Are These 4 Health Plan Mistakes Putting Your Small Business at Risk?

Benefit Plan a Liability To Your Company

You’re a great employer! You’ve set up a benefits plan for your employees, but you may be exposed to unrealized liability. Many companies set up a benefits plan to protect their employees but is your employee benefits plan creating a liability for your company?

Here are some potential situations that we come across that can potentially come back and blow up in your face.

1) Benefit Plan Participation 

Because benefits are expensive, some employees may opt-out of participating in the plan. Some do it because they have a spouse who already has benefits, and some feel they can’t afford to participate.

It’s ok to opt-out of the health and dental portion because your spouse has benefits, but the pooled benefit amount (LTD, Life) should be required. It should be written right into your HR policies as a condition of employment.

If someone opts out of these pooled benefits and has an accident, the company could be held liable and compensate the company in place of the insurance company. This exposure could be until the employee hits the age of 65!

2) Don’t Meet Participation Requirements of the Insurance Carrier

Depending upon the organization’s size, the benefit carrier has certain participation levels, and it’s how they base their actuarial rates. If you are a company of 15 people and the insurance carrier requires you to have a 90% participation rate, the company only has 75% of people participating in the plan. They could deny a legitimate claim because the company hasn’t fulfilled its obligation.

3) Reduction of Employee Benefits Offered

A company decides to pare its benefits plan back due to cost constraints. The costs of drugs are prohibitive and need to be changed. You need to ensure that no one is adversely affected by a drug formulary change. You need to figure out a fair solution to mitigate this exposure. Changes to the plan could potentially result in a Constructive Dismissal claim against your company.

4) Improper LTD Taxation to the Employee

This liability is a recent challenge that I encountered with one of my clients. It wasn’t the result of my client’s doing but the poor advice received from the previous benefit consultant.  In fairness, I don’t come across this issue very often, but evidently, it still exists.

The previous advisor advised the client to charge the employee LTD as a taxable benefit, similarly to how Life insurance through group benefits is charged. The problem lies in how CRA specifically outlines that any LTD premium paid for by the employer, at time of claim, the LTD benefit is subject to taxation. This is WRONG!

The previous advisor had the LTD portion set up as a non-taxable benefit, even though the employer still paid the lion’s share of the premium. Yes, the employee paid the LTD as a taxable benefit, but not the entire premium.

Fortunately for this client, no LTD claims were made with this setup. If a claim were made, the employee would’ve received the LTD benefit tax-free even though the employee should’ve been taxed.

This could’ve represented a potential payroll audit for the employer, and the employee would’ve been at a considerable shortfall with the monies they would have been eligible to receive as an LTD benefit. The employee could’ve sued the employer as this would’ve significantly reduced the amount the employee would’ve expected to receive.

This LTD error could’ve been corrected in the future as follows:

A) The employer can pay the entire LTD amount, but considering that the amount would be subject to tax and paying a more significant premium to incorporate the taxable component, the employees’ net earnings are comparable.

B) The employer could change the employee benefits booklet to read “taxable” versus “non-taxable.” This option would legally cover the employer from potential employee litigation, but the claim shortfall would still exist for a claiming employee.

C) Moving forward, the employee pays 100% of the LTD premium and therefore, if they ever needed to make an LTD claim, the employee would receive the LTD benefit tax-free.


Privacy Laws protect the rights of individuals. Is your benefit plan a Liability to your company?

The key to avoiding such situations is all in the benefit plan design. The plan requires proper setup.  

Does this raise any concerns for you?

If you want to ensure you’re doing the right thing for your employees without putting yourself in harm’s way, contact The Finish Line Group and understand why “Solutions Begin From a Place of Understanding”.

Chris Coulter is the Founder and President of The Finish Line Group. He works with business owners to leverage their businesses to increase their wealth, reduce corporate and personal taxes, create viable succession strategies, enable employee retention strategies and allow them to exit their businesses on their terms.

 Chris’ passion for what he does evolve from the mistakes he made in his first business. By not diversifying his risk and not utilizing a lot of the opportunities within his company to create significant wealth. Chris found out the difficult way and now educates business owners on how to avoid many of his former oversights and ultimately control where their finish line ends.