What the New EI Changes Mean For Your Business

The new federal Small Business Job Credit will cut the amount you pay for EI deductions, and it takes effect soon

Written by Deborah Aarts

If you’re running a small business, you can expect to pay a lot less in federal Employment Insurance (EI) premiums in 2015.

Federal finance minister Joe Oliver announced a near-15% cut to EI payroll taxes at a press conference on September 11 at a Toronto flooring company.

Called the Small Business Job Credit, the change will see the legislated rate for premiums lowered to $1.60 for every $100 an employee earns in 2015 and 2016. That’s down from the current rate of $1.88. Since employers pay 1.4 times the legislated rate, this equates to a reduction of 39 cents per $100 of insurable earnings paid.

The credit is open to any employer that pays less than $15,000 in EI premiums a year—some 90% of businesses who contribute to EI, according to Finance Canada. Here’s an example of how it will play out: say a company employs 14 people, each earning $40,000 a year. That firm would ordinarily pay $14,740 in EI premiums in 2015. Since that falls under the $15,000 threshold, that company would be refunded approximately $2,200, making its total payout $12,540.

Revenue Canada will automatically calculate the credit on business tax returns. Once calculated, it will be applied against any outstanding debt. If there is money remaining, it will be refunded to the business.

Oliver said the lowered rates will make it easier for small businesses to create jobs. “Canada has become an economic success story, but the global economy is fragile and there are geopolitical tensions,” he said. “Therefore, we must continue taking action…to create jobs, growth and long-term prosperity.”

The new rates will take effect January 1, 2015.

Early response from the business community was positive. “This is a big one,” said Dan Kelly, president of the Canadian Federation of Independent Business (CFIB). Kelly called payroll tax “the most harmful form of taxation affecting job creation and employee wages,” and said the reduction will make it much easier for small businesses to hire.

The move continues a trend of easing EI expenses for employers. Last September, the federal government announced it would freeze premiums through 2016. That announcement marked a change of course for the government, which had previously announced plans to increase rates. At the time, the feds cited strong job growth and a stable economy as the reasons for the freeze.

The CFIB has long been calling on the government to lessen EI premiums. In the organization’s submission of its top pre-budget priorities to late federal finance minister Jim Flaherty earlier this year, CFIB president Dan Kelly said EI credit serves “as a direct incentive to growth and hiring.” In response to the 2013 freeze, Kelly said “As employers pay 60% of the cost of the EI system, small firms can use these savings to hire, improve wages or help grow their businesses.”

Many analysts see the move as an attempt to bolster up sluggish job growth across the country. A recent survey by recruiting firm Manpower revealed that its jobs outlook—which measures the difference between employers who expect an increase in hiring and those who expect a decrease—at just 8% for the fourth quarter of 2014, the lowest level in more than four years.

With files from The Canadian Press.

How will these new EI rates affect your business? Do they go far enough? Will they allow you to hire or retain more employees in 2015? Share your thoughts by commenting below.

Originally appeared on PROFITguide.com