Employment insurance for the self-employed

Originally published in OVMA Focus Magazine May/June 2024

BY GREG TONER

Melissa has been one of my clients since shortly after she graduated. She started working as an associate, and after about three years, she started working as a locum at a local emergency clinic. About six months ago, she and her husband, Tony, who is also a veterinarian and owns half of the practice that his father started 25 years ago, let me know that Melissa was pregnant.

In both of their cases, they aren’t covered by employment insurance (EI) for maternity and parental benefits. Melissa because she’s self-employed, and Tony because he owns more than 40 per cent of the voting shares of the corporation that operates the practice he works in.

Melissa and Tony are in their mid-thirties, and they’re planning on having three children. They both love practising veterinary medicine and plan on having long careers. Melissa loves the control that she has over her schedule as a locum, and Tony plans on purchasing the rest of his father’s practice in the coming years.

We recently discussed whether they were eligible for EI benefits, and how they would fund the time that they both plan to take off with their child.

There’s an option for self-employed individuals to register for EI benefits, however, there are two main issues for people in Melissa and Tony’s situation:

1. You need to register for the self-employed program 12 months before you make a claim.

2. Once you register, you’re bound to make premium payments to EI for employment (or self-employment) income for the rest of your life.

Timing

For the first issue, with the average gestation period for a baby being about 40 weeks, Melissa and Tony would have had to apply for the program about four months before they started trying to conceive their baby.

Economics

The second issue is more of an economics question. If you’re planning on having three children spaced two years apart, and inflation (which determines the annual increases in EI benefits) is about five per cent, you’ll receive about $105,000 in EI benefits over all three maternity leaves.

If you miss applying for the EI for self-employed program for your first child, or you only plan on having two children, you’ll only receive about $68,000 in benefits.

EI contributions for 2024 are $1,049.12. In Melissa’s case, she has another 30 years to practice, so using the same assumption of five per cent for inflation, she’ll contribute about $69,000 to the EI system.

It’s about break-even in her case. She gets about $68,000 in benefits when she needs them and pays roughly the same amount back into the system over the rest of her career. On top of that, she’s also eligible for these additional benefits under the EI system:

1. Sickness benefits (15 weeks).

2. Compassionate care benefits (26 weeks).

3. Family caregiver benefits—children (35 weeks).

4. Family caregiver benefits— adults (15 weeks).

For more information about these special benefits visit www. canada.ca/en/services/benefits/ei/ ei-self-employed-workers.html.

Spouses

What about Tony? He wants to take time off as well. In his situation, he would need to register for the same self-employed program and make the same commitment to contributing to EI for the rest of his working life. So, another roughly $69,000.

On top of that, he would need to contribute the employer’s portion of EI through his company, which would be roughly $97,000, since employers pay 1.4 times as much as employees to the EI system.

The total contribution is over $235,000 to receive about $68,000 in EI benefits, since Melissa and Tony need to share the benefits. In Tony’s case, it’s not worth registering for EI. He’ll have to fund his parental leaves from corporate savings.

What should you do?

It depends on your situation. Generally, it only makes sense to consider applying four months before conception.

When the birthing mother owns more than 40 per cent of the corporation they practice in, it likely doesn’t make sense to register for EI self-employment benefits— you’ll need to fund any leave from corporate or personal savings.

With both parents being self-employed, consider having only one parent register for the EI self-employed program. Since the birthing mother is eligible for 15 weeks more of benefits than the other parent, it likely makes sense for that parent to register with EI as a self-employed individual. It doesn’t make sense for both parents to register.

Greg Toner, CPA, CA, TEP, CLU, is principal at VetCPA.

Reprinted from the Ontario Veterinary Medical Association’s Focus magazine www.ovma.org