Offering a good short-term disability plan to your employees doesn’t just protect them when they’re sick, but can actually reduce your EI premiums too.
With the 2026 EI rates just announced, now’s a perfect time to look at how the EI Premium Reduction Program works and whether it makes sense for your business.
What’s changing with EI in 2026
The good news? EI rates are dropping slightly to $1.63 per $100 of earnings (down from $1.64 in 2025).
The not-so-good news? The maximum insurable earnings are jumping to $68,900 (up from $65,700 in 2025).
What this means for most employers:
For employees earning above about $66,000, you’ll actually pay more in total EI premiums despite the lower rate. The maximum annual employer contribution per employee increases to $1,572.30 (up $63.83 from 2025).
2026 EI Rates at a Glance:
| Category | Canada (excl. Quebec) | Quebec |
| Employee Rate | $1.63 per $100 | $1.30 per $100 |
| Employer Rate | $2.28 per $100 | $1.82 per $100 |
| Maximum Insurable Earnings | $68,900 | $68,900 |
| Maximum Annual Employer Contribution | $1,572.30 | $1,253.98 |
Why many employers skip STD coverage
Let’s be honest about why a lot of employers don’t offer short-term disability plans—it’s not just about the upfront cost.
The usage reality: STD claims have been trending upward, especially post-COVID. Mental health claims, in particular, have increased significantly. When your small group has multiple claims in a year, renewal rates can jump 30-50% or more.
Unpredictable costs: Unlike health and dental where you can somewhat predict usage, STD claims can be all over the map. One employee with a serious accident or extended mental health leave can blow your entire group’s experience.
Rate volatility: Small groups especially get hit hard. If you’ve got 15 employees and three of them file STD claims, your renewal is going to hurt. Large groups have better pooling, but small employers often see dramatic year-to-year swings.
Administrative complexity: STD plans require more active management—claim coordination, return-to-work programs, medical documentation. It’s not as straightforward as health coverage.
The “EI is good enough” mentality: Some employers figure EI sickness benefits cover the basics at 55% of earnings for up to 26 weeks, so why add another layer?
Fear of abuse: There’s concern about employees taking advantage of STD benefits, especially for harder-to-verify conditions like stress or chronic pain.
Alternative approaches: Many employers opt for more sick days, health spending accounts, or employee assistance programs instead, feeling these give flexibility without the claims experience risk.
The reality is, STD premiums have been rising across the board due to increased utilization, longer claim durations, and changing workforce demographics. What used to cost $200-300 per employee annually might now run $400-600 or more, depending on your group’s experience.
Why employers choose to offer STD coverage
Despite the challenges, many employers are adding STD coverage to their benefits plans—and it’s not just about being generous.
Employee financial security: When someone gets seriously ill or injured, EI only covers 55% of earnings. STD plans typically provide 60-85% of income, which can mean the difference between employees maintaining their lifestyle or going into financial stress during recovery.
Better return-to-work outcomes: Here’s something not everyone realizes—STD plans often include case management and return-to-work coordination services. Instead of an employee being off work for months, these programs help get people back to work safely and sooner, often starting with modified duties or reduced hours.
Reduced workplace disruption: When employees have proper income support and return-to-work assistance, you’re less likely to have extended absences that disrupt operations or require expensive temporary coverage.
Employee loyalty and retention: In today’s job market, comprehensive benefits matter. Employees notice when their employer provides real financial protection during health crises.
Tax advantages for employees: Here’s a key point—when STD premiums are paid by employees (which is the typical structure), the benefits they receive are tax-free. This makes the coverage significantly more valuable than the premium cost suggests. A $300 annual premium for tax-free benefits can provide substantial value.
Proactive health management: Many STD plans now include early intervention services, employee assistance programs, and wellness resources that can help prevent longer-term disabilities.
Recruiting advantage: For skilled workers, especially those with families, knowing they have comprehensive disability protection can be a deciding factor between job offers.
Managing the unexpected: While you hope you’ll never need it, having a structured STD program means you’re not scrambling to figure out what to do when an employee has a serious health issue.
Coordination benefits: STD plans can coordinate with workers’ compensation, EI, and other benefits, ensuring employees get appropriate support without overpayment or gaps in coverage.
