Navigating the Risks of Long-Term Disability Costs

By Richard Brown and Dan Eisner, CPA, CA; published in CPABC in Focus
Published: September/October 2015

It’s estimated that one in three employees in Canada will make a long-term disability (LTD) claim in their working life. Yet most people don’t talk about LTD claims on a regular basis, so when an employee experiences an illness or injury, there is often confusion about how the process works and what the risks are to the organization.

Employers are facing increasing external pressures to develop more effective disability management systems—pressures such as the duty to accommodate[1] employees with disabilities under human rights codes; the health and safety requirements instituted by the provincial Workers’ Compensation Boards; higher disability benefit insurance rates; legal challenges; and the national standard for psychological health and safety in the workplace.[2]

There are also increasing internal pressures, including the difficulty of recruiting and retaining skilled workers, and the need to improve productivity to stay competitive.

The good news is that by implementing a structured and integrated approach to disability management in the workplace, employers can either prevent or reduce the length of an extended absence due to disability.

Identifying risks to absenteeism

A good first step is to assess the organization’s health benefit costs and absence and disability costs. In particular, it’s important to know the absence rate—the number of days per year that are missed due to sickness and health-related issues. In addition, employers should review drug and employee assistance program usage and disability claims experience data, which outline diagnoses, durations, and outcomes, and can be useful in pointing out areas that require attention. As well, they should access any available tools, such as surveys and libraries, offered by their insurance providers, in order to better understand the general health of their employees.

Note that mental illness is a significant contributor to absence in the workplace. In fact, according to the Mental Health Commission of Canada, 30% of disability claims and 70% of disability costs are attributable to mental illness.[3] However, the symptoms of mental illness tend to be less overt and may only show a gradual onset, so organizations often only see this revealed through a high use of antidepressant drugs and employee assistance programs, in addition to a high rate of disability claims related to mental health.

Initiating accommodations

Those of us working in the insurance sector know it’s important to initiate the accommodation process early, as we’ve seen that employees are more likely to return from disability leave if their employer provides early intervention and accommodation. Conversely, the longer someone is off work, the more difficult it tends to be for them to return.

Therefore, if employers don’t take a proactive approach, they automatically expose themselves to unnecessary financial hardship. In addition to incurring both short-term sick leave costs and a long-term liability related to disability claims (through higher insurance premiums), the employer often faces additional costs related to the loss of productivity, overtime paid to other employees, recruiting costs for a temporary and/or permanent replacement, and a loss of engagement/morale among the rest of their team.

Supervisors and managers are typically the first people who learn of a physical ailment that’s preventing one of their team members from working. It is equally important that they recognize emotional and behavioural changes in employees who may be suffering from psychological distress. While leaders don’t need to be trained mental health workers, those who can recognize when an employee is struggling and figure out how to help can have a huge impact. To do so, however, they must be given the proper training, tools, and resources by their employers.

An accommodation can be as simple as limiting an employee to light lifting, less time standing, or less detailed work. Or it can mean providing a modified work schedule, a change in desk location, or additional help and support for a period of time. Whatever the course of action, the duties assigned must be within the employee’s capabilities and must not put their health or the safety of other workers at risk.

There’s no cookie-cutter solution, so it’s best to take a flexible approach to each situation. With that said, a collaborative approach is always best. It’s also important for the employer to try to focus on the employee’s abilities rather than on their disabilities throughout the accommodation process.

Providing a solid return to work process

When absence is unavoidable, the goal is to bring the employee back as soon and as safely as possible. The return-to-work process can only start when the employee has reached a level of functioning that will enable them to reintegrate into the workplace. To ease the process of reintegration, the first, and arguably most important, step is to establish regular contact with the employee during their absence to keep them informed about what’s happening at work, keep them engaged with the workplace, and reassure them that their contributions are missed and that their employer is looking forward to having them return.

A graduated return-to-work schedule is commonly used to help the employee build up their stamina. This can start by having the employee work a couple of days per week, with duties and responsibilities slowly building up to a full-time return. We all need to feel valued at work, so it’s important that the employee is assigned meaningful work during this time and is not just considered an “extra body.” It may be necessary to modify tasks as well, depending on the nature of the illness and the duties of the job.

Again, there is no cookie-cutter solution, but a process of collaboration is always advisable. Additionally, because some aspects of the job and/or the environment will likely change following the employee’s return to work, it’s important for the employer to be flexible and ensure that everyone is on the same page.

Having the right benefits plan

In addition to the actual disability benefit that supports employees with income replacement when needed, employee assistance programs (EAPs) and extended health benefits are important parts of the benefits package with regard to absences. Most EAPs offer supportive counselling and other resources to assist employees during times of need. Paramedical benefits, such as psychological treatment and physiotherapy, are also helpful for employees who need more intensive help in dealing with an illness or injury, and may help prevent or reduce absences.

However, there are times when an absence from work is necessary, including, for example, to provide recovery time after surgery or to enable someone to undergo treatment. Therefore, income replacement plans, such as short- and long-term disability plans, are an important part of any benefits package. And it is vital that these plans be reviewed with a qualified adviser on a regular basis, as the plans will complement  efforts to accommodate employees and help them return to work.

Establishing effective disability management systems

Ultimately, it just makes good sense for an employer to build and implement a proactive disability management program—one that addresses both the external and internal risks to the business, and provides a win-win scenario for both the employer and their most important asset: the employee. When employers, employees, and insurers all get involved early in the process and understand their mutual responsibilities, there is a greater chance of creating solutions that are beneficial to all parties.

Richard Brown has worked in the disability insurance business since 2002, providing absence and disability management advice to businesses, health and welfare trusts, and government agencies.

Dan Eisner is an employee benefits adviser with ZLC Financial, working with human resource and finance professionals on employee benefits and broader human capital strategies.


  1. The duty to accommodate employees with disabilities is part of the Canadian Human Rights Act and provincial human rights codes. These laws are designed to protect individuals from discrimination on the basis of race, religion, sexual orientation, or disability.
  2. Psychological Health and Safety in the Workplace is a voluntary standard that was introduced in 2013 by the Mental Health Commission of Canada (MHCC), the Canadian Standards Association, and the Bureau de normalisation du Québec. More information, including a free guide, is available on the MHCC website at
  3. Mental Health Commission of Canada, “Navigating the transition between disability supports and employment, MHCC Newsletter, June 2013.

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