At long last, Canadian self-employed people can collect employment insurance (EI) benefits. But participation in the program, which is voluntary, has its pros and cons. There are some points to consider before deciding whether to take part.
The first thing to know is that what we usually think of as EI — that is, payouts which cover periods of unemployment, also known as ‘Regular Benefits’ — are not available for self-employment earnings. A freelancer is always considered to be fully employed, even when he or she is not earning income.
Beginning in January 2011, what freelancers can qualify for is ‘Special Benefits’ under the EI system. These include:
- maternity benefits, which are available to birth mothers only and cover the period surrounding the child’s birth (maximum of 15 weeks);
- parental benefits, which are available to biological or adoptive parents while they are caring for newborn or newly adopted children—these benefits may be taken by either parent or shared between them (maximum of 35 weeks);
- sickness benefits, which may be paid to a person who is unable to work because of illness, injury, or quarantine (maximum of 15 weeks); and
- compassionate care benefits, which may be paid to a person who has to be away from work temporarily to provide care or support to a family member who is gravely ill with a significant risk of death (maximum of 6 weeks).
In order to collect these benefits, a freelancer must enter into an agreement with Service Canada and pay into the program for the equivalent of at least 12 months. EI insurance premiums are currently set at 1.73% of your net (after expenses) freelance income to a maximum of $747.36 per year.
In return, each week for which you collect Special Benefits you will receive 55% of your average weekly freelance income.
Participating freelancers will pay their premiums once a year, when they pay their taxes. Right now your annual tax return calculates your federal tax, provincial tax, and Canada Pension Plan payments, which are combined to arrive at your total tax bill. In the future, EI premiums will also be calculated on your tax return and added to that bill for those who opt in to the plan.
You may cancel your EI agreement (i.e., stop paying into EI on freelance income) anytime – so long as you have never collected benefits under the program. Once you collect benefits for the first time, you are obliged to continue paying into the program for the rest of your working life.
On the whole, EI benefits provide a little more security for freelancers, particularly as we enter childrearing years and our own parents age. But EI premiums are significant expenses and the obligation eventually becomes permanent. Consider all your options before opting in.
For more information visit the Government of Canada’s FAQ on EI for self-employed workers: http://www.servicecanada.gc.ca/eng/sc/ei/faq_self_employed_workers.shtml