The Case for Maternity Leave Top-Ups

September 14, 2023

Most women are eligible to receive federal or Quebec maternity leave benefits to support a leave of absence to care for a new baby. However, there are many reasons why these government benefits are failing to meet the needs of women in the workforce. Employers should consider offering a maternity leave top-up (also known as Supplemental Unemployment Benefit), as it contributes to the company’s success while also benefiting employees.

What is a Supplemental Unemployment Benefit?

The Canadian Supplemental Unemployment Benefit (SUB) Program was introduced as a government initiative more than 60 years ago. The goal was, and remains, to encourage employers to subsidize (‘top-up’) employees receiving government benefits while they are on a temporary absence, such as maternity leave.

Employment Insurance (EI), and Quebec Parental Insurance Plan (QPIP) replace only a portion of previous earnings (EI is 55%, QPIP is 75%; both up to an annual maximum). An employer-funded SUB payment helps to reduce the employee’s net loss of earnings during their absence. SUB payments are not counted as insurable and as such, EI or QPIP benefits are not ‘clawed back’.

Employers have a great deal of choice in designing their SUB plan. For instance, employers can set the top-up amount and the number of weeks offered. Most employers mitigate financial loss by placing conditions on accessing the benefit. Many restrict top-up payments to employees with a minimum number of weeks or months of service and coverage is usually offered to full-time permanent staff only. Some only offer the benefit to certain classes of employees (such as manager or above). Frequently, employees must sign an agreement committing to return to work and acknowledge that not returning to the company results in owing the company for the amount of benefit received.

Why Provide a Maternity Leave Top-Up?

Return to Work Incentive

Perhaps the most sensible reason for employers to provide a maternity leave top-up is to greatly increase the likelihood that their top talent returns to their position following their leave. Most employers offer a top-up on condition that the employee return to work within a certain period of time and remain with the employer for a set duration following their return. If the employee doesn’t meet both requirements, they must repay the benefit. Therefore, employer top-ups act as a strong incentive for women to return to the paid workforce and stay with the same employer.

Several Statistics Canada studies show this in action. Of all mothers with a paid job before taking maternity leave, 96% with a top-up returned to the same employer, compared with 77% of mothers with EI/QPIP benefits but no top-up, and 46% of mothers without any benefits. And mothers who received additional payments from their employer were 8.5% more likely to return to work than mothers who did not receive additional payments from their employer.

When an employee doesn’t return to work from a leave, the direct costs to the employer are high. These can include separation costs (such as exit interviews), replacement costs (e.g., posting the position, conducting interviews, and employment testing) and training costs (which could include orientation, formal training programs, or on-the-job training). The cost of replacing an employee depends on their level, but typically costs an employer upwards of 15-20% of their annual salary. For example, an employee making $70,000 per year can cost about $14,000 to replace. The cost of replacing a high-level executive can be as much as, or more than, their total salary.

There are also indirect costs of employee turnover—including loss of institutional knowledge, reduced morale and engagement, and even gossip and lost productivity. While these are harder to measure, they have an impact and should not be overlooked.

When offered, maternity leave top-ups do not represent a significant impact to a company’s bottom line. In Statistics Canada’s 2008 study on maternity leave top-ups, they lasted for an average of 19 weeks with average payments of $300 per week. A typical employee received $5,700 in employer-funded top-up. Compared with other, much more significant human resources costs, such as group benefits, pension and government-required contributions (e.g., CPP and EI), and the costs of replacing an employee, offering the SUB benefit represents good value for money.

Gender Inequality and the Gender Pay Gap

Even as recently as 2018, female employees aged 25 to 54 earned 13.3% less per hour, on average, than their male colleagues. In other words, women are still only earning $0.87 for every dollar earned by men.

However, childless women have earnings that are on par with men. In fact, the gender wage gap is almost non-existent until women have their first child. Essentially, having children amounts to a ‘motherhood penalty’.

As we continue to evaluate and recover from the fall-out of COVID-19, we can already see that the pandemic has had a regressive effect on gender equality. Women make up 39% of global employment but accounted for 54% of overall job losses during COVID. One reason for this effect is that the virus significantly increased the burden of unpaid childcare disproportionately carried by women. This is contributing significantly to women’s employment dropping faster than average.

Helping women fully participate in the economy adds trillions in GDP growth, diversifies and stabilizes economies, reduces general income inequality, and contributes to financial sector stability. We all share a responsibility to support women as a powerful contribution to a thriving world economy.

Company Success Overall

Why should employers care about gender inequality and the pay gap? Ultimately, what is good for gender equality is good for both the economy generally, and for companies specifically.

Employers that actively support diversity—and gender equality as part of that—ultimately make more money. Read our article on Benefits for Diversity, Equity and Inclusion to find out how greater diversity results in better business decisions, higher profits, and higher stock prices.

