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FEWO Committee Report

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Government Response to the Fifth Report of the Standing Committee on the Status of Women

Interim Report on the Maternity and Parental Benefits Under Employment Insurance: the Exclusion of Self-Employed Workers

Ms. Judy Sgro
Chair
Standing Committee on the Status of Women
House of Commons
Ottawa, ON  K1A 0A6

Dear Ms. Sgro:

Pursuant to Standing Order 109 of the House of Commons, I am pleased to respond on behalf of the Government of Canada to the recommendations of the Fifth Report of the Standing Committee on the Status of Women Interim Report on the Maternity and Parental Benefits Under Employment Insurance: the Exclusion of Self-Employed Workers, tabled in the House of Commons on May 19, 2006.

Enclosed is the Government of Canada’s comprehensive response to the recommendations contained in the Fifth Report of your Committee. I would like to take this opportunity to thank you and the members of the Standing Committee on the Status of Women for your efforts in this regard and for your report, which will help to inform the Government as it monitors and assesses the effectiveness and responsiveness of its current programming.


Yours sincerely,



The Hon. Diane Finley, P.C., M.P.

INTRODUCTION

The Employment Insurance (EI) program has played an important role in enabling Canadian workers to better adjust to labour market changes for over 60 years. Over the last year alone, the EI program has provided temporary income replacement to 1.86 million Canadians. As one of several federal and provincial programs supporting the needs of the Canadian labour force, the EI program has evolved specifically to address the needs of workers in employer-employee relationships. Funded through premiums paid by employees and employers, the program helps to ensure an adaptable and qualified labour force through variations in unemployment that relate to the economic cycle.

In addition to continuing as the main income security program for workers, the EI program has built upon its role in insuring against job loss by providing important supports to help individuals balance work and family responsibilities. These supports include: benefits for workers who take time away from their jobs to care for a newborn or a newly adopted child; benefits for workers caring for a gravely-ill person; and support for workers that take time off work due to personal sickness. In the last year alone, Canadians received over $3.8 billion in benefits for family and personal sickness related work interruptions.

To date, other than for self-employed fishers that have a deemed employer, the insurance needs of self-employed workers have not been addressed in the context of the Employment Insurance program. Canada is similar to many other countries in this regard. A primary consideration has been the challenge associated with designing a public insurance scheme that would respond to the different needs and work patterns of the self-employed. Unlike workers in paid employment, a principal characteristic of the self-employed is their greater degree of control over their work environment, which makes it difficult to identify when a self-employed person has voluntarily or involuntarily ceased working. Recognizing the distinction between these two categories of workers (i.e., employees and self-employed workers), Canada has developed a range of distinct and complementary policies, such as tax measures, which help address the labour market realities faced by the self-employed population.

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EXTENDING BENEFITS TO THE SELF-EMPLOYED

In reference to the Standing Committee’s first recommendation concerning the development of policy approaches and program models for providing maternity and parental benefits to self-employed workers, it may be useful to first identify some of the key characteristics of self-employed workers, which are relevant to any potential policy approach. Overall, analysis by Human Resources and Social Development Canada (HRSDC) indicates that the self-employed demonstrate characteristics that are quite distinct within their various sub-populations and from those of employees. These distinctions include: demographic characteristics, work patterns, income levels, and interest in insurance-type benefits.

Men continue to be over-represented in self-employment and account for two-thirds of the workforce, as compared to only 53% among the population of paid employees. The self-employed also tend to be older than the employee population with a majority of entrepreneurs having been in self-employment for over ten years. While they are concentrated in certain industries (such as agriculture, construction, trade, and the professional, scientific, and technical services industry), their day-to-day business operations and area of expertise differ significantly.

Most entrepreneurs become self-employed by choice for reasons such as independence, freedom, or the desire to be their own boss. In terms of structuring their work, a sizeable proportion of self-employed workers operate their businesses on their own. Two-thirds of the self-employed do not employ workers, while almost 60% do not have business partners.

Surveys [1] further indicate the self-employed regard the ability to balance work and family life as a benefit of being self-employed. The most common drawbacks of being self-employed include a lack of supports for retirement and health related measures, such as sickness or disability coverage. With regard to maternity and parental benefits, a small proportion of self-employed workers (8%) identify the issue as a priority.

