Employment Insurance for Small Business Owners and Self Employed Individuals
Update: For information relating to benefits relating to COVID 19 announced by Revenue Canada and Revenue Quebec please refer to the posts on EI Sickness and EI Regular Benefits and Tax Measures for Small Business/Self Employed
One of the benefits allowed employees working in Canada is that have access to employment insurance. A specific amount is withdrawn from each employees paycheques each pay period along with an employer portion and remitted to Revenue Canada. This entitles them to wage loss replacement, in the event that they are laid off, as well as other benefits. This can be extremely useful in difficult times and has been used by millions of Canadians.
Unfortunately, small business taxpayers who are considered self employed business owners are not entitled to the same benefits. A self employed individual also includes business owners who own 40% of a corporation and usually extends to family members of self employed people. By the same token, self employed taxpayers (whether they are sole proprietorships or owners of corporations) are also not required to pay employment insurance (EI) premiums.
types of EI benefits for self employed (small business) taxpayers
There is however a program to which the self employed business owner may voluntarily sign up for that does allow for a limited set of benefits as follows:
maternity benefits up to 15 weeks
parental benefits up to 35 weeks at a weekly benefit rate up to a maximum of 55% of self employment income
sickness benefits for those who are unable to work due to sickness, injury or quarantine up to 15 weeks
compassionate care benefits for those who have to care for a family member who has a significant risk of death up to 26 weeks. This benefit can be shared among family members.
family caregiver benefits for children or adults for the critically ill or injured
Note that unlike the EI program for employees who lose their jobs, the EI program for the self employed does not provide for wage loss replacement in case of loss of clients or income unless due to the criteria listed above.
criteria for registration
Business owners who are self employed sole proprietors or partners or who own 40% of a corporation and are not entitled to regular EI insurance can apply for the self employed EI program. This excludes barber, hairdressers and taxi drivers as they have access to the regular EI program. To be considered you must be a resident of Canada or a Canadian citizen.
other considerations
You will need to wait for one year from the time of registration and payment of premiums before initiating any claims i.e. if you register on January 1st, 2020, you will only be entitled to make a claim on January 1st, 2021
For 2020 the rate of EI premiums is 1.58% up to a maximum of $54,200 i.e. maximum premiums payable are $858.36
The benefit is calculated at 55% of the insured (earnings) amount. The maximum weekly benefit is $573 for 2020, which is subject to reduction if there are earnings from other sources.
The minimum amount of small business/self employment income required to qualify for benefits in 2020 is $7,279 in 2019
The basis for the calculation would be the income that you earned per your tax return of the previous year. E.g. for 2020, the calculation would be based on 2019 income. The total is divided by 52 weeks to arrive at the weekly amount. You would then be entitled to 55% of the weekly amount up to a maximum of $573 for the number of weeks allowed based on the type of claim eg. 15 weeks for sickness, 35 weeks for maternity etc.
You may work while receiving benefits. If you earn more than 90% of the threshold amount (essentially based on prior years income noted above) there will be a clawback for the difference.
Once you have received benefits, you can not opt out of the program; you will have to pay premiums for as long as you earn self employment income.
Prior to receiving benefits you can apply to terminate the agreement within 60 days of registration and not pay any premiums. However, if you have not made any claims and choose to opt out, this is still possible although premiums will have to be paid for the entire calendar year.
To register for the EI benefits program for self employed people, you would sign up for a My Service Canada Account. Once registered you would log in and register for the EI program.
Proof of sickness for yourself or the family member to whom you are providing compassionate care in the form of a medical certificate completed by a medical doctor or nurse practitioner. If you are applying for maternity benefits, the expected birth date of the child and the actual birth date once the child has been born.
Self employed persons living in quebec
For those living in Quebec, maternity, paternity and parental benefits are already covered under the QPIP (RQAP) program. As such the premiums are lower.
For 2020 the rate of EI premiums is 1.20% up to a maximum of $54,200 i.e. maximum premiums payable are $650.40
Similar to the calculation for the rest of Canada, the benefit is calculated at 55% of the insured (earnings) amount based on the previous year income per your tax return.
alternatives to the government program
There are several alternatives that might provide different advantages:
You can create a fund to which you contribute to regularly as a type of “self insurance”. This can be invested in an interest bearing account and drawn when required. Many owners of corporations leave some funds in their companies for this purpose and draw down upon it when their income in a particular year is lower.
There are several insurance companies that provide insurance to the self employed for both medical and disability that are worth reviewing. Premiums might be higher, however, the benefits will also likely be more comprehensive.
You can join a group insurance plan of a spouse who has private health insurance with their employers. This can also provide for more comprehensive benefits.
The decision to apply for the Canadian government EI benefits if you are self employed is based on a variety of factors. If you live in any province except Quebec, it can be very useful to have maternity or parental benefits. Or if you work in an industry with a high risk of injury, it might also make sense to have a cushion in case of sickness. Before making a decision however it is best to look into all alternative options to ensure that you receive the coverage that you need.
Ronika Khanna is an accounting and finance professional who helps small businesses achieve their financial goals. She is the author of several books for small businesses and also provides financial consulting services.
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