Should You Opt in to the EI Program?
I have had several self-employed clients recently ask me if they should consider “opting in” to the Employment Insurance (EI) program. Most of these inquiries come from females who are considering having a child in the near future and are thinking that it would be nice to qualify for maternity and parental leave through the EI program.
As per usual, there is no black and white answer and each situation must be evaluated independently. However, after doing a number of these evaluations in the past few years, I can tell you that the answer usually comes back no.
First off, there definitely are some real benefits to opting into this program. A birth mother can apply for up to 15 weeks of maternity benefit and any biological or adoptive parent can apply for an additional 35 weeks of parental benefits. If you are unable to work due to sickness or injury, you may qualify for up to 15 weeks of benefit and if you need to take time off to support or care for a family member, you may qualify for up to 6 weeks off as well.
The major drawbacks in deciding to opt into the EI program come down to the cost. Once you decide to opt in and you make a claim, you are required to continue to pay the premiums for as long as you are self-employed. For a self-employed individual in their mid 20’s, this could translate into 40 years of required premiums! Unlike regularly employed individuals, you cannot claim against the EI program if you “lose your job”. Finally, the program states that you must pay into it for a full year prior to making your first claim so some planning may be required.
The 15 week maximum benefit period for sickness or injury is quite short and this risk can easily be covered by a low cost disability insurance plan. The EI program is not the only option for protection here.
With the short benefit maximum for sickness, injury and family care, the main argument for opting into the program is for the maternity and parental leave benefits. Upon the birth of a child, if you qualified for the maximum benefits and were to take the full 50 weeks of allowable leave, you would receive approximately $25,000. With an annual maximum EI premium cost of $891.12, this would translate into 28 years of premiums to reach a breakeven point. So if you plan to work for less than 28 years or plan to have more than one child, the benefits of this program may outweigh the costs.
It has been my experience however that most self-employed new moms don’t want to take the full 50 weeks off as it could be too much strain for their thriving business. If you ended up taking just 15 weeks off before returning to work, you would still pay the same $891.12 in premiums (this number increases each year) but would only receive $7,500 in benefits. This would move your breakeven point from 28 years down to only 8.4 years. Any income made during those 15 weeks would need to be reported and would further reduce the $501/week of benefits received.
With so many variables going into this decision, make sure you don’t make it lightly. Of the 2.6 million self-employed individuals in Canada, less than one half of one percent have chosen to opt in so far. If you still think that opting in is right for you, make sure you seek some professional financial advice before you make this lifelong commitment.