Among the self-employed, work/life conflicts appear to pronounce themselves in different ways in comparison to workers in paid employment. Despite their tendency to work longer hours than the employed, over half of the self-employed report never having been in a situation where their work demands were in conflict with providing care for a newborn, newly adopted child, a gravely-ill family member, or from recovering from personal illness. The situations most likely to give rise to such conflict are caring for a dying family member and recovering from sickness.

Where life events cause intermittent work conflicts, survey results [2] indicate that many self-employed workers have a distinct ability to subsequently shift their work patterns. Three quarters of the self-employed report that the flexibility to adjust work hours to balance family responsibilities is a benefit of their work. The largest proportion of self-employed individuals, almost half, works primarily from their home. Self-employed workers also indicate that they anticipate financial shocks (i.e. periods of business slow-down with a lack of clients or work) and prepare for them through budgeting and various other strategies.

Due to the nature of their work, many self-employed workers also indicate a preference to minimize their absences from the labour market (e.g., to avoid risk of client loss/poaching). HRSDC survey data [3] indicate that if maternity and parental benefits were available to the self-employed, 68% could take less than one month away from their business. In contrast, benefit claim patterns for maternity and parental absences supported through EI indicate that workers in paid employment do not experience such constraints — parents are using at least 92% of the full year available to them for maternity and parental benefits.

In relation to work/family conflicts and the interest of the self-employed in EI type benefits, a large majority, between 83% and 86%, express interest in having access to benefits to care for a gravely-ill person and benefits during times of personal sickness. In contrast, less than 50% express an interest in maternity and parental benefits. Over time, HRSDC surveys [4] indicate that interest in sickness and compassionate care benefits has been increasing, while interest for maternity and parental benefit coverage has been on the decline.

The above mentioned characteristics and views of the self-employed suggest that the need for, and form of, maternity and parental support for the self-employed varies significantly, and that the population as a whole is significantly different from those in paid employment. This represents a particularly important consideration when assessing the applicability of EI maternity and parental benefits for the self-employed.

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APPROACHES FOR PROVIDING MATERNITY AND PARENTAL SUPPORTS TO SELF-EMPLOYED WORKERS

With regard to the Committee’s interest in potential program mechanisms to provide maternity and parental support to self-employed workers, there are a broad range of approaches that could be considered. Among the different potential mechanisms, it is worth noting that some models are already in place in the Canadian context.

Private Sector Models

Under this approach, maternity and parental insurance coverage would be provided by the private sector. For example, some countries mandate individuals by law to purchase insurance for maternity benefits directly from private insurance companies. Currently, most self-employed workers (63%) in Canada already have coverage for some sort of benefit plan for health, disability, or dental related insurance support through private sector insurance providers. While private sector coverage is a possible approach, depending on the design, issues of high cost, selective participation and administrative complexity could arise for private insurers providing maternity and parental benefits. Similarly, these same issues could arise when this type of benefit access is extended to the self-employed on a voluntary basis under any public insurance program.

Sector-Based Models

At the present time, a number of industry-specific association plans in Canada provide parental benefit coverage for certain self-employed groups that share common needs and characteristics. Under these plans, the benefit duration, the benefit amounts, and the type of supports available are specifically tailored to meet the needs of the population covered.

These arrangements exist in a number of provinces (e.g., British Columbia, Manitoba, Quebec and Nova Scotia) with employer associations for selected groups of self-employed workers, such as those in the medical and legal professions. While some plans provide income support for a mix or one type of maternity, parental, adoption leave benefit, there are other sector-based approaches that provide benefits to help off-set the financial cost of running a business while self-employed workers are away on parental leave. Funding sources for these types of benefits vary from monthly membership fees to a range of funding agreements with provinces. Similarly, sector-based support models which provide self-employed workers with lump-sum parental leave benefits also exist internationally.

Universal Public Models

A universal program funded through general tax revenues offers another potential model for support. The Government of Canada presently delivers a number of programs that are available to all Canadian parents. The Canada Child Tax Benefit, the National Child Benefit, and the new Universal Child Care Benefit introduced in the recent 2006 federal budget are such examples. Loan programs or self-funded tax-sheltered programs that support the self-employed via federal or provincial tax systems could represent additional mechanisms. Internationally, countries such as Sweden and Norway offer maternity and parental support through universal, social welfare programming rather than through income-based labour market instruments.

