EI for the Self Employed

Well finally the government did something reasonable and extended Employment Insurance (EI) to self employed people.  You would think this would be a great thing, but it may not really be for everyone.

There are a few requirements you should be aware of if you are thinking about this:

  • The program states that you must pay in for a full year prior to making your first claim at the regular employee rate (1.73% of earning in 2010 up to $747.36 a year).
  • If you ever make a claim you must continue to pay into the program as long as you are self employed.  If you don’t make a claim you can stop paying in (no refunds).
  • You can only qualify for special benefits such as maternity, parental, sickness and compassion care leave.  Since you can’t lose your job (in the traditional sense), you can’t claim regular benefits.
  • You must make at least $6000/year of self employed income to be part of the program.

So in reality you would only really pay into EI if you planned on using maternity (max 15 weeks) or parental leave benefits (max 35 weeks), otherwise it would be somewhat wasteful to pay that much money in only to occasionally claim sickness (max 15 weeks) or compassion care (max 6 weeks).  I’ve never claimed sickness or compassion care leave myself yet.  Keep in mind too that the maximum you can get from EI is about $1600/month.  So its not a lot of money.

So what’s the break even point of this program?  Well if you claimed the full 50 weeks of maternity or parental leave at the maximum rate you would get about $20,000 for the year.  So divide that by the max contribution rate of $747.36, you need to pay in for 26 years to be even.  So if you have more than one child this program is likely a good deal or  you could be ok with a child if you are older (30+) and plan to retire early you could do well at least for right now.

You have to recall that the EI program is currently under a rate freeze but you can expect a sharp increase right after 2011 so that will change these numbers a fair bit.

So is getting EI a good idea for a self employed person?  If you plan on two kids or more and will be taking the majority of the maternity and parental leave, then likely yes it is a good idea.  If you only have one kid, you might want to think about.  If you aren’t planning on kids, skip it.

6 thoughts on “EI for the Self Employed”

  1. Some of the requirements you mention definitely makes a selef-employed person take a second look. The whole prospect of having to pay EI premiums after receiving the benefits is a turn off, as is having to pay in for a year before reaping them. I’ve been fortunate to never been on EI before, but its certainly not a bucket of cash at the end of a rainbow for the self-employed that’s for sure.
    Nice thread

  2. Nice summary. What this also shows is that since it only benefits self employed people who are planning on having children, the cost of the program (if you could separate out the self-employed aspect) will be significantly negative for the gov’t (i.e. taxpayers).

    I doubt many self-employed people will sign up for this if they look at the numbers. I am self-employed, already had my kid, so will definitely be passing on this.

    When it was announced I figured it was just politics and saving the gov’ts skin more than anything, and I am still convinced of that!

  3. Great summary! Thanks for the information.

    Even with several maternity leaves, it still might not make sense. It would depend on your profit margin after hiring your replacement for 1 year. My ideal business would be one in which I eventually became unnecessary for the day to day operations.

    If the company can’t exist without you for one year, than you may not have a business to come back to. With or without maternity leave. I know my father-in-laws business would fall in this category.

  4. Robert,

    Of course opening EI to the self employed is just politics. It’s aimed squarely at female voters. It certainly wasn’t to make the EI program cheaper.

    Financial Student,

    Of course your type of business would change the fact if you could even afford to shut down your business for a year or turn it over to someone else.

    So overall the program is limited on its usefulness.


  5. I wonder what happens if you make a claim as a small business owner, then say you close your business and start a new one. Are you required to continue paying into the program for life?

  6. I just wanted to point out that after being $413 gross per week for a really really long time, the maximum EI rate has gone up every year for the past three or four years. As of Jan 1, 2010, it’s $457 gross per week ($22850 for a year of mat/parental).

    Another drawback is that you’re penalized for earning money while receiving EI so income from any source, even passive income from your business reduces your benefits.

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