3.7 – EI Premiums

You must deduct EI premiums from your employees’ insurable earnings on every dollar until you reach the yearly maximum insurable earnings ($56,300 for 2021) or the maximum employee premium for the year ($889.54 for 2021). There is no age limit for deducting EI premiums.

See the EI Premium Rates and Maximum webpage for current rates.

As the employer, you also must contribute 1.4 times the EI premium withheld for each employee.

For example:

(Assuming the employee’s annual earnings are $56,300, there are 12 pay periods and using 2021 rates)

New employees

So, what happens when you hire an employee mid-way through the tax-year?

The annual maximum insurable earnings apply to each job the employee holds with different employers. Therefore, if an employee leaves one employer and starts a new job with you as their employer, you must deduct EI premiums without factoring in the amount the previous employer paid, even if the employee has paid the maximum premium at the first job.

Any overpayments will be refunded to the employee when they file their income tax, but the employer does not get a refund.

Short-term disability plans

You may qualify to reduce your 1.4 times employer contribution if you provide your employees with a short-term disability plan.

Want more information?
See the guide “EI Premium Reduction Program” for information about the types of plans that qualify. You have to register with the EI Premium Reduction Program and submit a copy of your short-term plan.

Insurability of Employment

Certain types of employment may not be insurable:

• Employment situations where you and your employee do not deal at arm’s length, including those to whom you are related (i.e., those connected to you by blood, marriage, common-law or adoption. This is so if you practise as a law corporation, so long as the employee is related to the person who controls the corporation). Whether you deal at arm’s length with your employee is a question of fact, and that includes a determination of whether you are related to the employee.

The courts have generally used the following criteria to determine whether one is not dealing at arm’s length with another:

• Is there a common mind which directs the bargaining for both parties to a transaction?
• Are the parties acting in concert without separate interests?
• Was there “de facto” control?

An employee who does not deal at arm’s length, including one that is related, can be insurable:

• if it is reasonable to conclude that you would have hired a person who deals at arm’s length under a similar agreement. If you are unsure whether you should deduct EI premiums, you can request a ruling up until June 30 of the year following the year of employment;
• when a corporation employs a person who controls more than 40% of the corporation;
• when the employment is an exchange of work or services; and
• when the employment is of a non-resident person, if the laws of that person’s country require someone to pay employment insurance premiums in that country.

Exceptions from EI

Most earnings, benefits, and allowances attract EI premiums, with certain exceptions, including:

• contributions to an employees’ group RRSP if the employees are not permitted to withdraw until they retire or cease employment;
• a retiring allowance; and
• certain automobile and travel expense allowances.

You can use the payroll deduction tables to calculate the EI deduction.

Your accountant can assist you in determining whether you must pay EI premiums on benefits and allowances.

Want more information?
See the CRA’s Benefits and Allowances chart for more information about the types of benefits not subject to EI premiums.