B.C. plan sponsors will have lots of questions to consider as the provincial government prepares to introduce a new employer health tax.
“It’s going to be interesting, because the employers, obviously, are going to be looking at that employer health tax as a cost of doing business,” says Avinash Maniram, a partner and senior consultant at PBI Actuarial Consultants Ltd. in Vancouver.
In its provincial budget last week, the B.C. government announced it would be eliminating medical service plan premiums as of Jan. 1, 2020, replacing them with a new employer health tax. Effective Jan. 1, 2019, businesses with a payroll of more than $1.5 million will pay tax at a rate of 1.95 per cent of their total payroll. Businesses with payrolls between $500,000 and $1.5 million will pay a reduced tax rate, while those with payrolls under $500,000 will be exempt from the new tax.
“From the employer’s side, it’s going to be a cost of the total [compensation] that they need to figure out,” says Maniram.
While the new tax will be an added cost, on the flip side is the fact they’ll no longer have to pay the medical premiums. “For the unions, they’re going to be looking at that and potentially saying, ‘OK, well this is what we have written into the collective agreement. We can use that [health premium] money for other benefits,’” says Maniram.
In the short term, many businesses will look at the new tax over the next couple of years to see how it affects their bottom line, says Maniram, including those that haven’t been paying the medical services plan premiums. Those businesses, he says, will now “have this additional cost and those would be the groups that I would be interested to see how they’re going to change, if they’re going to react on the extended health and dental side, because now they have a new piece that they have to fit into the puzzle,” he says.
Those plans may look at ways to reduce their costs, either by moving to a streamlined benefits package or increasing the premiums they charge to employees, he adds.
Cory Dent, president and senior benefits consultant at Dent Benefits Consulting Ltd. in Surrey, B.C., notes many small employers are unhappy about the new tax. “They’re going to be figuring out how to either offload the costs, reduce benefit coverage, increase the cost of goods and services,” he says. “Ultimately, it’s going to be passed on, I think, to their customers or you’re just going to see some people just slice, they’re going to cut the benefits.”
Another issue that has left some people unhappy, according to Dent, is the fact that employers that cover the premiums will have to pay both them and the payroll tax for a full calendar year. The tax takes effect on Jan. 1, 2019, and the elimination of the premiums happens as of January 2020.
“They’re not happy about that, especially with the minimum wage going up,” says Dent. “It’ll be interesting. We’re getting a mixed bag. Some people that say that the companies that are paying for [medical premiums] right now, are they going to enjoy them double-dipping? No, absolutely not, for a year. But ultimately, come 2020, it’s going to be pretty much a wash, depending on how many single or families that you had.”