The months of January and February traditionally seem to be very busy in most HR teams. With year end employee reviews, year-end accounting procedures, preparation of T4 slips and tax filing activities, there never seems to be a shortage of tasks that need to be completed by a certain deadline. As is often the case, after employee reviews have been completed, salary changes usually ensue and as such there are a few things benefit plan administrators need to remember when these salary changes do occur.
The most important thing to remember is to always notify the insurance companies about these salary changes immediately. There are benefits that are related to income, such as the Life Insurance, Accidental Death & Dismemberment (AD&D) as well as the disability benefits i.e. Long Term Disability (LTD) and Short Term Disability (STD) that are directly affected by salary changes.
For example, if your Life Insurance and AD&D is one times annual income, and an employee was earning $50,000 but now is earning $75,000, the Life Insurance benefit, AD&D benefit and LTD benefit will be affected. Please see illustration below:
Example : Employee A current Income $50,000
Life Insurance equals 1 times annual income - $50,000
AD&D Insurance equals 1 times annual income - $50,000
LTD Insurance is 66.67% of income to $6,000 monthly Maximum - $2,778
Example : Employee A new Income is $75,000
Life Insurance equals 1 times annual income - $75,000
AD&D Insurance equals 1 times annual income- $75,000
LTD Insurance is 66.67% of income to $6,000 monthly Maximum - $4,167
What is important to note in the above example is that this employee is now entitled to more coverage with this salary change, however the insurance carriers must be notified immediately. It is equally important to note that if an insurance carrier is not notified about these changes, and should a claim arise, only the amount that was insured will be paid. Employees will not be paid the higher amounts because they were not insured for those higher amounts.