EI benefits for the self-employed can make sense to adopt in some circumstances but I find in most cases, they lack value to most people for two major reasons. Firstly the nature of owner management businesses do no lend themselves well to the EI benefits currently in effect for 2 major reasons; business failure and business success. Secondly the cost of the EI payments compared to the benefits received is often tilted in favour of the government and not the self employed individual.
Risk of Business failure: Take for example an accountant Annie who wants to take maternity leave in April. If Annie suggests her clients find another person to file their tax return this year, there is a high probability they will not return the following year. Annie may be able to claim EI benefits (maternity and parental) however she may not have a business to go back to once the benefits cease.
Business Success: In another example Sandy operates an on-line sales business that is fairly successful and requires limited involvement in day to day operations. It may be possible for Sandy to step away from the business and take maternity and parental leave and claim EI benefits without seeing a decrease in sales. As the business continues to bring in revenue Sandy’s benefits will be reduced based on the income she earns from the business and potentially reduce the benefits to zero.
In the first example if Annie takes maternity leave it may result in a decrease in business viability while in the second example Sandy’s EI benefits will be reduced by the profit realized in her business and so EI benefits for both Annie and Sandy do not appear viable options.
Second, once you take benefits you are required to continue paying into the program for as long as you are self-employed. The biggest EI benefit is for maternity leave and parental leave (15 weeks + 35 weeks). The downside to this is that people receiving these benefits are typically young and thus have many more years in which they are required to pay into the EI program and thus end up paying more into the program than they receive. If you plan on having more than one child the benefits to start to add up and can exceed the payments made over your career.
Before deciding to opt into the program here are some questions to think about.
1. Do you have children? Do you plan to have any? If so, how many? (If you receive multiple maternity/parental leave benefits, there is a greater likelihood that the benefits received will exceed the payments made to the program.)
2. What is the likelihood of you claiming sick-leave? (It may be expensive for some people to receive short-term disability benefits due to past history. No medical examination is required for EI benefits for the self-employed, so in this case, the program may be beneficial for the business owner as a way to enhance or supplement short-term disability benefits)
3. Do you have members of your family who may require your care in the future? (If the answer is yes there is a greater chance of needing to use the compassionate leave benefit.)
4. How seasonal is your business? (If there are periods where there is low income i.e. roofers, landscapers, etc the entrepreneur may have a higher likelihood of receiving EI benefits in the low season because they do not have income coming in that would reduce their benefits. However, it is difficult to time sicknesses or births to coincide with seasonal lulls in one’s business)
In all cases, it’s important to do the math and determine whether EI benefits make sense for you. To do this, compare how much you expect to receive from EI benefits over the course of you self-employment career, to how much you expect to pay into the EI benefits (keeping in mind you must pay into EI for 12 months prior to receiving the benefits, and then after you receive the benefits you must pay into the program for the rest of the time that you are self employed).
If you would like any help with determining the viability of EI contact your Burlington Chartered Professional Accountant or
Angus Shuttleworth CPA Professional Corporation.