A Guide to EI for Canadian Business Owners

In this blog post we will go over an in-depth explanation of how EI works for business owners. We would highly encourage you that you read this post along with our previous blog post which provides a general overview of how EI works.

How does EI work for business owners?

There are a few key differences between how EI works for someone who is a business owner vs. an employee as covered in our previous blog post

The key differences are as follows:

1. Opt-In: Unlike employees, as a business owner (who own more than 40% of share ownership) or as a self-employed Canadian, you have the option to opt into EI. It is not necessary that you contribute to EI
   
2. Benefits for job loss: Incorporated business owners (who own more than 40% of share ownership) and self-employed Canadians cannot get EI benefits due to a job loss
   
3. Special benefits: Business owners individuals can claim benefits for the following reasons which are covered in greater detail in our previous blog post:

• Maternity benefits
• Parental benefits
• Sickness benefits
• Compassionate care benefits
• Family caregiver benefits

Business owners are EI Exempt

By default, business owners and self-employed individuals do not need to contribute to EI. You can verify this by consulting the CRA’s Special Payments chart found here and pasted below for illustrative purposes:

Hence, this is why one of the key differences between a non-shareholder employee and a business owner, a non-shareholder employee has to contribute to EI while a shareholder who is also an employee does not have to.

Accessing EI benefits as a business owner

If you’d like to access EI benefits as a business owner, you will need to meet certain requirements:

1. 12 Month Period: You must pay EI premiums for 12 months before you can collect any benefits from EI
   
2. No Opt-Out Privileges: If you’ve taken benefits from the EI program as a business owner, you can’t opt out of the program at a subsequent date

EI Premiums for employed family members

Under the Employment Insurance Act (EIA), it is important to determine if an employee and employer are dealing with each other at arm’s length. 

If an employee and employer are not dealing with each other at arm’s length (this tends to be case when an employer hires family members), then that family member’s earnings are not insurable and you are not required to pay EI premiums on their behalf. 

If you’d like to read more about this topic, you can consult the CRA’s guide here.

Recovering overpaid EI Contributions

If you’ve already paid EI contributions, you should know that overpayments of EI can be recovered from CRA.

For prior year over payments, you can apply for a refund within certain time limits. You will be required to fill out a CRA form PD24 – Application for a refund of overdeducted CPP contributions or EI premiums.

The time limit to apply for a refund of overpayments for EI is no later than three years after the end of the year for which you made overpayments.

EI Premium Requirements for Business Owners

If you choose to opt-into the EI program as an incorporated business owner (who owns more than 40% of share ownership) or as a self-employed Canadian, You should know that you’re only required to pay the employee portion of EI and not the employer portion. 

As a result, for 2024, the maximum premium as detailed in the CRA’s table for 2024 here is $1,049.12.

How to register for EI as a Self-Employed Canadian

1. Visit the Service Canada Website

• Go to Service Canada’s EI page for self-employed individuals
• Choose the option to register for EI special benefits for self-employed individuals

2. Create or Log into Your My Service Canada Account:

• If you already have a My Service Canada Account, log in
• If you don’t have an account, you will need to create one. You will need your Social Insurance Number (SIN) and other personal details to set up an account

3. Fill Out the Registration Form

• Provide your personal details (e.g, SIN, contact information, etc).
• Submit your self-employment information
• You will need to confirm your understanding of the EI special benefits program and that you will pay EI premiums based on your self-employed income

4. Agree to Terms and Conditions

• You must agree to the terms and conditions, which include paying EI premiums on your self-employed earnings and committing to remain in the EI program for at least one full year before being eligible to claim any benefits.

5. Submit your Registration

• Review your application, ensure all details are correct, and submit your registration

Pay EI Premiums 

Once you are registered for EI, you will need to start paying EI premiums based on your income when you file your annual income tax return.

12 Month Period

After registering, you must pay EI for at least 12 months before you can access benefits.

Do you need help with your EI claim ?or have any questions? Get in touch with us here or sign up to get more accounting and tax tips in our newsletter here.

The accounting and tax information provided in this post does not constitute advice and is meant to be for general information purposes only. The information is current as at the date of this post and does not reflect any changes in accounting and/or tax legislation thereafter. Moreover, the information has been prepared without considering your company or personal financial/tax circumstances and/or objectives.