Insurance-Based Public Models

Pursuant to Section 69 of the Employment Insurance Act and recent regulatory changes, provinces can enter into agreements to establish provincial programs that replace EI maternity and parental benefits. In this regard, the Government of Quebec has implemented its own parental program which includes coverage of self-employed workers. As noted by the Standing Committee, and as discussed further in this document, EI benefit coverage also presents a possible path for support to self-employed workers.

In light of the broad diversity of characteristics and needs among self-employed workers as compared to those in an employment relationship, providing supports through a variety of different program mechanisms, rather than a single mandatory plan, may also represent a flexible and effective approach.

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EXTENSION OF EI MATERNITY AND PARENTAL COVERAGE

Given the characteristics of the self-employed discussed earlier, extensive analysis and policy development would be required to ensure any program option would respond to the needs and circumstances of the self-employed. Government decisions on basic program parameters such as the range of benefits to be offered and the most appropriate program vehicle would be required prior to addressing most of the specific issues raised by the Standing Committee, including that of a program framework for extending benefits to the self-employed under EI. In light of these considerations, a preliminary discussion of the Committee’s recommendations concerning the EI program as a vehicle for providing maternity and parental coverage to the self-employed is provided below. Where possible, the analysis includes references to program parameters associated with Quebec’s parental insurance program that were identified in the Committee’s recommendations.

Self-employed population to be covered

Early consideration would be required as to whether to extend EI coverage to the full self-employed population, given that distinct sub-populations exist. In particular, a sizeable proportion of the self-employed operate their businesses on their own, without business partners or employees. This implies that there are fundamental differences in how work in a business might be shared across day-to-day operations and, subsequently, in the choices a self-employed worker might make in the strategies adopted to balance work and family responsibilities. Recent analysis [5] indicates that those who operate their businesses on their own have a higher preference for maternity and parental coverage than those with employees. It is worth noting that, under the Quebec plan, all self-employed workers must pay premiums regardless of the probability that they may draw benefits at a later date.

Moreover, further study would be required with respect to the preferences for EI coverage of the self-employed population whose employment conditions are similar to those of employees (e.g. a self-employed contractor who works for just one company). Pursuant to current legislation and administrative law, these workers are generally not insurable under EI and do not pay EI premiums due to the structure of their contractual relationship. The extent to which this reflects workers’ preferences to be considered self-employed (i.e., to reduce worker tax liabilities through deductions, avoid EI coverage and premiums) is unknown at this time.

Type of benefits provided

Although the Standing Committee makes reference to the extension of maternity and parental benefits coverage to the self-employed, EI is currently structured to provide a full range of benefits to insured individuals. In contrast, Quebec’s parental plan has been established in a stand alone fashion, designed to provide only one type of benefit. If the Government were to consider providing support to the self-employed for maternity and parental leave, within an EI-based approach, decisions would be required on whether it might be more appropriate to provide coverage for a broader set of benefits — i.e., maternity, parental, sickness and compassionate care. As previously discussed, interest among the self-employed population for other EI benefits is, in fact, higher than that for maternity and parental benefits. As well, if the intent would be to make participation mandatory, providing a range of benefits would increase the probability that those being insured may actually use the benefits at a future time.

Benefit parameters
Entrance requirements:

As a social insurance program intended to replace lost employment income, accessibility under EI is currently based primarily on a measure of workforce attachment that is conditional upon a minimum number of hours worked in insurable employment. As the nature of self-employment is not always quantifiable in hours, the Quebec model utilizes annual earnings (minimum of $2000) to determine program access. While this measure is based on annual taxable earnings, alternative measures could be considered — e.g., average earnings over a number of years might more accurately reflect self-employment earnings patterns. Evidence on the experience of the Quebec plan will enable governments to better assess this issue.

Benefit rate and maximum insurable earnings:

These two parameters are the basis for calculations of the amount of EI benefit payments. The maximum insurable earnings (MIE), currently at $39,000, is an area of concern for the Standing Committee. This program element determines the highest level of earnings upon which a worker will pay premiums and collect benefits. The current benefit rate of 55% is applied to a claimant’s insured earnings, up to the MIE. It should also be noted that the Employment Insurance Act already makes provision for an automatic indexation of the MIE. Once Statistics Canada’s measure of projected annual average earnings exceeds $39,000, the MIE will begin increasing at the same rate and, as a result, EI’s maximum weekly benefit amount will also increase in tandem.

