Ahead of rate change, business groups are calling for breaks for employers
With employment insurance (EI) premium rates rising next year, some business groups are again calling on the federal government to implement measures to reduce employers’ EI costs.
In September, the Canada Employment Insurance Commission (CEIC) announced that employee EI premium rates would rise from $1.63 per $100 of insurable earnings to $1.66 in 2018 for workers outside of Quebec. For employees in Quebec, the rate will go up from $1.27 to $1.30. (The rates for Quebec are lower because Quebec administers its own parental insurance plan, financed by workers and employers in the province.)
Employers pay 1.4 times the employee rate unless they are eligible for a reduced rate because they have a qualifying wage-loss replacement plan. As a result, for 2018, the rate for employers outside of Quebec will increase from $2.282 per $100 of insurable earnings to $2.324, while the rate for Quebec employers will rise from $1.778 to $1.82.
The CEIC also announced that the maximum insurable earnings amount would rise from $51,300 to $51,700 next year. The maximum is the ceiling up to which EI premiums are paid. It is indexed annually. With the ceiling rising, the maximum amount that employees outside of Quebec will pay in EI premiums next year will increase from $836.19 to $858.22. The employer maximum per employee will rise from $1,170.67 to $1,201.51.
For employees in Quebec, the maximum premium will be $672.10, up from $651.51 this year. Employers will pay a maximum of $940.94 per employee, an increase from $912.11 in 2017.
“This latest increase means that payroll budgets of every business will increase for six straight years when you take into account that the 2018 EI increase will be followed by five years of Canada Pension Plan (CPP) premium hikes starting in 2019,” said Corinne Pohlmann, senior vice-president, national affairs at the Canadian Federation of Independent Business (CFIB).
Earlier this year, Parliament passed amendments to the CPP that will raise employer and employee contribution rates. The rate hikes, to be phased-in between 2019 and 2023, will pay for higher CPP retirement benefits. CPP contribution rates will gradually increase from 4.95 per cent to 5.95 per cent on pensionable earnings between $3,500 and the yearly maximum pensionable earnings (YMPE) amount (set at $55,300 for 2017).
In addition, in 2024 and 2025, the government will phase-in a new, separate four per cent CPP contribution rate for higher income earners. It will apply to earnings between the YMPE and a new upper earnings limit.
“These tax hikes — which come amid the spectre of the federal government’s proposed tax changes — will make it more difficult for small business owners to hire more workers, raise salaries and grow their businesses,” said Pohlmann.
The CFIB said a recent survey of its members identified EI as a “serious” concern for 43 per cent of small businesses. It added that the top concern was the total tax burden, including EI, CPP and workers’ compensation.
The federal Department of Finance says the 2018 EI premium rate will be lower than the $1.68 rate that it forecast in its 2017 budget. It credits a strong economy with lower unemployment rates for the lower-than-projected premium rate.
“The 2017 and 2018 rates will be the lowest EI premium rates since 1982,” said Finance Minister Bill Morneau.
The 2018 rate increase is mainly due to higher projected EI program costs stemming from new EI measures announced in this year’s federal budget that are expected to come into force later this year or early next year.
The changes include more flexibility for EI recipients receiving parental benefits. They will be able to choose to have benefits for up to 35 weeks at a rate of 55 per cent of their average insurable weekly earnings or for up to 61 weeks at 33 per cent.
The new measures will also permit EI maternity benefits to begin up to 12 weeks before a claimant’s due date instead of the current eight weeks and create a 15-week benefit for employees who take time off to care for a critically ill adult family member.
The CEIC is required by law to set the premium rate each year based on a seven-year break-even rate. This is a rate forecast to balance the EI operating account over a seven-year period, eliminating any cumulative surplus or deficit. The idea is that the rate will be no higher than necessary to cover projected EI program costs over the seven-year period.
To help small businesses succeed, the CFIB said it would like the federal government to implement measures to reduce employers’ EI costs. It wants the government to create an EI tax credit that recognizes the investments that small and medium-size enterprises (SMEs) make when they hire and train employees.
Business groups have also called on the government to implement an EI premium holiday for employers who hire young workers. During the 2015 federal election campaign, the now-governing Liberal Party said employers who hired young workers should get a one-year holiday from paying EI premiums for those workers.
On the campaign trail, the Liberals said the measure would apply from 2016 to 2018; however, there was no mention of the proposal in the 2016 or the 2017 federal budgets.
Organizations such as the CFIB and Restaurants Canada, which represents businesses in the restaurant and food service industry, say the government should include this promise in its next budget.
Business groups have also long called for the government to change the way it structures EI premiums. The CFIB said it would like to see the government implement a permanent, lower EI premium rate for small businesses by gradually moving from the current rate of 1.4 times the employee rate to one that is equal for employers and employees.
A recent CFIB survey of Canadian small business owners found that 87 per cent supported setting equal premium rates for employees and employers.
The premium rate split that exists today began over 40 years ago under the 1971 Unemployment Insurance Act. Before then, premium rates depended on the earnings class in which the government grouped an employer and its workers. In some classes, employers paid higher premiums than workers, while in others employees paid a higher amount.
The 1971 legislative changes brought in one premium rate for all employees and set the employer rate at 1.4 times the employee rate. It also allowed for the first time employers to pay a lower rate if they had a government-approved wage-loss replacement plan.
Government documents from the time indicate that the justification for employers paying a higher percentage of premiums was that employers played a bigger role than employees in determining the unemployment rate through their hiring and layoff decisions and, therefore, should pay into the program at a higher rate than workers.
Over the years, some business groups have questioned this premise as EI has expanded to provide benefits beyond job loss, layoff, maternity leave and sick leave.
“(T)he rationale that employers should bear a higher overall share of program costs is not unwarranted, as they have traditionally had greater control over layoff decisions and should have to pay a component of the social costs of unemployment,” the Calgary Chamber of Commerce said in a 2011 submission to the federal Finance Department.
“But when the premiums have been increasing in the past decades due to non-unemployment related costs, it is difficult to justify why employers have to pay significantly more into the system than employees,” it said.
Other suggested changes have included setting the premium rate higher for employers and workers who use the EI program more frequently, having variable premium rates for different regions of the country with different unemployment rates, and having the federal government pay a portion of EI premiums.
To date, the government has not indicated that it is considering changing the way it structures EI premiums. This means that business groups will likely have to continue lobbying for premium relief.
