The Business Owner’s Guide to Employment Insurance in Canada

By Qmulus Team
October 04, 2019

When you first started your business, it was just you and your dream. After many sleepless nights, working weekends, and endless hours of hard work, your business is taking off.

Now, you have enough work coming in that you have to hire more employees. You need to expand your sales team so you can keep growing, hire marketing associates to spread the word of your business, take on HR specialists to actually do the hiring. Hiring employees is a sign of growth, and this is something you should be proud of!

However, hiring more employees doesn’t just entail more wages to be paid. New small business owners can often underestimate the costs associated with hiring and are often unaware that additional costs need to be paid whether or not your business is profitable. One of the costs that you will need to be aware of as a business owner is employment insurance (EI).

What is EI?

Canada’s EI program provides temporary financial assistance to unemployed workers as they look for employment or to upgrade their skills. The program also applies to those who take time off due to illness, pregnancy, etc. Both the employer and the employee pay EI premiums, however employers pay 1.4 times the employee rate. This is a difference between EI and other payroll taxes that are split half-and-half between the employer and employees.

What is the current EI rate?

On September 13, 2019, the Canada Employment Insurance Commission (CEIC) announced that the 2020 EI premium rate will be $1.58 per $100 of insurable earnings. The rate has gone down from 2019’s rate, with a decrease of 4 cents for employees and a decrease of 6 cents to $2.21 for employers. 

What does this mean for business owners?

Thanks to Canada’s strong employment numbers, there’s a reduced demand for EI, and Ottawa has decreased the amount it collects for the fund. However, while EI rates are going down, Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) rates are increasing. In effect, that raises the cost of labour for your business. 

You’ll also want to be aware of any complications to do with paying, or not paying, EI on family members you employ in your business. If a relative is currently employed by you, it may be advisable to determine if they are eligible for EI benefits, so that you are not paying premiums when you don’t need to. 

Do you have to pay EI premiums for yourself as a business owner?

If you are self-employed, you can choose to make EI contributions to access EI benefits, but this is not required. Should you decide to opt into the EI program as a self-employed business owner, you are only required to pay the same amount that employees pay. Paying for EI entitles you to certain benefits such as maternity, parental, and sickness benefits. Ask your accountant if it’s in your advantage to opt in, as EI contributions must be paid for the rest of your working life.

What do you have to do next?

You will want to budget for all of these costs and other payroll taxes so you won’t be caught off guard when CRA comes knocking. Consult with an accounting team like ours to assist you with your payroll filings. Our team of accountants and tax experts can help assess whether you should be deducting amounts at source from your employees and answer any other payroll tax questions you may have. Just give us a call at 647-476-2145 or schedule an appointment.

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