To some, it may seem straightforward when we initially consider what to include in “gross employment income” under subsection 4(1) of the Statutory Accident Benefits Schedule (SABS) for the purposes of calculating weekly income replacement benefits (IRB). After all, “‘gross employment income' means salary [and] wages…from employment,” but what does the “other remuneration from employment” part of the definition mean?
Among all types of pay that one may receive by virtue of their employment, as accountants experienced in accident benefits we are commonly asked questions about different disability benefits received by a claimant and whether they should be included in the calculation of pre-accident income for SABS purposes. We will walk you through the most common types of benefits.
IRBs and benefits from the Workplace Safety & Insurance Board (WSIB)
Historically, we have not included IRBs and benefits received from the WSIB in the calculation of “gross employment income” on the basis that they do not constitute “other remuneration from employment.” There are various decisions that have addressed these types of benefits.
As per the Appeal Order in the matter of Fortin and Economical (FSCO Appeal P02-00022), it was determined that Mr. Fortin's IRBs from his previous motor vehicle accident in March 1999 cannot be included in his income from employment for the purposes of calculating his IRB as a result of his October 25, 2000 accident. In addition, as per the Appeal Order in the matter of Shearstone and York Fire (FSCO Appeal P01-00013), it was determined that the temporary WSIB benefits that Mr. Shearstone received prior to his accident should not be included in the calculation of his pre-accident income from employment.
It's important to note that if the IRBs and WSIB benefits in question meet the definition of a “temporary disability benefit” as described in subsection 47(3) of the SABS, they are deductible from the IRB otherwise payable pursuant to subsection 47(1) of the SABS.
Short-Term Disability Benefits (STD)
Historically, short-term disability benefits (STD) received as a result of a pre-existing condition were not included in the calculation of pre-accident income. However, consideration of STD in the calculation of pre-accident income has evolved based on the changes in the wording from the ‘old SABS' (O. Reg. 403/96) to the ‘new SABS' (O. Reg. 34/10). It used to be under subsection 2(5) of the old SABS that to be employed, one had to be ‘engaged' in their employment, and so, being off work and on STD prior to the accident meant this type of income did not constitute income from employment as the person was not actively working at their employment.
However, with the removal of the definition of ‘employed' in the new SABS and on the basis that the person is eligible for an IRB, pursuant to subparagraph 5(1)(1)(i) of the new SABS, it would appear that the amounts received as sick pay and STD should be included as pre-accident income, as these benefits would seemingly constitute “other remuneration from employment,” especially if they are being paid directly by the employer and consistent with the doctrine that the employer costs of benefits also constitute “other remuneration from employment.” It was the Director's Delegate in the matter of Lorna Howden and Pafco Insurance (FSCO Appeal P00-00028) who first decided that gross income from employment should include things like employer-paid premiums for life, health and disability insurance, as well as employer pension plan contributions, uniform allowances and pay equity adjustments. However, you may wish to seek a legal opinion in this regard.
It should be noted that in the event that STD continues subsequent to the accident due to the person's pre-existing condition for which it was being received prior to the accident, then it, too, would be deductible in the calculation of an IRB, pursuant to subsection 47(1) of SABS.
Long-Term Disability Benefits (LTD)
On the other hand, the treatment of long-term disability benefits (LTD) received by a person can be a little more contentious.
If we rely on the same theory as for STD, does that mean LTD also constitutes pre-accident income from employment on the basis that LTD is also “other remuneration from employment”? The circumstances surrounding the receipt of LTD however can be quite different when compared to STD. STD is meant to provide immediate income loss relief when a person is either unable to work or unable to work at full capacity, whereas there is usually a waiting period for LTD and in order to receive LTD, typically there is a complete inability to work, either at the person's pre-incident job or at any job, although it can be adjusted to reflect rehab earnings, just like STD. In addition, STD is commonly paid directly by the employer, whereas usually LTD is paid directly by the insurer of the benefits.
Due consideration also needs to be given for the period of time during which the person has been on LTD prior to the accident. Taken to the extreme, for instance if someone has been on LTD for several years prior to the accident with no anticipation of a return to work, it may be questionable as to whether they are “employed” at the time of the accident and thus, eligible for an IRB under subsection 5(1) of the SABS, absent a definition for being “employed” in the new SABS.
