EI Benefits for the Self-Employed: Who Should Opt-In?

June 17 is an important date for the self-employed. Not only is it the tax filing deadline (as June 15 falls on a weekend), it’s also an opportunity to decide whether or not to start contributing to the Employment Insurance (EI) program. There are trade-offs that small business owners need to take into consideration, and advisors play an important role in this decision-making process.

Contributions are optional, but give the self-employed access to benefits like maternity/parental leave, sickness, compassionate care, and family caregiver benefits.

The first thing to take into consideration is the fact that contributing to the EI program doesn’t give the self-employed access to the full program. There are no benefits available in the case of job loss, but the program will provide 55% of your self-employed client’s annual income for special benefits like maternity, parental, sickness, compassionate care, and family caregiver benefits to those who meet the eligibility criteria up to a maximum number of weeks, as follows:

• Maternity – up to 15 weeks of coverage during pregnancy or after giving birth
• Parental – up to 40 weeks of benefits shared between parents, with one parent able to collect the benefits for a maximum of 35 weeks for standard parental benefits. Or, up to 69 weeks shared between both parents for extended parental benefits, where the benefit amount is reduced to 33% of average weekly earnings
• Sickness – up to 15 weeks if unable to work due to illness or injury
• Compassionate care – available to individuals performing caregiving duties for an individual with a significant illness, or faces a significant risk of death. These benefits are available for up to 26 weeks
• Family caregiver benefit for children – up to 35 weeks to care for a child under the age of 18 to support a critically ill or injured child.
• Family caregiver benefit for adults – up to 15 weeks to care for a critically ill or injured adult.

Although this coverage may be beneficial for the self-employed, there are unique characteristics of the program that apply to those who choose to opt in to access the special EI benefits:

• The special benefits are only available after one year of contributions have been made (which is up to a defined maximum of $860.22 for the year)
• Access to the program is based on the income claimed on a tax return – if the business fails or income is lower for a period of time, benefits end up being reduced or are no longer available, regardless of the amounts previously contributed
• Program participation can be terminated within 60 days, provided no money has been collected. However, contributions still must be made for the remainder of that calendar year

The main drawback:  If benefits have been collected one time, the self-employed then lose the ability to opt out. This means they must make contributions for the duration of their self-employed career.  Advisors should compute the value of the potential claim against the lifetime costs associated with the contributions.

Also important to consider: Can a small business function without its leader at the helm for a long enough period to make benefit contributions worthwhile?

For 2019, the contribution requirement for the self-employed is $1.62 for every $100 in earnings, up to a defined maximum of $860.22 for the year. For shareholders of a corporation who control more than 40% of that corporation's voting shares, the CRA then calculates EI premiums based on the amount of what would have been insurable earnings from that employment if the earnings had been insurable.

Some individuals who work independently in specified professions (including barbers, hairdressers, taxi drivers and drivers of other passenger vehicles and fishers), but are not hired as employees, cannot register for EI special benefits, as they are eligible to access the regular EI program.

When determining whether or not to contribute to EI special benefits, the self-employed should also factor the cost of mandatory Canada Pension Plan (CPP) contributions into their budget. This is a requirement for everyone between the ages of 18 and 70 who have an income of $3,500 or more up to the earnings ceiling of $57,400 for 2019. Contribution amounts rose in 2019 based on enhancements to the CPP program, and self-employed individuals need to contribute 10.2% of their earnings – covering both the employer and employee amount.

Ultimately, the decision to start contributing at tax time must take both lifestyle and financial factors into consideration, and the right choice will be entirely dependent on the circumstances of each individual. Understanding the EI program and its pros and cons will ensure that you, as a trusted advisor for your self-employed clients, can help each business owner make the right choice for them.

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