Supplemental Unemployment Benefit (SUB) Plans: TEMPORARY LAY-OFFS

The purpose of a SUB plan is to allow
an employer to make supplemental
payments to Employment Insurance
(EI) benefits, without eroding those
EI benefits. As payments under a
registered SUB plan are not insurable earnings, EI premiums are not deducted.
In order to be eligible, SUB plans must be registered with
Service Canada before their effective date. Plans must:
– identify the group of employees covered and the
duration of the plan;
– cover a period of unemployment caused by one or a
combination of the following:
o temporary stoppage of work,
o training,
o illness, injury or quarantine;
– require employees to apply for and be in receipt of EI
benefits in order to receive payments under the plan;
– require that the combined weekly payments from the
plan and the portion of the EI weekly benefit rate does
not exceed 95% of the employee’s normal weekly
earnings;
– require it be entirely financed by the employer;
– require that on termination all remaining assets of the
plan will revert to the employer or be used for
payments under the plan or for its administrative costs;
– require that written notice of any change to the plan
be given to Service Canada within 30 days after the
effective date of the change;
– provide that the employees have no vested right to
payments under the plan except during a period of
unemployment specified in the plan; and
– provide that payments in respect of guaranteed annual
remuneration, deferred remuneration, or severance pay
will not be reduced or increased by payments
received under the plan.
A plan registered with Service Canada is not required to be
a trust. It could be funded from general revenues.
Income tax treatment
For income tax purposes, a SUB plan is defined more
restrictively, as it is required to be a trust to which the
employer makes payments. Such plans can be registered
with CRA, in which case any income earned within the SUB
trust is non-taxable. Whether or not registered, receipts are
taxable to the employee. Payments to a registered SUB
plan are deductible to the employer if made no later than 30
days after year-end. Payments to SUB plans are not
otherwise deductible, so a plan structured as a trust must
be registered for employer contributions to be deductible.
A SUB plan which is not a trust would not be subject to the
above rules. Deductibility of payments would follow the
general rules for all expenses for income tax purposes.
Interaction with the Canada Emergency Response
Benefit (CERB)
The provisions that exist under the EI system for employers

to make additional payments to workers through SUB plans
do not apply to employees who are receiving the CERB.
Amounts received by individuals from any employer in

excess of the $1,000 threshold would create an obligation
for the individuals to repay CERB they received for the same
benefit period.
Employers that wish to do so may continue to submit a
SUB plan to Service Canada. By registering a plan,
employers can make payments to employees who are
currently receiving EI regular or sickness benefits and
will also be prepared should employees need EI benefits at a
future time.
ACTION ITEM: As CERB is scheduled to end September
26, 2020, many individuals will now begin to rely on the
EI system. The time may be right to consider setting up
SUB plans as individuals transition to traditional EI.

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