The History of Employee Benefits in Canada: From Bare Bones to Wellness Perks
This blog post will provide an overview of how employee benefits have evolved in Canada over the past century.
We will examine the landscape of benefits from the early 1900s when they were minimal, through the growth of pensions and health insurance as commonplace benefits, and how statutory benefits emerged.
The post will also look at the shift from defined benefit to defined contribution pension plans and discuss new types of benefits that have arisen in recent decades such as flexible work arrangements and wellness programs.
The goal is to provide historical context on the current employee benefits environment in Canada.
Understanding this evolution can help HR professionals, business owners, and employees appreciate where benefits originated from and why continuing to adapt them is important for meeting the needs of today's workforce.
Early 1900s: Minimal Benefits
In the early 1900s, most companies in Canada did not provide pensions, health insurance, paid vacation time or other benefits to employees. Only skilled workers in certain professions may have received minimal benefits such as disability insurance or sick pay.
For example, some railroad companies started offering pensions in the late 1800s, but this was not a common practice across industries. The lack of employee benefits was largely due to an absence of government programs and legislation around benefits at the time.
According to the History of Labour in Canada, "Employers argued that unions and government intervention in the 'free market' upset the natural order of business.” This ideology deterred companies from voluntarily providing additional benefits to their workers.
Overall, the early 20th century landscape for employee benefits in Canada was very minimal compared to modern standards. It was an era of little to no vacation time, health insurance, pensions or other supplementary benefits for the average worker.
Rise of Pensions and Health Insurance as Common Benefits
In the late 1800s and early 1900s, some companies started offering pensions and health insurance as benefits. One of the earliest corporate pension plans was established by American Express in 1875. These early pensions were defined benefit plans that provided employees with a guaranteed income in retirement based on salary and years of service.
For-profit insurance companies also began offering group health insurance plans that employers could purchase for their workers. Initially, these health plans only covered catastrophic expenses like hospitalization. Over time, they expanded to include more comprehensive medical coverage.
Companies used benefits like pensions and health insurance as a way to attract skilled workers in competitive job markets. As labor unions grew stronger in the 1930s and 1940s, they were able to advocate for better benefits for the workers they represented.
According to the Canadian Life and Health Insurance Association, group benefits became widespread in Canada during and after World War II. Employers saw them as an important part of compensation packages to retain employees when wage controls were in effect.
Impact of World War 2
World War 2 had a major impact on the growth of employee benefits in Canada. Wartime wage and price controls were implemented by the government to curb inflation. This limited companies' ability to use wages to attract and retain workers. As a result, employers started offering more benefits like health insurance and pensions as an alternative way to compensate employees.
Labor shortages during the war also increased competition for workers, further incentivizing companies to improve their benefits packages. According to the Smithsonian Institute, the number of workers covered by private pension plans doubled from 1939 to 1945. This growth laid the foundation for employee benefits becoming a standard part of compensation in the post-war period.
Statutory Benefits Emerge
In the mid-20th century, the Canadian government began introducing major statutory benefit programs to provide a basic social safety net for all workers. Some of the most notable programs included:
The Canada Pension Plan (CPP) was created in 1965 to provide retirement, disability, and survivor benefits to employed Canadians. The CPP expanded on the Old Age Security pension introduced in 1952 and aimed to provide universal coverage across the country.
Employment Insurance (EI) was introduced in 1940 to provide temporary financial assistance to unemployed workers looking for a new job. Originally named Unemployment Insurance, the program has evolved over the decades but continues to pay benefits to eligible workers who lose their job through no fault of their own.
Workers' compensation legislation dates back to the early 1900s and aimed to support workers injured on the job. Each province and territory has its own workers' compensation program that provides benefits like income replacement, healthcare coverage, and return to work assistance.
Pension Plans Evolve
One major shift in pensions over the past few decades has been the move from defined benefit pension plans to defined contribution plans. Defined benefit plans provide guaranteed payments to retirees based on their salary and years of service. This places the investment risk on the employer. Defined contribution plans like RRSPs and group RRSPs provide individual accounts for each employee that are funded by contributions from the employer and/or employee. The payments at retirement depend on how the investments perform, shifting risk to the employee.
In the 1960s and 70s, defined benefit pension plans were common, with around 38% of the Canadian workforce covered by them in 1977 according to this source. However, growing life expectancies increased costs and risks for employers sponsoring these plans. Starting in the 1980s, many companies shifted to defined contribution plans to reduce their long-term pension obligations.
Today, group RRSPs and other defined contribution arrangements are the main type of pension plan provided by Canadian employers. Defined benefit plans now cover less than 25% of the workforce. This shift has given employees more control over their retirement investments, but also exposes them to market volatility and the risk of outliving retirement savings.
New Benefit Types Emerge
In recent decades, new types of innovative employee benefits have emerged as companies aim to meet the evolving needs of the workforce. Some of the key trends include:
Wellness programs have become increasingly common as employers recognize the impact of health on productivity and healthcare costs. Programs may include onsite gyms, nutrition counseling, stress management, smoking cessation, and more. According to Pacific Prime's Global Employee Benefits Trends Report 2024, over 60% of companies now offer wellness initiatives.
Leave policies have expanded to provide employees greater flexibility and work-life balance. Many companies now offer paid maternity/paternity leave beyond statutory minimums, as well as extended bereavement, caregiving, and sabbatical leave. There is also a rise in unlimited paid time off policies. Research shows these expanded leave benefits improve engagement and retention.
Tuition assistance has become a popular way for employers to invest in the growth and development of their people. Companies may offer reimbursement of tuition fees, student loan repayments, and access to online learning platforms. Upskilling benefits help attract and retain top talent while cultivating an engaged, high-performing workforce.
Importance of Evolving Benefits
As the workforce and workplace evolve, employee benefits must adapt to meet changing needs. With the growth of remote work and the gig economy, benefits packages will need to adjust to provide the flexibility and support that employees are seeking. According to a McKinsey report, nearly 30% of workers are expected to be freelancers, contractors or temporary employees by 2030. Benefits tailored to these independent workers like portable health insurance, retirement savings plans, and income protection will become more prevalent.
Workplaces will also need to focus on holistic wellbeing benefits as mental health and work-life balance become higher priorities. A recent survey showed that over 50% of employees consider mental health support the most desirable new benefit from employers. Companies will need to provide access to mental health resources, stress and resilience training, and flexible work options. With four generations now in the workforce, benefits will need to meet diverse needs across age groups. The future of benefits lies in personalized choices that empower employees to select the package that fits their lifestyle and values.
Conclusion
Looking back over the past century, we can see a dramatic evolution in employee benefits within Canada. In the early 1900s, most companies provided little to no benefits beyond wages. It wasn't until pensions and health insurance began to emerge as common offerings from employers seeking to attract skilled workers that the landscape began to shift. Major events like World War 2 led to further expansion of benefits, as did the growth of labor unions advocating for workers. From the mid-1900s onward, we saw the introduction of statutory benefits and programs like CPP and EI that laid a basic social safety net. Pension plans also underwent an evolution from traditional defined benefit plans to defined contribution plans that transferred more risk and responsibility to employees. In recent decades, creative new benefits like flexible work arrangements, expanded leave policies, and wellness programs have entered the mix. This historical perspective highlights the constantly changing nature of employee benefits within Canada as companies adapt their offerings to meet evolving workforce needs and expectations.