by Lindsay Byrka, CFP® Vice President, Immix Group
Part of our role as benefits advisors in Canada is advising employers on their responsibilities when it comes to the ongoing management of their benefits program–enrolment, terminations, updates, communication to employees, taxation of benefits and rules for benefits under the Employment Standards Act here in Canada.
When we first work with a new client, our benefits audit often uncovers the cumulative impact of administrative oversights, errors, or misunderstandings. These mistakes can have serious consequences: wasted benefit dollars, gaps in coverage, higher premiums, non-compliance with contracts, and in the worst cases, the death or disability of an employee who believed they were insured when they were not.
Below are six common pitfalls that can create serious problems for your benefits program.
1: Lack of Diligence with Daily Benefits Administration: Missed Enrolments, Late Enrolments, Failure to Terminate Benefits
There can be serious repercussions to not being timely with administration. And while Employers will often blame the employee for not completing their side of the enrolment process, it is ultimately the employer’s responsibility to ensure the rules of enrolment are followed.
- Employees must be added and removed from the benefits plan based on the timelines laid out in the insurance contract.
- Following enrolment rules protects the plan from anti-selection — when someone waits to sign up for coverage until they anticipate a large claim. This drives up claims costs and breaches your contract with the insurer.
- Most programs have a waiting period (often three months) before benefits start, with a typical 30-day grace period for enrolment; some providers allow for longer than this.
- If a member is not enrolled on time, they are deemed a late applicant which is an official term describing someone who has been enrolled after the expiration of the grace period. Late applicants may be subject to medical underwriting and may be denied coverage. Insurers all follow similar guidelines.
Not ensuring an enrolment is processed in time can have legal consequences
In a well-known case, the employer was found liable for not enrolling an employee on time, who later died. The court found that the employer did owe a duty of care and had implied contractual obligations. The employer should have provided the employee with sufficient information about the coverage, timelines and consequences of failing to apply. Damages were reduced by 50% due to the finding that the employee was partially responsible for not completing the enrolment document on time.
Terminations must also be processed on time
It is common to discover through a benefits audit that members are still active on the program, who should have been terminated. When a termination needs to be backdated, most insurers have a maximum number of months for which they will refund premiums. Former employees often continue to claim under their former employer’s benefits program. And, commonly, premiums will only be backdated to the date of the last claim. The impact of untimely administration on a group plan can be costly.
How can employers ensure diligent benefits administration?
- Train plan administrators thoroughly to ensure they understand rules and potential repercussions
- Use of checklists for onboarding and offboarding and HRIS alerts if available
- Working closely with benefits advisors for support and education
- Review invoices regularly for accuracy
2.Not Adhering to Eligibility Rules: Who is on your Benefits Plan?
Unfortunately, it’s very common to learn an employer has been paying premiums and absorbing claims for people who are not eligible to be insured on the benefits program. This includes:
- Part-time employees not meeting the minimum hours
- Former employees
- Seasonal employees
- Contractors who are ineligible
- Ex-spouse/partner(s) dependent children
- People who do not meet the definition of a ‘dependent’ for the purposes of benefits coverage (i.e. extended family members, cousins, nieces, nephews etc.)
- People who are in some way connected, but are not actively employed and working for the plan sponsor
Conversely, eligible employees are sometimes not enrolled due to misunderstanding rules or opting out when participation is mandatory.
Is it Dishonesty or a Lack of Understanding?
In some instances, ineligible members are on plans due to dishonesty on the part of the employee or employer, but more often, it’s a lack of understanding of the rules. For example, we often learn of people ‘opting out’ of the benefits plan when the program requires mandatory participation.
While there are ways to structure programs to accommodate things such as reduced participation levels or classes for contractors, this has to be done intentionally and with the insurer’s approval. Depending on the structure of your organization, it can be worth conducting an audit to investigate and uncover any ineligible members or eligible but not enrolled employees.
There can be major repercussions to ignoring eligibility criteria.
We encountered a scenario where a former owner of a small business was kept on the benefits program under a handshake agreement. This person was no longer officially affiliated with the company. When he passed away, his family was expecting to receive the large life insurance payment through the group benefits program. Through the life insurance claim, it was discovered that this person was not eligible for the program. Despite the premiums being paid for many years, the claim was denied.
How to avoid eligibility issues:
- Understand the eligibility requirements and rules, per your contract. If contractual changes need to be made, work with your advisor to create classes, change hours or otherwise adapt the program.
- Designate a time for plan administrators to periodically review who is insured. Plan renewal or the beginning of the year are good times to do a deep dive on enrolment.
- Regularly review of invoices is critical to ensure enrolment and billing accuracy.
3. Failing to Regularly Update the Insurance Provider and Advisor with Current Information
In addition to keeping on top of enrolments, terminations and eligibility criteria, it’s important to keep on top of other changes. Plan administrators need to provide the following, either annually or when the change occurs:
- Updates related to the company structure; affiliated companies, name changes etc. Employees must be paid through the company named as plan sponsor or listed as an affiliated entity.