While, as a stand alone program, the Quebec plan can address very specific policy objectives related to families, the integration of a broader range of benefits within EI means that key parameters of the program must balance the various policy objectives and labour market incentives that meet the needs of a wide variety of clients. For example, in terms of regular benefits, the current replacement rate is intended to provide adequate temporary income support while avoiding disincentives to labour market attachment.

Duration of benefits:

Whereas EI provisions currently offer claimants up to 50 weeks of maternity and parental benefits combined, HRSDC survey results [6] indicate that most (68%) of the self-employed would choose not to be away from work for more than one month if such benefits were available. It is not clear, therefore, what kind of program design and benefit duration would be required to meet the needs of the self-employed.

Financing:

EI is currently funded through employer and employee premiums, with the employer paying 1.4 times the employee share. The same cost-sharing structure has been retained with respect to employees and employers under the Quebec Parental Insurance Program, while a different structure was adopted for the self-employed (under which premiums are higher than those for paid employees but less than the sum of both employee and employer premiums, as is the case for the Canada Pension Plan). When available, information on the costs and revenues associated with Quebec’s benefits for the self-employed could give an indication of what a similar national program might cost.

Concerning the Standing Committee question on the cost of applying the Quebec model across Canada, it is not feasible to produce an accurate cost estimate at this time. Assuming all provisions of the Quebec model were applied nationally to maternity and parental benefits only, very rough estimates suggest the additional costs to the EI program would be in the order of $1 billion per year. It should be noted that this approximation is based on a simple extrapolation of information available at the inception of Quebec’s program, for maternity and parental benefits only. However, the Government of Canada’s experience with changes to EI maternity and parental benefits in December 2000 has demonstrated that mature cost impacts of program changes can be difficult to ascertain for several years.

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FLEXIBILITY OF EI MATERNITY AND PARENTAL BENEFITS

In its report, the Standing Committee has also raised the issue of the flexibility of EI maternity and parental benefits. In the years since the introduction of maternity and parental benefits, there have been very significant steps taken to increase flexibility. Most recently, major enhancements in December 2000 have enabled parents to access parental benefits more easily, including changes that allow the waiving of the waiting period for the second parent claiming benefits. Furthermore, recent program changes have enabled parents to work while receiving parental benefits in order to maintain their labour market attachment. The integration of EI maternity and parental benefits with other types of EI benefits, such as sickness, ensures parents receive a continuity of service and complementarity of support for those needing more than one type of benefit. Thousands of Canadian employers have introduced top-up plans or other employee benefits that complement EI benefits and provide further flexibility to parents.

The fundamental design of the EI program, which allows provinces and territories to enter into agreements with the Government of Canada concerning the establishment of provincial programs that replace EI, is a further example of the flexibility inherent in the program. Provincial programs, such as that established in Quebec, can build on the federal government’s experience of more than three decades in providing maternity and parental benefits in order to meet the broader social objectives and programming in their respective jurisdictions.

While the evidence suggests parents are well served by the flexibilities contained within the current program, the Government will continue to monitor and assess the EI program, to ensure the EI program continues to serve Canadians in an effective manner.

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ELIGIBILITY FOR EI SPECIAL BENEFITS

In its second recommendation, the Committee addresses the issue of access to EI special benefits for those currently covered under EI, and recommends that qualifying requirements for EI special benefits be lowered from 600 hours to the level of the variable entrance requirement (VER) for EI regular benefits, which can be as low as 420 hours (the equivalent of three months of work), in areas of relatively high unemployment.

The implications of applying the VER to EI special benefits need to be clearly understood. In the context of EI regular benefits, the VER recognizes the fact that an employee’s risk of unemployment is higher in regions of high unemployment. The current design is also meant to reflect the connection between benefits and the earnings received in the period immediately preceding a claim. The Committee’s recommendations could have implications for other parameters. For example, employees new to or re-entering the labour market must meet the qualifying requirement of 910 hours for regular benefits, which is more than 30% higher than the current uniform entrance requirement of 600 hours for special benefits. In contrast, a worker’s risk of needing access to special benefits (such as income replacement for maternity and parental leave) is relatively uniform regardless of the economic situation in the region where they live. Federal and provincial labour legislation, notably, allows employees job-protected leave to match maternity and parental benefits duration. The uniform entrance requirement for special benefits therefore accords with the consistent level of risk that workers will need to access those types of benefits.