The administrative complexity that scares some employers off can actually be a benefit—you get professional case management instead of trying to navigate complicated medical and legal issues on your own.
The EI Premium Reduction Program: Your potential savings opportunity
Here’s where it gets interesting. If you offer a qualifying short-term disability plan, the government will reduce your EI premiums. Why? Because when your employees have good STD coverage, they’re less likely to claim EI sickness benefits, saving the system money.
How to qualify for EI premium reductions
Your short-term disability plan needs to meet some specific criteria. Here’s the checklist:
✓ Benefit duration: At least 15 weeks of coverage
(Note: While EI sickness benefits increased to 26 weeks in 2022, the premium reduction program still only requires STD plans to provide 15 weeks minimum to qualify)
✓ Benefit level: At least 55% of the employee’s insurable earnings (matching what EI would pay)
✓ Quick start: Benefits must begin within 8 days of illness or injury
✓ Employee access: Available to employees within 3 months of hire
✓ 24/7 coverage: Protects employees whether they’re at work or not
✓ Primary payer: Your plan pays first, not after EI
The requirements: You must return 5/12 of the savings to your employees, and you keep 7/12 for your business.
The math: What you could save
There are different categories of qualifying plans, each with different savings levels. Here are the main ones:
Category 1: Cumulative paid sick leave (75+ days total) – modest savings
Category 2: Enhanced cumulative paid sick leave (125+ days total) – better savings
Category 3: Weekly indemnity/STD plan (15+ weeks) – best savings for most employers
Example calculation for Category 3 plan:
Let’s say you have 20 employees averaging $55,000 in salary:
- Normal employer EI: $55,000 × 2.28% = $1,254 per employee
- With reduction: approximately $1,100-1,150 per employee
- Annual savings: $100-150 per employee
- Your share (7/12): About $60-90 per employee per year
- Employee share (5/12): About $40-60 per employee per year
For 20 employees, you’re looking at roughly $1,200-$1,800 in annual savings for your business, while your employees benefit from both the STD coverage and their share of the EI savings.
Returning the Employee’s portion of savings: A portion of that reduction belongs to employees, and employers are legally required to return it.
You can return it by:
Adding the amount to payroll (most common)
Reducing EI deductions at the source
Enhancing employer-paid benefits
Offering equivalent paid time off
If you don’t return the employee portion each year, Service Canada can revoke your EI premium reduction and require repayment.
Is it worth it for your business?
The EI savings alone probably won’t pay for your entire STD plan, but they do help offset the cost. More importantly, you get:
Better employee protection: Comprehensive coverage when people get sick
Reduced absenteeism: People return to work faster with proper support
Competitive advantage: STD is increasingly expected by employees
EI premium savings: A nice bonus that helps with the business case
Offsetting rising costs: The EI reduction can help buffer some of the premium increases you might see from higher STD utilization
Questions to consider
Does your current STD plan meet the requirements? Many employer plans do, but it’s worth checking the specifics.
What’s your employee demographic? Younger, healthier workforces might see less STD usage, making the business case stronger.
How will you handle the employee savings? Plan this before you apply.
Are you already considering STD coverage? The EI reduction might tip the scales on cost-effectiveness.
Can you handle the claims experience potential volatility? STD costs can fluctuate significantly year to year.
Employee vs. employer paid premiums? If employees pay the premiums, their benefits are tax-free, making the coverage more valuable.
Here’s what we’re seeing
The EI Premium Reduction Program is honestly one of the few government programs that actually works the way it’s supposed to. Employers provide better coverage, the government saves money on claims, everyone wins.
The reality is, most employers don’t even know this program exists. With EI costs going up again in 2026, it’s worth understanding whether existing STD plans qualify—or whether the economics have shifted enough to make adding one worthwhile.
The savings aren’t huge, but they’re real. And frankly, in today’s job market, solid short-term disability coverage is becoming less of a nice-to-have and more of an expectation from employees.
This is the kind of program where understanding the details can help employers make more informed decisions about their benefits strategy.
The bottom line? Good STD coverage protects your employees and might save you money on EI premiums too. In a world where benefits costs keep climbing, finding legitimate savings opportunities while improving employee protection is a win-win.
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