In the case of Wiseman and Pilot Insurance Company (FSCO A05-001127), Mr. Wiseman was receiving LTD at the time of his motor vehicle accident on September 18, 2002 and had been intermittently since 1988, although he had not received any salary from his employer, Chrysler, for 101 continuous weeks prior to the accident. Mr. Wiseman continued to receive this LTD after the accident until 2004, when he took early retirement. In the decision, it was determined that even though Mr. Wiseman was not engaged in employment at the time of the accident, as both Chrysler and Mr. Wiseman considered him to have remained an employee of Chrysler, he was employed at the time of the accident for old SABS purposes and therefore, that he was eligible for an IRB as it was determined that Mr. Wiseman met the disability test “for at least some portion of the 104-week post-accident period.”
It should be noted that even if it is determined that a person is employed pursuant to subparagraph 5(1)(1)(i) of the new SABS, a person must also suffer a substantial inability to perform the essential tasks of that employment as a result of the accident in order to be eligible for an IRB. The circumstances of Mr. Wiseman's case are unusual in that respect: an employee/employer relationship was found to exist and he met the disability test.
In any event, the Arbitrator also determined that the quantum of Mr. Wiseman's IRB was zero, as he had no income from employment in the 52 week period prior to the accident for old SABS purposes and as he had continued to receive LTD in the post-accident period, deductible in the calculation of his IRB, presumably pursuant to either section 7 or section 60 of the old SABS, although no specific old SABS reference was provided in the decision.
But what if a person went on LTD just recently before the accident and a return to work plan was imminent or already in place at the time of the accident? Presumably this person, like Mr. Wiseman, would be considered employed at the time of the accident and would meet the subparagraph 5(1)(1)(i) disability test in the event that they could not fulfill the return to work plan as a result of the accident. In such circumstances, it would appear plausible to include their LTD in the calculation of their pre-accident income from employment. However, you may wish to obtain a legal opinion in this regard.
Further, in this situation, the ongoing receipt of LTD would then constitute a “temporary disability benefit” deductible, at least initially, in the calculation of their IRB, pursuant to paragraph 47(1)(1) of the SABS. It should be noted that regardless if the LTD is “temporary” at the time of the accident, as long as it is being received, it would be deductible in the calculation of the IRB; however, the section of the SABS by virtue of which the deduction is being made may change if the individual continues to receive the LTD as a result of the accident and not as a result of the pre-existing condition. Accordingly, it becomes necessary to reassess their status to determine if the LTD remains deductible under subsection 47(1) or paragraph 7(1)(“A”) of the SABS. This is important, as a deduction under paragraph 7(1)(“A”) of the SABS is made before the application of the policy maximum, whereas a deduction under subsection 47(1) of the SABS is made after the application of the policy maximum. As a result, depending on the magnitude of 70% of the gross weekly pre-accident income, what had been a $nil IRB net of a subsection 47(1) deduction, could become an IRB up to the amount of the policy maximum net of a paragraph 7(1)(“A”) deduction.
Canada Pension Plan (CPP) disability benefits
And finally, what if a person is already receiving CPP disability benefits at the time of the accident? It would be rare that they would be eligible for an IRB pursuant to paragraph 5(1)(1) of the SABS. However, in the event that this person was also carrying on an employment or self-employment, by definition, CPP disability benefits received prior to the accident are not gross employment income pursuant to subsection 4(1) of the SABS for the purpose of the calculation of their IRB. Further, although you may wish to seek a legal opinion in this regard, we do not believe that CPP disability benefits are “temporary” in nature and, therefore, they would not be deductible in the calculation of the IRB either by virtue of section 47 or paragraph 7(1)(“A”) of the SABS, as they are not being received as a result of the accident but, rather, as a result of the pre-existing condition.
If you find yourself with a file where you are not sure whether the claimant has received “other remuneration from employment,” please do not hesitate to reach out to us.
Janet L. Olsen, CPA, CA, CFE, CFF
Partner, Forensics
Rhonda Macedo, CPA, CMA, CFF
Senior Manager, Forensics