The Canadian Workers’ Compensation system

The Canadian Workers’ Compensation system is more than 100 years old and was cultivated in the rich and hazardous landscape of a booming industrial and economic revolution. In 1910, Chief Justice of Ontario, Sir William Meredith, was asked to head a Royal Commission studying Workers' Compensation systems throughout the world.

In his Royal Commission report, Meredith said that the true aim of compensation law was to provide for both injured workers and their dependents. He identified five basic principles for a compassionate system: no-fault compensation, security of benefits, collective liability, exclusive jurisdiction and administration by independent boards. The most significant of these was the idea of “no-fault compensation.” This means the workers give up their right to sue their employers in exchange for no-fault income security in the event of a workplace injury. Employers pay for the system in return for protection against liability.

Today, the system in Canada is still built on the founding Meredith principles. It is a quasi-government run system, 100% employer-funded and provincially administered through individual boards. In each province these boards operate under different names and have different maximum benefit levels, legislative provisions, and penalty programs (See Table 1).

If not managed carefully, the cost of Workers’ Compensation penalties can have a significant and serious financial impact on a company’s bottom line. This often takes employers by surprise at the end of the year when they receive a large bill that is due and payable in 30 days. The penalties are sometimes so heavy they wipe out entire profit margins.

To navigate rough (and potentially damaging) legislative waters, it is important for businesses to chart the cause of penalties and unique differences in each relevant province and map out the best course to manage risk.

In putting any strategy together, the following factors are particularly important to note.

The experience rating program

The majority of the Provincial Workers’ Compensation boards have an experience rating program in place. The employer’s premium is based on the perception of their risk and historical cost. If a company’s experience is poor, it can more than double the premium cost for a business.

Related: Here's how to manage a successful workers comp claim

In Canada, these programs can vary quite a bit from province to province. In Alberta, there are two experience ratings programs (one for large and one for small employers). Next door in British Columbia, there is one program for all and in Ontario, there are three systems in place (one for small employers, one for construction companies and one with surcharge penalties or refunds for everyone else).

Most experience rating programs compare employers that are in the same industry classification. Groups are classified by the nature of work the employees perform. As a word of caution, a company may not always be in the correct group classification, so discovering and correcting this can sometimes lead to significant cost savings.

For example, in Ontario where the clothing retail rate is $1.59 per hundred of assessable payroll, on a salary base of $50 million the base premium would equate to $795,000, but the year-end experience rating penalty could be up to $1,000,000 due and payable 30 days from the receipt of the invoice.

There are specific strategies to contain these costs and manage claims. The stakes are high and the solutions sometimes hidden for employers not familiar with the system.

Table 1: Workers’ Compensation System