Employment insurance (EI) premium rates are dropping next year, but the maximum amount on which employees and employers pay the premiums is rising, the Canada Employment Insurance Commission (CEIC) recently announced.
As of Jan. 1, the rate for employees outside of Quebec will decrease from 1.66 per cent to 1.62 per cent. For employees in Quebec, it will drop from 1.30 per cent to 1.25 per cent. The Quebec rate is lower because Quebec’s Parental Insurance Plan (QPIP) covers maternity and parental benefits, reducing EI costs.
Employers will continue to pay 1.4 times the employee rate unless Employment and Social Development Canada (ESDC) has provided them with a reduced rate because they have a government-approved wage-loss replacement plan (WLRP). For 2019, the employer rates are 2.268 per cent (outside Quebec) and 1.75 per cent (in Quebec).
The maximum insurable earnings (MIE) will increase from $51,700 to $53,100.
The 2019 maximum employee premiums will be $860.22 (outside Quebec) and $663.75 (in Quebec). For employers, the maximum premiums will be $1,204.31 (outside Quebec) and $929.25 (in Quebec).
To set the premium rate, the CEIC relies on actuarial forecasts and estimates from the Office of the Chief Actuary, which is part of the Office of the Superintendent of Financial Institutions Canada.
Since 2017, the commission has been required to set the rate using a procedure called the “seven-year forecast break-even rate.”
It requires that the premium rate be set at a level that will produce just enough money from EI premiums over the next seven years to ensure that, at the end of the seven-year period, the total amount collected in premiums plus the balance in the EI operating account will equal the amount of EI expenses over the period.
EI expenses include benefits and employment support for claimants, administration costs, and premium reductions for employers with approved WLRPs and for employers and employees in Quebec.
In addition, the Employment Insurance Act requires that premium rates not go up or down by more than five cents from the previous year.
The rate-setting process begins in the summer, with the Finance Department and ESDC providing the chief actuary with information, such as the forecast unemployment rate and expected EI expenses.
By Aug. 22, the chief actuary must submit a report to the CEIC, setting out the MIE, forecast premium rate, and rate reductions related to WLRPs and the QPIP, along with analysis and calculations to support them. The CEIC, which is made up of government, employer, and employee representatives, must provide the report to Finance and ESDC.
By Sept. 14, the commission must set the premium rate, release a summary report, and make the actuarial report public. The government has until Sept. 30 to set a different rate if it is in the public interest to do so.
The process is designed to ensure that rates remain stable, avoid large surpluses in the EI operating account, and provide transparency.
It reflects governments’ attempts to address criticisms about the rate-setting process stemming from the 1990s. Concerns centred on high rates, a large surplus in the EI account, and the government’s use of EI funds for non-EI purposes.
In the early 1990s, premium rates steadily rose because of growing unemployment due to a recession and the government’s decision in 1990 to stop playing a funding role in Unemployment Insurance (UI). Up until then, employers, employees, and the government all contributed to UI funding.
In 1994, the employee premium rate reached a high of 3.07 per cent.
When the federal government implemented reforms that changed UI to EI at that time, it required the CEIC to set rates in a way that would ensure that there was sufficient money over a business cycle to pay for EI expenses and that would keep premium rates relatively stable.
To set the rates, the commission had to take into account recommendations from ministers responsible for EI and finance, a move that some said led to higher rates and less transparency.
“The lack of transparency..., brought in with the 1996 Employment Insurance Act, arises entirely from the astonishing fact that premium rate-setting has been uncoupled entirely from any reference to past, present or future insurance payments and the larger role played by government in setting premium rates since 1994,” the Canadian Labour Congress (CLC) said in a 2003 report.
“(F)rom 1998 to 2001, the rates that were set always exceeded those proposed by the EI Chief Actuary, as the commission effectively agreed to the government’s fiscal objectives, instead of adopting what would otherwise have been a steeper and more rapid reduction in premium rates,” said a 2007 report by the Canadian Institute of Actuaries (CIA).
While rates began decreasing in the mid-’90s, the surplus in the EI account grew, raising concerns about not only its size, but the fact that the government was using it to pay down the country’s deficit.
“In the late 1990s and early 2000s, the EI program consistently recorded annual surpluses, resulting in a cumulative surplus of approximately $57 billion at the end of fiscal 2007-2008. These surpluses were used to pay for non-EI government expenditures,” said a Library of Parliament background paper called The Employment Insurance Program in Canada: How it Works, by André Léonard.
Facing public criticism and court challenges, the government announced in 2003 that it would consult on a new way to set EI premiums.
Amendments passed in 2005 required the CEIC to set the rate at a level each year that would generate just enough revenue to cover EI expenses made in that year.
They also prohibited the CEIC from increasing or decreasing the rate by more than 15 cents from one year to the next.
A change in government in 2006 brought further reforms. In 2008, the government announced it would create a Canada Employment Insurance Financing Board (CEIFB) to set premium rates.
The board was to be independent from government and had to ensure that money in the EI fund paid for only EI expenses.
It had to set rates on a one-year break-even basis, meaning that forecasted EI premium revenues for the coming year had to equal forecasted EI expenses during that year, plus/minus accumulated deficits/surpluses in the EI operating account.
The board, however, had a short life. It was only involved in rate setting from 2011 to 2013, and in 2011, the government opted to set the rate.
Shortly after creating it, the government announced that it would suspend the CEIFB and consult on a new rate-setting method, which eventually led to the mechanism in place today.
Critics applauded the decision to suspend and ultimately disband the CEIFB, saying the board was ineffective and did not include voices from employers and employees.
With the reforms, the CEIC was again a key player in the rate-setting process, although from 2014 to 2016, the government froze the EI premium rate at 1.88 per cent to eliminate a cumulative deficit in the EI operating account resulting from the 2008 recession.
Although the government says the 2017 rate-setting model provides more stability and transparency than earlier methods, there have been calls for further reforms.
To date, the government has not indicated that it will make further changes.
Note: The history of EI funding presented is only a brief overview. For more details, refer to the Library of Parliament’s website (lop.parl.ca/sites/PublicWebsite/default/en_CA/) or to research papers prepared by the CLC, CIA, and other organizations.