What is Employment Insurance (EI)?

EI is one of the main required deductions from payroll that both employers and employees have to pay in Canada.
Office desk with the letters EI displayed in the monitor.
Estimated read time
7
minutes
Category
Payroll
Written by
Psyche Castillon
Published on
October 17, 2022

Thirdsail explains how the EI system works - from calculating, deducting, and remitting EI premiums, to getting EI benefits.

Content at a glance

    The COVID-19 pandemic resulted in 200,000 lost jobs in February this year. Job loss is a real and unfortunate part of employment and often one of the most stressful events in a person's life.

    Fortunately, the Government of Canada provides some support to employees who have lost their job through no fault of their own. Employees in Canada who lose their job can turn to the Employment Insurance (EI) program for temporary income support. In this article we'll look at how EI works in Canada.

    What is the Employment Insurance program?

    EI is a government program to provide temporary income support and other benefits to employees who lose their job.

    Like private insurance, employees and employers in Canada regularly pay premiums each payroll period to the program. Unlike private insurance, all employees and employers in Canada are required to pay these premiums, with very few exceptions.

    Each payroll pay period, EI premiums are calculated based on and deducted from an employee's pay, and a separate amount is calculated and owed by the employer. Employers are responsible for deducting and remitting these premiums to the Canada Revenue Agency ("CRA").

    EI benefits are available to workers who meet the qualifying and entitlement conditions we'll discuss below, including self-employed individuals. The program is overseen and administered by Canada Employment Insurance Commission (CEIC), Employment and Social Development Canada (ESDC), and Service Canada.

    Employment Insurance in Quebec

    The province of Quebec often administers a similar but separate version of many federal programs. However, Employment Insurance applies to employees and employers in Quebec as well, with a few differences.

    While the program functions the same as in the rest of Canada, the insurance premium rates are different (generally lower). In addition to EI, employees and employers in Quebec must participate in the Quebec Parental Insurance Plan ("QPIP").

    In all provinces and territories in Canada, except Quebec, maternity and parental benefits are provided by the EI program, whereas in Quebec, these benefits are provided by QPIP.

    Who has to contribute to EI?

    Nearly all employment in Canada is known as insurable employment, meaning that employees and employers must pay EI premiums. In some cases, employees who are related to their employer, such as in a family business, may be exempt.

    The concept is similar to how CPP works in Canada. However, there is no age limit for having to contribute to the EI program. It also applies to all types of employees in Canada, regardless of their citizenship status.

    How EI premiums are calculated

    EI is fully funded by the contributions of both employers and employees, or self-employed individuals. Premiums are calculated as a percent (the contribution rate) of the employee's earnings, which are called pensionable earnings.

    The contribution rate for employees and the maximum amount an employee must contribute change each year based on increases in the average wage in Canada and is published regularly. Employers contribute 1.4 times the amount of the employee's premiums.

    For 2022, the contribution rate for employees is 1.58%, and the maximum annual insurable earnings is $60,300. This means that the maximum annual EI premium for employees is $952.74, and employers must therefore contribute up to a maximum of $1,333.84 in 2022.

    The EI contribution rate in Quebec for 2022 is 1.20% and the maximum annual insurable earnings is also $60,300. This results in a maximum annual premium of $723.60 for employees and $1,013.04 for employees.

    QPIP, as mentioned above, is owed by employees and employers in Quebec in addition to EI. The 2022 contribution rate is 0.494% for employees and 0.692% for employers, with maximum insurable earnings of $88,000.

    To illustrate the calculation with an example, if an employee in Ontario is paid $4,000 semi-monthly (twice per month) with 24 pay periods per year, that translates to an annual salary of $96,000. EI premiums for the pay period would be $96,000 × 1.58% ÷ 24 = $63.20. The employer must therefore deduct $63.20 from the employee that pay period, and contribute an additional amount of 1.4 times, or $88.48, and remit $151.68 to the CRA.

    Note that even though the employee's annualized earnings of $96,000 are higher than the maximum insurable earnings of $60,300, the employee and employer must pay EI premiums each pay period based on their actual annualized earnings until they reach the maximum contribution amount for the year of $952.74 from the employee and $1,333.84 from the employer. Self-employed individuals only contribute the employee premiums amount.

    Deductions and employer contributions need to be stopped when the maximum premium for the year is reached.

    What happens when an employee works in two companies within the same year?

    Each employer will need to deduct EI premiums for the employee up to the annual maximum insurable earnings for that year, regardless of whether the former employer has already deducted the EI premiums. This applies even if the employee has already paid the maximum premium with the previous employer. Any overpayment will be credited to the employee when they file their income tax return.

    EI benefits

    EI provides a few different types of benefits, from maternity and paternal benefits to sickness benefits while an employee cannot work due to illness. All EI benefits are designed to temporarily support employees who are experiencing an earnings interruption.

    The primary type of EI benefit designed for people who have lost their job are called, unsurprisingly, regular benefits.

    Exactly how much an unemployed individual can receive in EI support is determined upon submitting an application for EI benefits to Service Canada and depend on the amount of insurable earnings an employee has earned and the region of Canada where they work.

    Regular EI benefits provide weekly support up to a maximum of 55% of earnings for up to 45 weeks. Since the maximum amount of insurable earnings in 2022 is $60,300, this translates to a maximum weekly amount of $638 in EI support depending on where in Canada the employee lives. Keep in mind that EI benefits, like regular income, are taxable.

    In addition to regular benefits, EI also provides additional benefits:

    • Sickness benefits for people who can't work because of illness or injury
    • Maternity and parental benefits, which we have written about
    • Benefits for those caring for seriously ill family members
    • Benefits for the self-employed
    • Benefits for Canadian living abroad

    Applying for EI benefits

    If a company terminates an employee in Canada, the employer must issue a Record of Employment (ROE) to the Government of Canada and make a copy available to the employee. The government uses this to help determine EI benefits eligibility and amounts.

    Employees should apply for EI benefits as soon as they stop working even when they have not received their ROE. It is important for employees to apply for EI benefits as soon as possible - delaying an EI claim for more than four weeks could mean that the employee loses their benefits entirely.

    To be eligible for regular EI benefits, an employee must have lost their job through no fault of their own. That means they can't have quit or been fired for misconduct. There are a few other requirements to be eligible for regular EI benefits:

    • have worked between 420 and 700 hours (depending on where in Canada you live) of insurable employment in the last 52 weeks
    • have gone at least seven straight days without work or pay in the last 52 weeks
    • are ready, willing, and capable of work and actively looking for work

    When an employee is ready to apply for EI benefits, they can start their application online here.

    Unemployment insurance in other countries

    The United States has a similar program called the Unemployment Insurance which provides weekly benefits to those who are out of work through no fault of their own.
    One of the main differences with the US unemployment insurance program and the Canadian EI program is that the US program is a joint federal-state program. While each state administers the program, all states follow the same federal rules governing such program. EI in Canada is a federally run program.

    Just like EI, in the US claimants must also meet eligibility requirements such as wages earned, or time worked during a specific period called the "base period." Each state sets the eligibility requirements, while in Canada, the eligibility requirements are uniform across the country.

    Unlike EI however, unemployment insurance in the US is funded through taxes on the employer rather than contributions from both the employer and employee.

    Thirdsail can help

    You need an efficient and compliant payroll solution to hire the best employees in Canada. Thirdsail is here to help.

    Thirdsail helps companies around the world hire employees in Canada. We help you hire employees instantly without having to open a subsidiary and make sure your employees have all the right deductions and contributions.

    Learn more about how we can help you hire in Canada. If you have questions and would like to learn more about hiring employees across borders, get in touch today.

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