What is the EI Premium Reduction Program For Canadian Businesses?

Canada’s Employment Insurance program provides regular benefits to individuals who lose their jobs and can’t find a new one but are still available and able to work. 

This program is funded by contributions you and your employee make. Employees pay 5/12 of the total contributions and employers pay 7/12 (or 1.4 times the employee contribution). 

In 2021, your employee pays 1.58% of their earnings into their EI and you pay 2.212% (1.58% x 1.4). This is equal to $0.22 cents per $100 of insurable earnings. 

Are you looking for business advisory services? Get in touch with Koroll & Company today. We would love to help. 

But EI doesn’t just cover regular job loss. It also covers employees who are temporarily out of work due to illness, injury, quarantine, pregnancy, parental leave or because they’re caring for a sick family member or child. 

That’s why, if you provide your employees with a short-term disability plan that meets specific criteria, you and your employee may be able to pay a reduced rate to EI. That’s because short-term disability plans put less strain on the EI program.

To be eligible for this rate reduction, you must offer one of two types of short-term disability plans. 

• Weekly Indemnity Plans – pay regular weekly benefits if you are absent from work for short periods due to illness or injury. 

• Cumulative paid sick leave plans – your employee accumulates credits that can be used when they are sick or injured. 

Your short-term disabilities benefits plan must also meet the following criteria: 

• Give your employee at least 15 weeks of benefits for any short-term disabilities.
• Provide benefits that meet or exceed those received under EI.
• Be paid out to your employee within 8 days of the injury/illness.
• Be available within 3 months of the original hire date.
• Cover employees 24 hours a day.

If you are eligible for a reduced rate, you will be given a multiplier that is less than the standard rate of 1.4 times. You will then calculate your employee’s EI contribution using the standard 1.58% and calculate your contribution by multiplying the employee’s contribution by your reduced multiplier. 

What’s important to remember is that these savings are for both you AND your employee. That means that you will have to give a portion of the savings to your employee. To determine the amount of savings you need to return to your employee, multiply the savings by 5/12. 

Example: 

Your employer has a salary of $56,300. You offer a weekly indemnity plan that covers your employee for at least 15 weeks. Normally you would multiply your employees’ contributions by 1.4 but because you offer a short-term eligibility plan, you have a reduced multiplier of 1.166.

Regular Employee Premium = $53,600 x 1.58% = $889.54
Regular Employer Premium = $889.54 x 1.4 = $1,245.36
Reduced Employer Premium = $889.54 x 1.166 = $1,037.20

Total Savings = $1,245.36 - $1,037.20 = $208.16
Employee Savings = $208.16 x 5/12 = $86.73
Employer Savings = $208.16 x 7/12 = $121.43

For more information on reducing your company’s EI premiums and whether you qualify, contact us today.