A wage loss replacement plan is a formal program that benefits an employee, including stock-holding employees, with wages amid a period of disability. These funds may be provided, tax-deductible, by the employer through a disability insurance policy or by other means.

Any premiums and/or contributions provided by the employer toward disability benefits through a Health and Welfare Trust agreement are considered a tax-deductible expense under the current Income Tax Act. However, contributions made toward wage loss replacement plans, outside of insurance premiums, cannot be carried forward as a tax-free benefit or contingency fund if unused. Therefore any contribution amount not utilized will need be reported as income year to year.

Administration through the Health and Welfare Trust arrangement means these disability benefits are available at no cost to the employee, though the benefits, once received, will be subject to income tax.

Wage loss replacement plans can entail benefits or insurance coverage for:

  • Sickness and injury
  • Weekly indemnity
  • Short-term disability
  • Long-term disability

Wage loss benefits can be tailored to suit every class of staff within a business. Coverage details will be outlined in writing and provided to employers and employees through their plan trustee. An insurance component can be allotted under a benefits plan or as a stand-alone benefits addition.