How EI premium reductions work for employers with short-term disability plans

If your business offers a short-term disability (STD) plan, you may be paying more Employment Insurance (EI) premiums than needed. The federal EI Premium Reduction Program helps eligible employers lower these costs if their plan replaces EI sickness benefits. For many Canadian employers, this means real payroll savings every year—if the plan meets strict federal rules.

How the EI Premium Reduction Program works

The EI Premium Reduction Program is run by Employment and Social Development Canada (ESDC). It reduces EI premiums for employers who offer a qualifying short-term disability plan that covers sickness or injury.

Here’s the main idea:

EI provides up to 15 weeks of sickness benefits
If your STD plan offers benefits that are equal to or better than EI, your EI premium rate is reduced
Employers keep part of the savings, but must share a portion with employees covered by the plan

This is not a one-time grant. It is an ongoing payroll cost reduction as long as your plan stays compliant.

Employer eligibility requirements

To qualify for EI premium reductions, both your business and your disability plan must meet specific criteria. This program is available only to employers in Canada.

Employer requirements

You must be an employer paying EI premiums in Canada
The program applies only to employees covered by the qualifying plan
You must agree to return part of the savings to those employees

Short-term disability plan requirements

Your STD plan must:

Provide at least 15 weeks of benefits for illness or injury
Pay benefits within 8 days of illness or injury (maximum 7-day waiting period)
Provide benefits that match or exceed EI sickness benefits
Be available to employees within 3 months of hiring
Cover employees 24 hours a day, not just during work hours

If any of these conditions are not met, your plan will not qualify for EI premium reduction.

How much can employers save?

There is no fixed dollar amount. Your savings depend on:

Your total insurable payroll
The number of employees covered by the STD plan
The EI premium rate for the year

However, there is an important rule: five-twelfths (5/12) of the employer’s EI premium savings must be returned to employees covered by the plan.

Employers usually return this value by:

Reducing employee EI contributions, or
Improving benefits under the disability plan

The remaining seven-twelfths (7/12) stays with the employer.

Application and approval process

You do not receive EI premium reductions automatically. You must apply and receive approval.

The typical process looks like this:

Submit an application to ESDC with full plan documentation
ESDC reviews whether your STD plan meets EI equivalency rules
If approved, your EI premium rate is reduced for covered employees
You apply the reduced rate through your payroll system

Approval timelines vary. Reviews can take several weeks, especially if plan details are incomplete.

Tools like GrantHub’s eligibility matcher can help you confirm whether programs like the EI Premium Reduction Program fit your business profile before you invest time in applications.

Ongoing compliance matters

Once approved, you must continue to meet program conditions:

Maintain plan benefits at or above EI standards
Track how premium savings are calculated
Ensure employees receive their required share
Report accurately through payroll and records

If your plan changes or falls below EI standards, ESDC can revoke the premium reduction.

Common mistakes to avoid

Assuming any STD plan qualifies
Many plans fall short on waiting periods or benefit duration. Even small gaps can disqualify your application.

Forgetting the employee repayment rule
Failing to return five-twelfths of the savings to employees can trigger compliance issues.

Applying before the plan is fully implemented
Your plan must already be active and accessible to employees when you apply.

Not updating ESDC after plan changes
Benefit reductions, provider changes, or eligibility updates can affect your approval status.

Frequently Asked Questions

Q: Is the EI Premium Reduction Program a grant?
No. It is a payroll premium reduction, not a cash grant. The benefit comes from lower ongoing EI contributions.

Q: Do small businesses qualify for EI premium reductions?
Yes. There is no minimum business size. Any employer with a qualifying short-term disability plan can apply.

Q: Are the premium savings taxable?
The reduced EI premiums are not taxable income. However, how employee refunds are handled may have tax implications depending on how they are provided.

Q: Can I use a private insurance provider’s STD plan?
Yes, as long as the plan meets all EI equivalency and timing requirements.

Q: How long does approval last?
Approval continues as long as your plan remains compliant. ESDC may review plans periodically.

EI Premium Reduction Program: Employer Eligibility Explained
How to Build Workforce Partnerships and Training Plans That Qualify for Government Grants
Federal vs Provincial Workforce Training Grants: What Canadian Employers Should Use

Next steps

EI premium reductions can quietly save your business thousands in payroll costs, but only if your disability plan is structured correctly. GrantHub tracks active federal and provincial programs across Canada, including payroll-related savings programs—so you can quickly see what fits your workforce and benefits strategy.

How EI premium reductions work for employers with short-term disability plans