should balance meaningful employee protection with affordability for the employer.
For Central Alberta businesses with two or more employees, exploring group benefits can be a practical way to strengthen your compensation package while reviewing potential cost-saving opportunities.
At Central Alberta Benefits, we help business owners understand their group health and dental options and explore coverage that fits their needs and budget.
Interested in exploring group benefits for your business?
Request a free, no-obligation quote and discover what options may be available for your team.
Disclaimer: This article is for general educational purposes only and does not constitute insurance, tax, legal or payroll advice. Coverage, eligibility and premium reductions are subject to policy terms and applicable government requirements. Confirm eligibility and savings directly with Service Canada and your benefits provider.
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