Well finally the government did something reasonable and extended Employment Insurance (EI) to self employed people. You would think this would be a great thing, but it may not really be for everyone.
There are a few requirements you should be aware of if you are thinking about this:
- The program states that you must pay in for a full year prior to making your first claim at the regular employee rate (1.73% of earning in 2010 up to $747.36 a year).
- If you ever make a claim you must continue to pay into the program as long as you are self employed. If you don’t make a claim you can stop paying in (no refunds).
- You can only qualify for special benefits such as maternity, parental, sickness and compassion care leave. Since you can’t lose your job (in the traditional sense), you can’t claim regular benefits.
- You must make at least $6000/year of self employed income to be part of the program.
So in reality you would only really pay into EI if you planned on using maternity (max 15 weeks) or parental leave benefits (max 35 weeks), otherwise it would be somewhat wasteful to pay that much money in only to occasionally claim sickness (max 15 weeks) or compassion care (max 6 weeks). I’ve never claimed sickness or compassion care leave myself yet. Keep in mind too that the maximum you can get from EI is about $1600/month. So its not a lot of money.
So what’s the break even point of this program? Well if you claimed the full 50 weeks of maternity or parental leave at the maximum rate you would get about $20,000 for the year. So divide that by the max contribution rate of $747.36, you need to pay in for 26 years to be even. So if you have more than one child this program is likely a good deal or you could be ok with a child if you are older (30+) and plan to retire early you could do well at least for right now.
You have to recall that the EI program is currently under a rate freeze but you can expect a sharp increase right after 2011 so that will change these numbers a fair bit.
So is getting EI a good idea for a self employed person? If you plan on two kids or more and will be taking the majority of the maternity and parental leave, then likely yes it is a good idea. If you only have one kid, you might want to think about. If you aren’t planning on kids, skip it.