What Percentage of Group Benefits Should an Employer Pay in Ontario?

The single most consequential thing about a contribution split is not the percentage. It is that the Canada Revenue Agency treats employer-paid premiums differently depending on which benefit the premium buys. Two employers can both say "we pay 80%" and end up with materially different outcomes for their employees.

Extended health and dental: premiums an employer pays into a private health services plan are not a taxable benefit to the employee, and claims paid out are received tax-free. This is the federal treatment that applies in Ontario. Quebec applies a provincial taxable benefit, so multi-province employers should confirm separately.

Group life, dependent life, AD&D and critical illness: premiums the employer pays are a taxable benefit and must be added to the employee's income. This is often the line that surprises owners who assumed "employer-paid" simply meant "free to the employee."

Short-term and long-term disability, which CRA treats as a wage loss replacement plan: employer-paid premiums are not a taxable benefit at the time they are paid. The consequence lands later, and it is the important one, so it gets its own section below.

None of this is tax advice for your specific situation. Confirm the treatment with your accountant before you set payroll, because the person who has to report it correctly is you.

If the employer pays any part of the short- or long-term disability premium, the periodic benefit an employee receives on a claim is taxable as employment income in the year it is received. If employees pay 100% of that premium themselves, the benefit is received tax-free. That structure is often called employee-pay-all disability, and you will find plenty of articles recommending it on the strength of that one sentence.

So should you move the disability premium to the employee side? Usually not — and here is the arithmetic those articles skip. The premium is a real deduction from net pay, every single pay period, for as long as the person works for you. The probability of a long-term disability claim in any given year is low. And the benefit itself is capped, typically around 66.7% of income, which at a construction wage level already sits near a 30% marginal bracket. The employee gives up certain money every pay to protect against tax on a benefit they will most likely never collect.

Our position after 20 years of doing this: the tax treatment is real and worth understanding, but at these wage levels it rarely justifies moving the premium. Know the rule so you are choosing deliberately rather than because someone told you employee-pay-all is free money. If you want to see it modelled against your own payroll and your own plan, that is a short conversation and the numbers decide it, not a rule of thumb.

Two things to know if you do end up on an employee-paid structure. Where employees have contributed to the plan themselves, they can deduct the contributions they made in the year and in prior years, to the extent those amounts have not already been deducted from benefits previously received. And the structure only holds if the employer contributes nothing to that premium, ever — absorbing it later "as a favour" during a tight year can taint it and make future benefits taxable.

The part of disability design that matters far more than who pays the premium is how the policy defines disability in the first place. For physical trades, whether the contract pays on own occupation and for how long is the difference between a claim that works and a claim that forces someone back onto a site they can no longer work safely. We have had to fight an insurer to extend own-occupation coverage for a client after a stroke. That fight is worth more than any tax argument about the premium line.

With the tax treatment settled, the percentage question becomes much simpler. A contribution strategy should separate mandatory core coverage from optional or enhanced coverage. The employer may pay more toward the core plan while asking employees to share costs on richer features or dependent coverage.

Confirm your carrier's rules before you design anything. Insurers set their own minimum employer contribution and minimum participation requirements as a condition of issuing a group plan, and those rules can rule out a split you have already promised your team. Ask for them in writing at quote stage.

The main risk is committing to a contribution level before understanding renewal pressure. If the plan is too rich or the employer share too high for the budget, the company gets forced into a reduction later, and taking benefits away costs more goodwill than never having offered them.