In today’s rapidly shifting job market, job security can often feel uncertain. Whether it’s because of economic changes, company restructuring, or unexpected global events, many people experience the harsh reality of job loss. It’s during these challenging times that having a safety net becomes crucial.
Fortunately, the Government of Canada provides some support to employees who have lost their job through no fault of their own. Employees in Canada who lose their job can turn to the Employment Insurance (EI) program for temporary income support. In this article, we'll explore how EI functions in Canada and how it can help those who find themselves unexpectedly unemployed.
Ready to know more? Keep reading to see how EI can help you bounce back.
What is the Employment Insurance program?
EI is a government program that provides temporary financial assistance and other benefits to employees who have lost their job through no fault of their own. It’s a safety net that helps individuals navigate through tough times. But EI doesn’t just stop at job loss; it also offers special benefits for workers who need to take time off due to significant life events, including:
- Illness
- Pregnancy
- Caring for a newborn or newly adopted child
- Caring for a critically ill or injured person
- Supporting a family member who is seriously ill with a significant risk of death
Much like private insurance, both employees and employers in Canada contribute to the program through regular premium payments deducted each payroll period. However, unlike private insurance, these contributions are mandatory for almost all employees and employers in Canada, with very few exceptions.
Each payroll pay period, EI premiums are calculated based on and deducted from an employee's pay, with a corresponding amount calculated and owed by the employer. Employers are responsible for deducting and remitting these premiums to the Canada Revenue Agency (CRA)
EI benefits are available to workers who meet the qualifying and entitlement conditions, which we’ll dive into below - including self-employed individuals. The program is overseen and administered by Canada Employment Insurance Commission (CEIC), Employment and Social Development Canada (ESDC), and Service Canada.
Employment Insurance in Quebec
The province of Quebec often administers a similar but separate version of many federal programs. However, Employment Insurance applies to employees and employers in Quebec as well, with a few differences.
While the core of the EI program operates similarly to the rest of Canada, the premium rates in Quebec are typically lower. In addition to EI, employees and employers in Quebec must participate in the Quebec Parental Insurance Plan (QPIP). Unlike the rest of Canada, where maternity and parental benefits are covered under the EI program, these benefits in Quebec are provided through QPIP.
Who has to contribute to EI?
Nearly all employment in Canada is known as insurable employment, meaning that employees and employers must pay EI premiums. In some cases, employees who are related to their employer, such as in a family business, may be exempt.
The concept is similar to how CPP works in Canada. However, there is no age limit for having to contribute to the EI program. It also applies to all types of employees in Canada, regardless of their citizenship status.
How EI premiums are calculated
Employment Insurance (EI) is fully funded by the contributions of both employers and employees, or self-employed individuals. Premiums are calculated as a percentage (the contribution rate) of the employee's earnings, which are referred to as pensionable earnings.
Insurable earnings encompass most forms of compensation received from employment, including wages, tips, bonuses, and commissions. The CRA is responsible for determining which types of earnings qualify as insurable.
The contribution rate for employees and the maximum amount an employee must contribute changes annually, based on increases in the average wage in Canada and is published regularly. Employers contribute 1.4 times the amount of the employee's premiums.
For 2024, the employee contribution rate is 1.66%, with the maximum annual insurable earnings set at $63,200. This means that the maximum annual EI premium for employees is $1,049.12, while employers will contribute up to $1,468.77.
In Quebec, the 2024 contribution rate for EI is slightly lower at 1.32%, but the maximum insurable earnings remain the same at $60,200. This results in a maximum annual premium of $834.24 for employees and $1,167.94 for employees.
Additionally, employees and employers in Quebec must also contribute to the Quebec Parental Insurance Plan (QPIP), with a 2024 rate of 0.494% for employees and 0.692% for employers, applied to maximum insurable earnings of $94,000.
Let’s break this down with an example: Suppose an employee in Ontario earns $4,000 semi-monthly (twice per month), resulting in an annual salary of $96,000 over 24 pay periods per year. For each pay period, the EI premium is calculated as $96,000 × 1.66% ÷ 24 = $66.40. The employer deducts $66.40 from the employee’s pay and adds an additional 1.4 times that amount, or $92.96, to remit a total of $159.36 to the CRA.
