The COVID-19 pandemic has brought about a significant loss of jobs, with approximately 200,000 positions disappearing in February of this year. Job loss can be a distressing experience, often ranking among the most stressful events in an individual’s life.
Fortunately, the Government of Canada offers support to employees who find themselves out of work through no fault of their own. One avenue of assistance is the Employment Insurance (EI) program, which provides temporary income support to eligible individuals in Canada. Let’s delve into how EI operates in the country.
- What Exactly is the Employment Insurance Program?
EI serves as a governmental initiative designed to offer temporary income support and various other benefits to employees facing job loss.
Similar to private insurance setups, both employees and employers in Canada contribute premiums to the program during each payroll period. Unlike private insurance schemes, however, the payment of these premiums is mandatory for all employees and employers across the country, with only a few exceptions.
With each payroll cycle, EI premiums are calculated and deducted from an employee’s pay, while a separate amount is calculated and owed by the employer. It falls on the employer’s shoulders to deduct these premiums and remit them to the Canada Revenue Agency (CRA).
EI benefits are accessible to workers who fulfill the qualifying and entitlement criteria, a subject we’ll explore in more detail shortly. This program is supervised and administered by the Canada Employment Insurance Commission (CEIC), Employment and Social Development Canada (ESDC), and Service Canada.
- Employment Insurance in Quebec
In Quebec, the administration of many federal programs often differs slightly. However, Employment Insurance extends to both employees and employers in Quebec, albeit with a few distinctions.
Though the program’s mechanics largely mirror those in the rest of Canada, the premium rates differ, generally being lower. Additionally, alongside EI, individuals in Quebec are obliged to participate in the Quebec Parental Insurance Plan (QPIP).
Across all provinces and territories in Canada, except Quebec, maternity and parental benefits are dispensed through the EI program. Conversely, in Quebec, these benefits are managed by QPIP.
- Who is required to contribute to EI?
Most employment in Canada falls under insurable employment, meaning both employees and employers are obligated to pay EI premiums. However, certain exemptions exist, particularly for employees who are related to their employer, such as those working in a family business.
The system is akin to the CPP setup in Canada, but unlike CPP, there’s no age limit for EI contributions. Moreover, it encompasses all types of employees in Canada, irrespective of their citizenship status.
For each employer, EI premiums must be deducted from the employee’s earnings up to the annual maximum insurable earnings for that year. This remains applicable regardless of whether EI premiums have already been deducted by a previous employer. Even if the employee has reached the maximum premium with the former employer, any excess payment will be refunded to the employee upon filing their income tax return.
- How EI premiums are calculated
The process of calculating EI premiums involves contributions from both employers and employees, including self-employed individuals. These premiums are determined as a percentage, known as the contribution rate, of the employee’s earnings, termed as pensionable earnings.
Each year, the contribution rate for employees and the maximum contribution amount they must make adjust based on fluctuations in the average wage in Canada, with updates regularly published. Employers are required to contribute 1.4 times the amount of the employee’s premiums.
For the year 2022, the contribution rate for employees stands at 1.58%, with a maximum annual insurable earnings cap of $60,300. Consequently, the maximum annual EI premium for employees amounts to $952.74. Employers, therefore, must contribute up to a maximum of $1,333.84 for the same year.
In Quebec, the EI contribution rate for 2022 differs, set at 1.20%, with the same maximum annual insurable earnings of $60,300. This results in a maximum annual premium of $723.60 for employees and $1,013.04 for employers.
Additionally, in Quebec, both employees and employers owe QPIP contributions alongside EI. For the year 2022, the contribution rates are 0.494% for employees and 0.692% for employers, with a maximum insurable earnings threshold of $88,000.
To provide an example of the calculation process, let’s consider an employee in Ontario earning $4,000 semi-monthly (twice per month) with 24 pay periods annually, resulting in a yearly salary of $96,000. The EI premiums for each pay period would amount to $63.20. Accordingly, the employer would need to deduct $63.20 from the employee for that pay period, contribute an additional 1.4 times that amount, equaling $88.48, and remit a total of $151.68 to the CRA.
