Small business owners, professionals and other self-employed individuals recently were given optional access to the same special Employment Insurance (EI) benefits available to salaried employees. According to a Government of Canada news release, the Fairness for the Self-Employed Act was introduced to recognize "the challenges facing self-employed Canadians as they deal with the dual pressure of being entrepreneurs and caring for their families." However, there is a cost to these new benefits, as well as several other drawbacks. Consequently, it is anticipated only a small percentage of self-employed workers will opt into the program.
EI Benefits Available:
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Maternity Benefit - up to 15 weeks of benefits to birth mothers.
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Parental/Adoptive Benefits - up to 35 weeks to biological or adoptive parents while they are caring for their newborn or newly adopted child.
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Sickness Benefit - up to 15 weeks if unable to work due to illness or injury.
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Compassionate Care Benefits - up to 6 weeks if absent from work temporarily to provide care for a loved one who is gravely ill.
The weekly benefit amount is 55% of average weekly self-employed earnings from the calendar year before the year a claim is submitted. The maximum weekly benefit is $457 and there is a two-week waiting period before benefits are paid.
Costs and Drawbacks
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The program does not cover unemployment from lack of work - the main benefit of the regular EI program for salaried employees. The potential for abuse to the program was deemed too great to provide this type of support.
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Self-employed individuals who opt into the program pay the same EI rates as salaried employees, currently 1.73% of net self-employed earnings to an annual indexed maximum (currently $747). However, unlike Canada Pension Plan premiums on self-employed income, participants do not have to pay an "employer" portion as well.
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Participants must have been enrolled in the program at least one year before claiming any benefits, and must have earned a minimum of $6,000 in self-employed income in the preceding calendar year.
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Once enrolled, participants may only withdraw if they have never made a claim. Any claim will require the participant to continue paying EI premiums on self-employed income for the rest of the participant's career. In the long run, therefore, these premiums could easily exceed the amount of benefits obtained from the program.
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Any business income generated while benefits are being paid can reduce the EI benefit amount. For many business owners, it is difficult to stop working altogether, and this could impair the entitlement to benefits.
We recommend you weigh the advantages and disadvantages carefully before opting into this program. Please contact your Collins Barrow tax advisor to help you make an informed decision.
Doug Greenhow, CA, CFP, is a Tax Partner in the London office of Collins Barrow.
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