- Updates to salaries, to ensure salary-based benefits are properly calculated.
- Updates to occupation titles, and accordingly, the correct class of benefits for the member.
- Proper adherence to rules surrounding benefits and maternity leave
- Any changes to dependents (new spouse or child, student status).
- Correct hours worked to ensure ongoing eligibility.
- Updates to company banking to ensure premiums are paid, to avoid claims payment suspension.
- Contribution amounts for group savings plans and health spending accounts.
- Beneficiary designations; it’s crucial to remind employees to ensure the correct person is named.
How employers can prevent negative outcomes from outdated information:
- Ensure all changes to business structure are communicated in a timely manner.
- Plan administrators must routinely remind employees to report changes using checklists.
- Of particular importance, regularly remind members to review beneficiary designations.
Failing to ensure members have an updated named beneficiary can have dramatic consequences.
At the Immix Group, we routinely learn of situations where the person named as the beneficiary is no longer the correct person (typically, an ex-spouse or partner). We have witnessed countless situations where an ex-partner received notable sums of money in death benefits or RRSP funds due to an outdated beneficiary designation on record. This is despite the existence of a current spouse and children for the deceased plan member, and a Will.
Unfortunately, a named beneficiary is legally entitled to the funds; it is nearly impossible to reverse. While we hope the recipient will ‘do the right thing’ and pass the funds to the family, this rarely happens. It’s very emotional, and totally avoidable.
Not updating salaries on a routine basis can impact member benefits.
In a similar situation, an employer failed to submit salary updates for multiple years. A member went on Long Term Disability and was dismayed to learn their monthly benefit was based on a salary that was significantly lower than their current earnings. The result was receiving $3,000 a month in LTD instead of $4,500 per month, an impactful difference to the disabled claimant.
This leads us to the next common pitfall; not properly educating staff on their coverage details.
4.Poor Communication of Plan Design Features and Processes
Employers may find themselves at risk if they fail to properly communicate their employee benefits plan design features to their employees. This could lead to employees bearing costs out-of-pocket, when this could be prevented. In an extreme scenario, employees who are misled with regards to coverage could potentially pursue legal action against their employer.
Some common areas where misunderstanding can lead to out-of-pocket expenses:
- Emergency out-of-country travel claims: First, ensure you understand any pre-existing conditions clauses within your group benefits policy before you travel, to avoid a denied claim. Second, ensure a claim is opened immediately. Paying out-of-pocket can result in reimbursement being less than expected and can be very time-consuming. Insurance carriers often negotiate lower claim costs when working directly with the medical facility and will also coordinate payment with the provincial plan in the employee’s province of residence, where applicable. You want to engage the travel insurance provider at the earliest opportunity, to have the smoothest outcome.
- Pre-Authorization for costly services: always obtain a pre-authorization for more expensive items such as certain dental work, custom braces, or where otherwise required by your insurance provider.
- Duration limits for coverage: there are many benefits that have time limits attached to reimbursement eligibility. Two common areas are routine dental visits (dental recall is typically 6 months, but 9 months is sometimes used) and vision care, which commonly provides a dollar amount per 24 months period. In addition to this, many other items have time durations imbedded into the benefits coverage.
How can employers ensure employees understand the details of their coverage?
- Ensure routine Employee Education Sessions are held to relay important details of coverage and processes to staff.
- Education sessions should be held at minimum on an annual basis.
- Ensure distributed documents and forms are up to date.
5. Not Paying Attention to Payroll Deductions and the Tax Status of Benefits
In Canada, benefits are taxed differently depending on who pays the premium (employer or employee via payroll deduction).
There are two things to consider- whether the premium is a taxable benefit to the employee (included on the T4 and taxed as income) or whether the payment of a benefit itself would be taxed in the hands of an employee receiving the benefit.
Most employers aim to organize payroll deductions to avoid taxable benefits, where possible. Looking to the most common benefits on a typical benefits program, the taxation is as follows:
- Life Insurance, Accidental Death and Dismemberment, Dependent Life Insurance and Critical Illness insurance: Any benefit paid is not taxable, regardless of who pays the premium. If these benefits are Employer-paid, the premium is a taxable benefit for the employee.
- Short Term Disability and Long Term Disability: Any premium paid by the Employer is not a taxable benefit to employee. If the Employer pays the premium, the benefit in the event of a claim is taxable as income to the employee.
- Extended Health Care and Dental Care: Regardless of who pays the premiums, the benefits are not taxable.
Read more in our Taxation of Benefits Guide, including how different types of Health and Wellness Spending Accounts are taxed.
Oversight of payroll deduction details can have a negative tax implication.
Consider the scenario where the employee is paying a certain percentage of the premium as a payroll deduction. It is possible the payroll deduction could be inadequate to cover the full Long Term Disability premium, thereby leaving the employee potentially exposed to a taxable benefit in the event of a claim.