It’s important to note that although the employee’s annualized earnings exceed the maximum insurable earnings of $60,300, both the employee and employer are obligated to pay EI premiums based on their actual annualized earnings until they reach the maximum contribution amount for the year, which is $952.74 for the employee and $1,333.84 for the employer. Self-employed individuals are only required to contribute the employee portion of premiums.
Furthermore, deductions and employer contributions must cease once the maximum premium for the year has been reached.
- EI benefits
Employment Insurance (EI) offers various types of support tailored to different circumstances, ranging from maternity and paternal leave to sickness benefits for employees unable to work due to health issues. These benefits aim to provide temporary assistance to employees facing interruptions in their earnings.
Among the core EI benefits are regular benefits, specifically designed for individuals who have lost their jobs. The amount of EI support an unemployed person can receive is determined upon application to Service Canada and is contingent upon factors such as the individual’s insurable earnings and the geographic region of employment.
Regular EI benefits provide weekly assistance of up to 55% of earnings for a maximum duration of 45 weeks. As of 2022, with the maximum insurable earnings capped at $60,300, this translates to a maximum weekly benefit of $638, varying depending on the employee’s location within Canada. It’s important to note that like regular income, EI benefits are subject to taxation.
In addition to regular benefits, EI offers supplementary support, including:
- Sickness benefits for individuals unable to work due to illness or injury
- Maternity and parental benefits, as previously discussed
- Benefits for those providing care to seriously ill family members
- Benefits extended to self-employed individuals
- Benefits available for Canadians residing abroad
- Applying for EI benefits
When seeking EI benefits in Canada, it’s imperative for employees to follow certain steps. Firstly, upon termination, the employer is obligated to furnish a Record of Employment (ROE) to both the Government of Canada and the employee. This document aids the government in assessing eligibility and determining benefit amounts for EI.
It’s crucial for employees to initiate their application for EI benefits promptly after ceasing work, even if they haven’t received their ROE yet. Delaying the application for more than four weeks may result in the loss of benefits entirely.
To qualify for regular EI benefits, certain criteria must be met. The employee must have lost their job through no fault of their own, precluding cases of voluntary resignation or termination due to misconduct. Additionally, other prerequisites include having worked between 420 and 700 hours of insurable employment (depending on the Canadian region), experiencing at least seven consecutive days without work or pay within the last 52 weeks, and being ready, willing, and capable of work while actively seeking employment.
Applying for EI benefits can be done online through the designated portal when the employee is prepared to proceed.
In contrast, the United States operates a similar program known as Unemployment Insurance, which offers weekly benefits to individuals who are unemployed through no fault of their own. Unlike Canada’s federally-run EI program, the US program is a joint federal-state initiative. While each state oversees its program, they adhere to federal regulations governing its operation.
Similar to EI, eligibility for Unemployment Insurance in the US hinges on factors such as earned wages and duration of employment during a specified “base period.” However, unlike EI, funding for Unemployment Insurance in the US is predominantly sourced from employer taxes rather than contributions from both employers and employees.
- What constitutes EI insurable earnings?
EI insurable earnings encompass the earnings an employee receives from employment that is considered insurable, which generally includes most forms of employment in Canada under a contract of service.
For earnings to qualify as insurable, they must be paid in cash by the employer to the employee and must be received and enjoyed by the employee in relation to that employment.
In general, EI premiums need to be deducted from various forms of compensation, including:
- Salary, wages, or any other form of remuneration
- Commissions
- Bonuses
- Most taxable benefits received in cash
- Honorariums
- Certain tips and gratuities
To determine whether EI premiums should be deducted, you should consult guidelines on the taxable nature of benefits and the tax treatment of non-regular employment payments.
When is it necessary to deduct EI premiums?
Employers are required to deduct EI premiums from their employees’ insurable earnings.
Key points about EI premiums:
- They begin to be deducted from the first dollar earned until the yearly maximum is reached.