It is important to note that even if the employee's annualized earnings exceed the maximum insurable earnings of $60,200, EI premiums are still deducted each pay period based on actual earnings until the maximum contribution for the year - $1,049.12 from the employee and $1,468.77 from the employer - is reached. Self-employed individuals only need to pay the employee’s portion of the premiums.
Deductions and employer contributions should stop once the maximum premium for the year is reached.
What happens when an employee works in two companies within the same year?
If an employee works for two different companies within the same year, each employer is required to deduct EI premiums for the employee up to the annual maximum insurable earnings for that year, regardless of whether the former employer has already deducted the EI premiums. This applies even if the employee has already paid the maximum premium with the previous employer. Any overpayment will be credited to the employee when they file their income tax return.
EI benefits
EI provides a few different types of benefits, from maternity and paternity benefits to sickness benefits while an employee cannot work due to illness. All EI benefits are designed to temporarily support employees who are experiencing an earnings interruption.
The primary type of EI benefit designed for people who have lost their job are called, unsurprisingly, regular benefits.
Exactly how much an unemployed individual can receive in EI support is determined upon submitting an application for EI benefits to Service Canada. This amount depends on the amount of insurable earnings an employee has earned and the region of Canada where they work.
Regular EI benefits provide weekly support up to a maximum of 55% of earnings for up to 45 weeks. Since the maximum amount of insurable earnings in 2024 is $60,200, this translates to a maximum weekly amount of $668 in EI support depending on the employee’s location in Canada. Keep in mind that EI benefits, like regular income, are taxable.
In addition to regular benefits, EI also provides additional benefits:
- Sickness benefits for those who are unable to work due to illness or injury
- Maternity and parental benefits, which we’ve covered in a separate article
- Benefits for individuals caring for seriously ill family members
- Benefits for the self-employed
- Benefits for Canadians living abroad
Applying for EI benefits
When an employee is terminated in Canada, the employer must issue a Record of Employment (ROE) to the Government of Canada and make a copy available to the employee. The government uses this to help determine the employee’s eligibility for EI benefits and the amount they may receive.
Employees should apply for EI benefits as soon as they stop working, even if they haven't yet received their ROE. It is important for employees to apply for EI benefits as soon as possible - delaying an EI claim for more than four weeks could mean that the employee loses their benefits entirely.
To qualify for regular EI benefits, an employee must have lost their job through no fault of their own, meaning they didn’t quit or were not fired for misconduct. Additionally, the following requirements must be met:
- The employee must have been employed in insurable employment
- They must have worked between 420 and 700 hours (depending on where in Canada you live) of insurable employment in the last 52 weeks
- They must have gone at least seven straight days without work or pay in the last 52 weeks
- They must be ready, willing, and capable of work and actively looking for work
When an employee is ready to apply for EI benefits, they can start their application online here.
To confirm your eligibility and receive any payments you’re entitled to, you must complete bi-weekly reports either online or by phone. Failing to submit these reports can result in a loss of benefits.
Unemployment insurance in other countries
The United States has a similar program called the Unemployment Insurance which provides weekly benefits to those who are out of work through no fault of their own.
One of the main differences with the US unemployment insurance program and the Canadian EI program is that the US program is a joint federal-state program. While each state administers the program, all states follow the same federal rules governing such program. EI in Canada is a federally run program.
Just like EI, in the US claimants must also meet eligibility requirements such as wages earned, or time worked during a specific period called the "base period." Each state sets the eligibility requirements, while in Canada, the eligibility requirements are uniform across the country.
Unlike EI however, unemployment insurance in the US is funded through taxes on the employer rather than contributions from both the employer and employee.
Thirdsail can help
Navigating payroll and compliance in Canada is crucial to hiring and retaining top talent. If you’re looking for a seamless solution, Thirdsail is here to help.
Thirdsail helps companies around the world hire employees in Canada. We help you hire employees instantly without having to open a subsidiary and make sure your employees have all the right deductions and contributions.