How can you prevent these costly taxation mistakes?
- Consider the tax status of each benefit line when organizing cost-sharing arrangements.
- Work with benefits advisors, payroll providers and accountants to ensure intended tax consequences are in order.
- Simply reviewing the invoice in detail can shed light on potential issues with taxation.
6. Failure to Examine Rates, Premiums or Fees Associated with your Benefits Program
Most employers are aware that their benefits program undergoes an annual renewal, where the pricing is set for the year ahead. But are employers pay close attention to the details?
It is common to overlook certain details of the total cost of your benefits program.
- Paying for benefits that are not used; this often comes in the form of add-on services or programs that may not have much value, such as a second Employee and Family Assistance Program, when the extended health benefit already includes a plan
- Not paying close attention to the rate adjustments; are you having open and transparent conversations with your benefits advisor as to the rate adjustments, and why they are being implemented?
- Third party administration fees; are you paying additional fees for administration that may be unnecessary? Partnering with the right benefits advisor or provider may eliminate the need for an additional TPA.
- High advisor commissions; what commissions are being paid to your advisor? Commissions can vary and different levels are appropriate depending on the value provided by the broker, but advisors should be willing to disclose their compensation to their clients.
Partnering with a Qualified Advisor helps Employers to Avoid Costly Benefit Plan Oversights
At Immix Group, we handle the daily details of benefits administration and often catch errors or concerning situations before they escalate. Still, the accuracy and effectiveness of a plan ultimately depend on employers providing timely, truthful, and accurate information. Without the guidance of a qualified advisor, employers take on unnecessary risks, since we don’t expect SMBs to become benefits experts on their own.
A strong advisor provides more than just plan design — they act as a resource for training, reminders, reviews, and ongoing support for HR and plan administrators. This diligence helps save money and prevent costly mistakes. By partnering with the Immix Group, organizations gain the expertise and human support needed to avoid common pitfalls and ensure their benefits plan runs smoothly and cost-effectively.
Key Takeaways
- Stay on top of administration – Process enrolments, terminations, and updates on time to avoid denied coverage, legal issues, and wasted premiums.
- Follow eligibility rules – Only cover employees and dependents who meet plan criteria; audit regularly to prevent costly mistakes.
- Keep information current – Update business ownership details, salaries, dependents, job titles, and beneficiary designations to ensure benefits are accurate and payouts go to the right people.
- Communicate clearly – Educate employees on coverage, limits, and claim processes to prevent confusion, out-of-pocket costs, and legal risk.
- Manage payroll and tax implications – Ensure deductions and benefit arrangements are accurate to avoid creating unintended taxable benefits.
- Review rates, premiums, and fees – Monitor plan costs, adjust unnecessary services, and confirm advisor commissions to keep your benefits program cost-effective.
FAQ’s
- How can employers ensure timely enrolments and terminations?
Employers should use onboarding and offboarding checklists, HRIS alerts, and work closely with their benefits advisor. Regularly reviewing invoices helps catch errors and ensures coverage starts and ends on time. - How do employers ensure only eligible employees are covered?
Understand the plan’s eligibility rules and conduct periodic audits. Confirm hours worked, employment status, and dependent eligibility. Adjust plan classes or participation levels with insurer approval if needed. - What information should employers keep updated?
Keep salaries, job titles, company structure, dependents, contribution amounts, and beneficiary designations current. Accurate information prevents reduced benefits, overpayments, or misdirected funds. - How can employers ensure employees understand their benefits?
Hold annual education sessions and provide clear, up-to-date guides. Highlight important processes such as pre-authorizations, emergency travel claims, and coverage limits to avoid confusion and out-of-pocket costs. - How do employers avoid payroll and tax mistakes?
Review payroll deductions and the tax treatment of each benefit. Collaborate with advisors, payroll providers, and accountants to ensure employees aren’t unintentionally exposed to taxable benefits. - How can employers prevent overpaying for the plan?
Regularly examine total costs, including add-on services, third-party administration fees, and advisor commissions. Transparency and guidance from a qualified advisor help keep the benefits program cost-effective.
Read More:
A Better Way to Do Benefits – Latest News from Immix Group
Your 2025 Employee Benefits Audit Checklist – Latest News from Immix Group
Taxation of Employee Benefits in Canada | Optimize Group Benefits
Understanding Travel Insurance – Latest News from Immix Group
2006 ABQB 146 (CanLII) | Grams (Estate of) v. Maple Leaf Metal Industries Ltd. | CanLII
2014 ONCA 123 (CanLII) | Baradaran v. Tarion Warranty Corporation | CanLII
Lindsay Byrka, CFP® BA, BEd
Vice President, Immix Group: An Employee Benefits Company
A Suite 450 – 888 Dunsmuir St. Vancouver V6C 3K4
O 604-688-5262
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