- There is no age limit for deducting EI premiums.
Employer contributions to EI:
In addition to deducting EI premiums from employee remuneration, employers must contribute 1.4 times the amount of EI premiums deducted from their employees’ earnings and remit the total of both amounts. It’s important to note that even if the mandatory deductions were not initially made, the employer is considered to have made them, and failure to deduct them may result in penalties under the PIER system.
- Ceasing EI Premium Deductions:
When determining when to cease deducting Employment Insurance (EI) premiums for current employees, it’s essential to halt deductions once the employee’s annual insurable earnings hit the maximum insurable earnings threshold or reach the maximum employee premium for the year within their tenure with your organization.
For further clarification, it’s advisable to delve into the details of pensionable and insurable earnings, elucidated in the CPP/EI explanation.
- Multiple Employment Scenarios:
In cases where an employee holds different positions with separate employers, each with distinct business numbers, the EI annual maximum insurable earnings apply to each job independently.
- Handling Employees with Multiple Employers:
Should an employee transition from one employer to another within the same calendar year, the new employer is obligated to deduct EI premiums anew, regardless of the contributions made by the previous employer. This remains applicable even if the employee has already reached the maximum contribution threshold during their previous employment.
Any surplus payments will be reimbursed to employees upon filing their income tax and benefit returns. It’s important to note that employers are not entitled to refunds for their portion of the contributions.
- Illustrative Example:
For instance, if an employee informs you that they’ve reached the maximum EI premiums for the year, having had $900 deducted by a previous employer and combining it with the deductions from their current employment, do not discontinue deducting EI premiums from their pay. Deductions must continue until the employee reaches the maximum contribution for the year within their employment with your organization, irrespective of contributions made through other employers.
- Employer Restructuring Considerations:
In situations involving employer restructuring, the succeeding employer may consider EI premiums previously deducted, remitted, or paid by the former employer for the employment of the employees for the year as if they had been handled by the successor employer.
- How to handle different scenarios regarding employees based in Quebec:
For Employees Based in Quebec:
If your employees’ province of employment is Quebec, regardless of where they reside, you must deduct a reduced employment insurance (EI) premium using the Quebec EI premium rates and maximums. Additionally, you’ll need to deduct Quebec Parental Insurance Plan (QPIP) premiums.
When Transferring Employees Between Quebec and Another Province/Territory:
If you transfer an employee from Quebec to another part of Canada and operate in both regions, aside from deducting EI/QPIP premiums, you’ll need to prepare two T4 slips. Ensure accurate calculations and reporting of deductions and insurable earnings on both slips.
Dealing with Employees Outside Canada:
For employees working outside (or partly outside) Canada, deduct EI premiums if the following criteria are met:
- You, as the employer, reside in Canada or have a place of business here.
- Your employee usually resides in Canada.
- The employment isn’t insurable in the country where the work is performed.
The employment isn’t excluded from insurable employment for any other reasons.
- Do not deduct EI if these conditions aren’t fulfilled.
- What to do if you are self-employed
If you’re self-employed, joining the EI program is optional. You qualify if you meet the following criteria:
- You’re not employed as a barber, hairdresser, fisher, taxi driver, or driver of other passenger vehicles.
- You’re a Canadian citizen or a permanent resident.
- You either run your own business or control over 40% of the voting shares in a corporation.
If you work in professions such as fishing, barbering, hairdressing, or taxi driving, you don’t need to enroll in the self-employed program. Instead, individuals in these occupations should apply for EI benefits as employees.
The EI Premium Reduction Program offers a means for businesses offering short-term disability wage loss replacement plans to seek a lower EI premium rate through Employment and Social Development Canada (ESDC).
Should your request be granted, you’ll enjoy a reduced EI premium rate, typically below the standard 1.4 times the employee premium (for instance, 1.24 times).
This reduced rate exclusively pertains to employees enrolled in the approved plan.
Under these circumstances, you’ll need an extra payroll deduction program account to handle separate remittances for employees not encompassed by the plan.