Finally, in considering the recommendation, it is worth noting that access to special benefits among paid employees is presently very high, and that the hours of work required to qualify for these types of benefits in Canada are already relatively low by international standards. The Employment Insurance Commission’s 2005 EI Monitoring and Assessment Report notes that the level of access to special benefits is consistent across the country, ranging from 88.1% to 91.4%, among paid employees. It is also notable that access to special benefits is found to be as high, or higher, in areas of high unemployment than in economically stronger areas with lower unemployment rates. Thus, this evidence suggests that the current 600 hour threshold responds well to workers’ needs and that a variable entrance requirement is not required in order to ensure equitable access to these benefits for workers living in different regions of the country.

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THE EI WAITING PERIOD

The Committee’s third recommendation, eliminating the requirement for maternity and parental benefit claimants to serve a two-week waiting period, is one that raises considerations of relevance to the broader program, and the full range of benefits. The concept of the waiting period was first introduced in the founding Unemployment Insurance legislation and has been fixed at two weeks, for all types of EI benefits, since 1971. In this respect, a claimant is not entitled to be paid EI benefits until the claimant has served a two-week waiting period.

The two-week waiting period represents a basic co-insurance feature of the program that is similar to the deductible for other insurance plans. As a result, insured persons absorb the initial costs related to their loss of employment income. The waiting period also represents a factor in the relative proportion of program costs funded by employers and employees. While employees bear the cost of the two-week waiting period, this is offset by the fact that they pay a lower premium rate than their employers (employers pay 1.4 times the employee rate). In addition to its co-insurance role, the waiting period also serves an administrative purpose as it allows for the processing and verification of claims, and eliminates very short claims which would be relatively costly to administer.

Although a two-week waiting period applies to all types of EI benefits, including maternity and parental, parents who share the benefits only serve one waiting period — as is the case with other combinations of mixed claims, e.g., one waiting period for an individual claiming sickness and maternity benefits in succession. The Employment Insurance Commission’s 2005 EI Monitoring and Assessment Report notes that since the major program enhancements of December 2000, including the doubling of the duration of maternity and parental benefits, parents are able to access benefits more easily, and are spending a greater period of time at home caring for their children. Furthermore, recipients of EI parental benefits are able to work while on claim and increase their income by the greater of $50 per week or 25% of their weekly benefit without a reduction in their benefits. Despite the waiting period, Canadians receive similar or greater total maternity and parental benefits payments when compared to other countries.

In light of these considerations, and that Canada continues to be highly ranked in terms of the overall value and duration of its program, the Government believes Canadians continue to be well served under the current co-insurance provisions.

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CONCLUSION

The Government appreciates the work of the Standing Committee on the issue of self-employment and its report on maternity and parental benefits, which has helped to inform public discussion on the needs of the self-employed and how they can best be addressed. Recognizing the diversity of needs among the self-employed as well as the broad spectrum of views on how and whether governments should introduce new programs in this area, the Government is not planning to extend EI maternity and parental benefit coverage to the self-employed at this time. The issues raised by the Standing Committee will, however, continue to inform the Government as it monitors and assesses the effectiveness and responsiveness of its current programming.

[1]
The surveys include: Survey of Self-Employed Individuals: Perceptions of Benefit Coverage (2006); annual surveys of Canadian Attitudes to toward the Employment Insurance Program; Results from the Survey of Self-Employment in Canada (2002); Perceptions of Self-Employed Regarding Possible Extension of Maternity, Parental & Sickness Benefits (2000).
[2]
Survey of Self-Employed Individuals: Perceptions of Benefit Coverage (2006).
[3]
Survey of Self-Employed Individuals: Perceptions of Benefit Coverage (2006).
[4]
Survey of Self-Employed Individuals: Perceptions of Benefit Coverage (2006); and annual surveys of Canadian Attitudes to toward the Employment Insurance Program.
[5]
Survey of Self-Employed Individuals: Perceptions of Benefit Coverage (2006).
[6]
Survey of Self-Employed Individuals: Perceptions of Benefit Coverage (2006).