The Employment Insurance Act sets out the EI program’s financing rules. Regular and special benefits, as well as employment supports and the program’s administrative costs, are funded primarily by employee and employer premiums. Employees finance 5/12 of the program’s costs by paying premiums on their insurable earnings. Employers cover the remaining 7/12 of the costs.[143]

The federal government financially contributes only in its role as an employer. It may occasionally decide to contribute further, as when it introduced temporary measures to enhance the program to counter the impact of the 2008–2009 recession.

A. Premium Rates

In 2016, the EI premium rate for employees was set at $1.88 per $100 of insurable earnings. This premium rate, combined with a maximum of $50,800 in insurable earnings, means that insured employees will pay, at most, $955.04 in EI premiums in 2016.

Self-employed workers who choose to contribute to the program pay the same rate as salaried employees, and are eligible to special benefits (described above) though not EI regular benefits.

The premium rate for workers in Quebec is lower than in the rest of Canada because Quebec administers its own maternity, parental and paternity benefits and has collected premiums from employees in the province since January 2006. In 2016, the premium rate for employees in Quebec was set at $1.52.[144]

Many witnesses provided their views on EI premium rates, but no consensus emerged from their testimony on whether they should be reduced, increased, or remain the same.

According to the CEIC’s Commissioner for Workers, “labour stakeholders have not advocated for a reduction [i]n EI premiums; in fact, labour stakeholders would rather see EI programs improved upon so that rate payers are better served by the system.”[145]

The Alberta Federation of Labour also recommended shifting the focus away from premium rate reductions, commenting that lowering premiums does not necessarily contribute to supporting unemployed workers:

Lowering EI premiums will only reduce the program’s ability to act as an economic stabilizer during recessions and disasters. Premiums have been reduced significantly since the 1990s and should be restored. Lowering premiums does nothing to ensure that unemployed workers have the supports in place precisely when they need them.[146]

Likewise, the Canadian Union of Public Employees believes that “premiums should not be cut in order to support current and future changes.”[147] Similarly, the Inter-Provincial EI Working Group maintains that the federal government should hold off on reducing EI premiums until it knows what improvements need to be made to the system.[148]

On the other hand, David Gray suggested that EI premium rates for businesses should be low, “because they impinge upon the demand for workers.”[149] However, he argued that the reduction should not apply only to small employers. He believes that “we really shouldn’t, particularly for payroll taxes, differentiate according to the size of employers.”[150]

The CFIB, advised the Committee that “the tax burden remains the number one concern of small and medium-sized firms across the country”, and that about 46% of its members say EI premiums are a constraint.[151] The CFIB made a number of specific recommendations regarding EI premiums, including the following:

1. establish a permanent, lower EI rate for small business;
2. implement a 50/50 split in EI premiums between employers and employees; and
3. allow employers to receive refunds for their over-contributions, as employees do.[152]

Judith Andrew added that “employers are concerned about the level of the premiums that they have to pay”:

It seems to be disproportionate to the other parts of the tripartite arrangement. It actually is counter-productive in some cases, because if smaller employers are paying these payroll taxes and CPP and workers’ compensation and all those, it adds up to quite a tab on creating a job. It actually can work against job creation.[153]

The Committee acknowledges that the EI program is financed largely through the premiums paid by employers and employees alike. For this reason, the Committee feels it is important that they be given a voice in establishing the premium rate. The Committee consequently makes the following recommendation:

RECOMMENDATION 14

The Committee recommends that Employment and Social Development Canada establish a process whereby workers and employers can give input to the decision-making process that leads to the setting of the premium rate.

B. Employment Insurance Premium Management

EI premiums are paid into the Consolidated Revenue Fund, which includes general government revenues such as taxes. The EI Operating Account was established on 1 January 2009. Each year, all EI program expenditures are debited from this account and revenues credited to it. The revenues and expenditures for this account are published in the Public Accounts of Canada, and its net results (deficit or surplus) are included in the government’s financial statements.[154]

Every year, ESDC and Finance Canada send data to the actuary engaged by the CEIC so that he or she is able to provide an official report on the estimated break-even premium rates for the years to come. These break-even rates are calculated to ensure that, in the long run, EI premiums are used for program expenditures only.

According to the CEIC actuary’s report for 2014, the break-even premium rate was 2.08%. However, the federal government chose to freeze the premium rate at the 2013 rate of $1.88 for 2014, 2015 and 2016. In addition, in September 2014 the federal government announced the Small Business Job Credit for 2015 and 2016. This credit lowers EI premiums for small businesses from $1.88 to $1.60 per $100 of insurable earnings in each of those years. According to the government’s estimates, the credit will save small businesses over $630 million.[155] These measures were put in place to help provide certainty and flexibility for employers, especially small businesses.[156]

Beginning in 2017, the CEIC is expected to set the annual EI premium rate according to the seven-year break-even rate-setting mechanism. This new mechanism will ensure that premiums are no higher than needed to cover the costs of the EI program over time and that any cumulative surplus in the EI Operating Account is returned to employers and employees through lower EI premium rates. In Budget 2015, the federal government forecast that this measure would reduce the premium rate from $1.88 in 2016 to $1.49 in 2017.[157]

According to Budget 2016, the break-even EI premium rate will instead be $1.61 in 2017,[158] as a result of the new proposed EI measures.[159]

The Committee heard evidence from several witnesses that it was important the EI Operating Account be separated from the government’s general accounts and that EI premiums be used only to finance the EI program. For example, the CEIC’s Commissioner for Workers emphasized the importance of “keeping EI funds for EI programs, ensuring contributions are used for the purpose they were originally intended.”[160] In its submission to the Committee, the Fédération des travailleurs et travailleuses du Québec also urged the government to stop “using the EI fund for purposes other than for what it was intended.”[161]

A reference document submitted by Judith Andrew, the CEIC’s Commissioner for Employers, also notes that ensuring EI revenues are spent on the EI program and EI benefits is very important to employers.[162]

The effective management of the EI “fund” was a concern of many witnesses. In order to ensure that EI premiums are used exclusively to fund the EI programs, the Committee recommends as follows:

RECOMMENDATION 15

The Committee recommends that the federal government explore mechanisms to see that funds collected for the purpose of employment insurance serve the needs of the Employment Insurance program.