Companies that show a commitment to gender diversity tend to attract and retain better talent. Numerous studies have shown that employees in pro-diversity regions like Canada prefer diverse work environments. Top female candidates especially care about gender-diverse work environments. Recent research showed that 61% of women look at the gender diversity of the employer’s leadership team when deciding where to work. Fundamentally, talented individuals move to companies that do better with diversity, and this may be what is driving diverse firms to outperform their competitors in certain contexts.

With all this evidence to support the case for better equality, more companies have identified gender diversity as a top priority. However, that isn’t always reflected in a company’s culture and policies. Not investing in gender diversity affects employee job satisfaction and how long both men and women want to stay with the company.

Bottom line, it’s likely harmful to a company’s bottom line if it doesn’t support policies and programs that contribute to gender equality and diversity.

Industry Competitiveness for Talent

Employers use various forms of compensation to attract and retain top talent in competitive industries—and maternity leave top-ups may be one such benefit.

Several industry factors tend to influence whether employers offer a SUB plan. With a top-up rate of 39%, working in a unionized role is strongly associated with availability of a maternity leave top-up. Working for a large company also significantly increases the chances of receiving a top-up. Large companies with over 500 employees, whether unionized or not, are more likely to have the resources to use incentives such as top-up plans to recruit and retain employees. Their larger workforce also allows for savings through economies of scale. And the strongest predictor of receiving a top-up? Being in the public sector. One in two mothers working in a public sector role receive an employer top-up for their leave, making them more than 5 times likelier to receive the benefit.

Additionally, having a wage of at least $20 per hour significantly increases the likelihood of receiving an employer top-up compared with those with lower wages. The top-up rate among those earning less than $20 was 9%, compared with 30% for those with a $20 to $24.99 hourly wage, and 36% for those who earn $25 per hour or more. Those with higher earnings are more likely to be in professional or skilled jobs and are more costly to replace for companies.

If your business competes for talent with larger, public sector, and/or unionized organizations, or is generally competing for high compensation talent, consider offering a SUB plan to attract top talent.

Comparison with Sickness Benefits

Among employers who provide a maternity leave top-up, 57% do so to align with the medical portion of the maternity/pregnancy leave. Most employers do not continue top-ups into the parental leave period. In these scenarios, the top-up may be designed to meet human rights obligations rather than to address workforce issues like returning to work or industry competitiveness.

Lack of maternity leave top-ups disadvantage people who take a leave to care for a baby versus taking advantage of other sickness benefits. Many companies offer employees employer-funded short-term disability (STD) and long-term disability (LTD) benefits. Though many employers would argue that having a child is a choice while an illness or injury is not, this is an oversimplification. Indeed, there are many overlapping factors between maternity and sickness leaves.

For instance, pregnancy may not be planned, as can happen in cases where even the most reliable precautions fail, or in devastating situations like sexual assault. Of course, it is unfair to expect abstinence or that every unplanned pregnancy would be terminated. On the other hand, while illnesses and injuries are generally not planned, some eligible for coverage under STD plans are preventable. These could include illnesses or injuries resulting from a failure to adhere to health guidelines or engaging in careless behaviour or high-risk activities. Yet, most employers offer 17 or 26 weeks of paid STD benefit while only 30% of working mothers are offered a maternity leave top-up.

Additionally, EI benefits are capped at 55% of a maximum insurable income of $61,500. There are many Canadians with an income higher than this amount who take a greater hit to their income while on parental leave. With average Canadian earnings, almost half of income earners are disadvantaged by this government benefit earnings maximum.

Higher income earners who seek to reduce their financial risk from a sickness-related work absence may choose to purchase a top-up disability insurance. Typically known as Guaranteed Standard Issue (GSI) income protection, this coverage supplements employer-provided STD and LTD benefits. However, despite the same financial risk, similar GSI-like products do not generally exist on the Canadian marketplace to bridge the gap for maternity or parental leave absences. Instead, parents must cover the cost of their absence through a significant savings burden prior to leave, a sacrifice to standard of living while on leave, or an early return to work.

Are You Convinced?

With strong evidence that maternity leave top-ups benefit employees, employers, and society at large, why do so few private sector employers have a SUB plan? When HR teams are spread thin, it can be challenging to implement a new program. However, the offering is well worth the financial and time investment.

Finance teams also need to be convinced of the return on investment, especially in an environment of watching every dollar spent. Want to estimate the cost of a SUB plan, and evaluate the ROI? We’re here to help you crunch the number.

Let’s Transform Your Benefits Program

At Actuarial Analytics, we’re committed to helping you craft benefits plans that reflect the needs of your unique workforce. Contact us today to begin optimizing your benefits program to better suit your employees – and your business.