The federal government gave entrepreneurs — well, some entrepreneurs — an early Christmas present when the Fairness for the Self-Employed Act became law on December 15. The act offers Canada’s self-employed access to Employment Insurance (EI) “special benefits” such as income replacement during maternity, parental, sickness or compassionate-care leave.
The program is optional. But once you’re in, you might never be able to get back out — putting you on the hook for tens of thousands of dollars of EI premiums for benefits that could be of no value to you.
Got questions? These answers will help you decide whether the new EI is right for you:
Why won’t I collect benefits if I lose my “job”?
Employees are eligible for regular benefits (i.e., income support for the unemployed) only if they’re laid off. You can’t just quit and draw EI. With the self-employed, says a government spokesperson, determining whether there has been a job loss is a challenge, given that “the self-employed have a higher degree of control than employees over their own employment.” In other words, Ottawa doesn’t want to pay self-employed people who put themselves out of work.
How much will this cost me?
You’ll pay the standard EI rate for employee contributions: $1.73 per $100 in earnings, to a maximum contribution of $747 in 2010. Because you’re ineligible for regular benefits, you won’t have to pay the employer contribution.
How much will I collect if I make a claim?
You’ll receive 55% of your average weekly earnings, up to $43,200, in the calendar year before your claim. EI caps the benefit at $457 per week. You can collect for up to 35 weeks for parental or adoptive leave, 15 weeks for maternity or sickness leave, and six weeks to care for a family member who’s ill.
What’s this about being stuck in the program for good?
If you change your mind, you’ll have 60 days to opt out at no charge. You can also opt out at the end of any year — unless you’ve drawn benefits before. If you have, you’ll be locked in to the program for any periods in which you’re self-employed over the rest of your lifetime.
Is the program open to all business owners?
No. It covers any Canadian citizen or permanent resident “who operates his or her own business, or is employed by a corporation but is not eligible to participate in the EI program as an employee because he or she controls more than 40% of the voting shares of that corporation.”
I’m having a baby in July. How soon can I make my first claim?
You can’t do so until you’ve paid premiums for one year.
How do I calculate whether I’ll come out ahead?
Allison Marshall, a Toronto-based financial adviser with RBC Wealth Management Services, says the deciding factor is often how long your firm can manage without you. She offers the example of a 35-year-old self-employed woman earning more than $43,200 who plans to have two children and take the full 50 weeks in leave for each child. If she stays self-employed until 65, she’ll pay $22,421 in premiums by then and collect twice that amount in benefits: $45,700.
But let’s say the same aspiring mother decides it’s unwise to stay away from her firm for a full year, and plans to take just 16 weeks of leave per child. She’d pay the same in premiums, but her benefits would total only $14,624. Even if she also received another $6,855 at some point from 15 weeks in sickness benefits, her total benefits of $21,479 would be a bit less than what she had paid in.
Who was this program designed to help?
The federal government clearly had young women in mind, says Dan Kelly, senior vice-president of legislative affairs for the Canadian Federation of Independent Business. Such people are most likely to be starting a family, and are eligible for both maternity and parental leave. But, Kelly says, the fact that many of them can’t walk away from their businesses “is a natural cap on the use of this program.”
Then who is it good for?
All things considered, the program suits anyone with low overhead costs whose extended absence doesn’t derail work in progress, such as many home-based businesses.