Most employees in Canada are required to contribute to Employment Insurance (EI), a national program designed to provide temporary benefits for individuals unable to work. Those eligible for EI can receive regular EI benefits in the event they lose their job or qualify for special benefits, including maternity and parental leave, and sickness and companionate benefits.
Significant exceptions to the EI program requirements apply to individuals who are either self-employed, related to their employer, or related to a person or group of persons that controls the corporation for which they work. These three groups of individuals do not contribute to EI, nor are they eligible for regular EI benefits.
Optional EI for the Self-Employed
Beginning in 2011, all self-employed individuals became eligible to register for Employment Insurance benefits such as maternity and parental leave, although there are some key differences between eligibility for regular and self-employed EI. Among the criteria for EI coverage for the self-employed are:
- You must be registered 12 months before making a claim
- You must have earned a minimum amount of net self-employed earnings during the previous calendar year before submitting a claim (for claims filed in 2016, the minimum amount of net income is $6,820)
- You have 60 days to change your mind. Otherwise you have to pay premiums until the end of the year
- However, once you make a claim, you must continue to pay the premiums for as long as you are self-employed
Why Isn’t Everyone Doing it?
According to StatsCan, in 2015 there were more than 2.75 million self-employed Canadians, with more than one million of them women.1 And, according to a May 2015 article on CBC, there were just over 14,000 self-employed business owners paying into the EI program – just one-half of 1%. Why so few?
One of the reasons may be the lack of visibility of the program. Many self-employed business owners are simply unaware that this program exists. Another reason may be that it simply may not pay to enroll.
Crunching the Numbers
Consider the following examples of two self-employed women considering opting in to the program – Linda, a proprietor of a small, home-based business with an annual net income of $30,000, and Sara, a lawyer with an annual net income of $100,000. Linda and Sara have no other employment income, and both are planning to grow their family and have a child. The maximum EI benefit is 55% of average weekly earnings, with a maximum of $537 per week up to 50 weeks.
Based on 2016 amounts, both women will come out ahead in the long term if they contribute, especially if they have two children. However, if they are planning to have one child and take only a short maternity leave, the benefit is relatively small or non-existent.
|Estimated 2016 Amounts (For Illustration Purposes Only)|
|50 weeks of maternity||25 weeks of maternity||15 weeks of maternity|
|Annual EI Premiums||564||955||564||955||564||955|
|Est. annual maternity benefits – 1 child||15,865||26,850||7,933||13,425||4,760||8,055|
|Est. annual maternity benefits – 2 children||31,731||53,700||15,865||26,850||9,519||16,110|
|Self-employed career 10-year premium total||5,640||9,550||5,640||9,550||5,640||9,550|
|Self-employed career 20-year premium total||11,280||19,100||11,280||19,100||11,280||19,100|
|Benefit (cost): 1 child, 10 year career||10,225||17,300||2,293||3,875||(880)||(1,495)|
|Benefit (cost): 2 children, 20 year career||20,451||34,600||4,585||7,750||(1,761)||(2,990)|
Do Your Homework
There are many things to consider when deciding on optional EI coverage. Can you step away from your business? Will your customers come back when you do? Keep in mind EI payments received while earning income have to be paid back, which means if you continue to operate your business part time and earn income, you essentially are paying EI premiums without getting its benefit. In addition, the “catch” of not being able to opt-out after opting-in is a big deterrent for some small self-employed business owners, especially to receive benefits for only a few weeks or months of leave.
As in most areas of advice, the answer to whether or not to enroll in EI is “it depends.” The CRA website includes information on EI eligibility, application instructions, and a full list of available benefits HERE. (http://www.esdc.gc.ca/en/ei/self_employed_workers/index.page) The website also has an informational video about maternity and parental benefits for the self-employed HERE. (http://www.servicecanada.gc.ca/eng/video/sew.shtml)
Self-employed business owners looking to grow their family or wanting peace of mind when caring for a loved one now have the option of receiving EI. But before opting into the program, it’s best to do your homework. Be sure to consider your family and financial situation, and, of course, speak to your Sloan accounting professional.