Does the basis of calculating WC benefits influence reporting of claims?

If you miss time from work due to a temporary total disability, the amount you receive from an insurer will determine if you can put bread on the table and pay the rent. The quantum of compensation varies with the type of insurance.

Although we do not think of ‘sick leave’ as a form of insurance, in many ways it is like an insurance plan. Sick leave credits or allocations are often earned and may or may not have any residual value upon termination or retirement. In most cases, sick leave provides 100% of wages and is taxable. Sick leave plans are generally free of ‘deductibles’.

For those without sick leave plans as described above, Employment Insurance generally offers some sick leave benefits. In Canada, these amount to 55% of gross up to an insured maximum and all benefits are taxable. There is generally a two week waiting period before benefits may be paid under an EI claim.

Workers’ compensation is a form of insurance. The benefit rate for short term disability varies by jurisdiction. WorkSafeBC provides 90% of net earnings (where net equals gross earnings minus appropriate [mostly mandatory] deductions for employment insurance premiums and Canada Pension Plan contributions as well as applicable federal and provincial income tax) and compensation is tax free. BC does not have any waiting periods so benefits are payable from the day following the day of injury.

Not all workers’ compensation systems compensate at the same level. Most US states set the basis for compensation at 66 2/3% of gross earnings. A sampling of other jurisdictions reveal a range of alternatives—generally higher than the 67%:
• Maine uses 80% of worker’s ‘spendable’ earnings (or net wage after tax)
• Connecticut and Rhode Island uses 75% of worker’s spendable earnings
• Texas uses 70% of the worker’s pre-injury weekly in most cases
• Washington State’s compensation varies by marital status and number of dependents so the range is from 60% for a single to 75% (spouse adds 5% and each dependent 2%).

Most states have a waiting period of 3 to 7 days although most systems offer a ‘retroactive period’ such that the worker will be reimbursed for the waiting period if the wage-loss extends beyond (typically) 14 to 28 days.

Canadian jurisdictions generally compensate temporary total benefits at a higher level than their US counterparts. WorkSafeBC’s 90% compares well with other Canadian jurisdictions:

• Ontario, Prince Edward Island and New Brunswick use 85% of net
• Nova Scotia uses 75% of net for the first 26 weeks and 85% after that

Waiting periods are not common in Canada but do exist in New Brunswick (3 days), Nova Scotia (2 days) and PEI (3/5ths of weekly wage loss benefits to the worker.

While workers have an incentive to claim workers’ compensation benefits over EI for work-related claims, the same may not be true for work-related injuries.

Beyond the fact that waiting periods and departures from 100% of net earnings shift some of the costs of injury to injured workers, the level of compensation may influence reported injury rates. Take the case of a worker who suffers an injury that will result in two weeks away from work and a loss of $1000 net earnings (2 weeks at $500 per week). If the worker has access to a sick leave plan, the worker will likely receive 100% of usual net earnings or $1000. If the worker claims workers’ compensation benefits in a jurisdiction with a 3 day waiting period and an 85% of net benefit rate, the benefit will be $595. In a jurisdiction with no waiting period and a 90% of net benefit rate, the benefit will be $900. If the worker has the option of claiming either sick leave or a workers’ compensation benefit, it is clear that the sick leave route will minimize the burden of the injury the worker must bear. The propensity to not claim under workers’ compensation will increase (at least for shorter duration claims) the greater the financial cost the worker must bear.

This is another example where reported injury rates must be interpreted in context. As a general rule, one would expect jurisdictions with waiting periods and lower replacement of net earnings levels to experience lower injury rates for at least shorter duration injuries.