Backgrounder on Employment Insurance Rate Setting
With today’s announcement, the Government is taking further steps to ensure affordability, stability and predictability for Employment Insurance (EI) premium rate payers.
Premium Rate for 2014, 2015 and 2016
The global recession led to an increase in EI benefit expenditures over a relatively short period of time. As a result, the EI Operating Account, which records all amounts received or paid out under the Employment Insurance Act, recorded a cumulative deficit of $9.2 billion in 2011. To eliminate this cumulative deficit, Economic Action Plan 2013 projected that the EI premium rate would increase by the maximum 5 cents per year to reach $1.98 per $100 of insurable earnings in 2015. Then, as the maximum decrease in the EI premium rate was also limited to 5 cents per year, the premium rate was expected to decline to $1.93 in 2016.
Falling unemployment over the recovery has put the EI Operating Account on track to return to cumulative balance without requiring premium rate increases above the current level of $1.88. As a result, the EI premium rate for 2014 will be frozen at the 2013 level of $1.88 per $100 of insurable earnings and the rate will be set no higher than $1.88 for 2015 and 2016. For residents of Quebec, covered under the Quebec Parental Insurance Plan, the premium reduction will be $0.35 per $100 of insurable earnings in 2014. As such, residents of Quebec will pay $1.53 per $100 of insurable earnings in that year.
The change is expected to save employers and employees $660 million in 2014, relative to a 5-cent increase to $1.93. For a worker earning $48,600—the maximum insurable earnings threshold for 2014—this would represent a savings of $24. For a small business employing 10 workers, this would represent a savings of up to $340.
The Employment Insurance Premium Rate-Setting Process in 2017 and Subsequent Years
In Fall 2011, the Government undertook cross-country consultations with Canadians and stakeholders on how the EI premium rate-setting mechanism could be further improved to ensure predictability and stability of premium rates.
The consultations indicated that Canadians want stable and predictable EI premium rates, and a transparent rate-setting process.
In response, Economic Action Plan 2012 announced the Government’s intention to set the EI premium rate annually at a seven-year break-even rate once the EI Operating Account achieved balance. This new rate-setting mechanism will take effect in 2017, as projected in Economic Action Plan 2013, ensuring that EI premiums are no higher than needed to pay for the EI program over time. This is expected to result in a significant reduction in the premium rate in 2017. After the move to the seven-year break-even rate in that year, annual adjustments to the rate will be limited to 5 cents.
Once the seven-year rate-setting mechanism is introduced in 2017, the premium rate will continue to be set earlier in the Fall, by September 14, providing more notice to employers and workers of the rate for the coming year.