Employment Insurance

Article byPrakhar Gajendrakar
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Employment Insurance (EI)?

Employment Insurance (EI) is a social welfare initiative the Canadian government has designed for its citizens. Under this scheme, individuals who lose their jobs are given temporary financial assistance. The program is not limited to unemployed people but also covers people with disabilities, those suffering from chronic illness, people looking after young children, etc.

Employment Insurance

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The program supports individuals facing varied problems that require them to take time off from work. However, people choosing not to work or taking voluntary sabbaticals to pursue other interests are not covered by this facility. The Government of Canada defines the employment insurance eligibility criteria, and only those who qualify are entitled to the benefits extended under this scheme.

Key Takeaways

  • Employment insurance is a Canadian program that aims to offer financial support and assistance to individuals impacted by job loss.
  • It offers several benefits to eligible individuals, with people taking time off from work due to stressful events or sickness being covered, too.
  • The employment insurance scheme is a Canadian government initiative. However, the government does not fund it. Employers contribute specific amounts to this fund on behalf of their employees.
  • If an individual chooses to quit work and stay unemployed, they are not eligible for such insurance benefits.

How Does Employment Insurance Work?

Employment insurance is a social welfare program in Canada that offers temporary income and other benefits to citizens who lose their jobs and are struggling financially while actively seeking employment. It also covers those handling serious personal issues, such as sickness. The program began after an amendment to the British North America Act 1867, which introduced unemployment insurance. The parliament passed Canada’s first Unemployment Insurance Act on 7th August, 1940.

After submitting the employment insurance application, an individual receives weekly payments from the relevant authorities. However, the government does not fund the program. Employers contribute 1.4 times of employee premiums on an employee’s behalf, and this contribution helps build a corpus for this insurance. The amount a citizen receives and how long they can stay on EI depends on their previous salary, the time they worked, and the unemployment rate in the relevant area.

EI payments start 28 days after applying for it, and only if the individual is eligible, they receive such payouts after submitting the right information to the government agency. If an individual does not qualify for the aid, they are notified. Per employment insurance Canada, the gap between application and receipt, called the waiting period, is one week before an individual can start receiving benefits.

Recipients must follow the steps specified as part of employment insurance reporting to update the authorities every two weeks about their situation for as long as they receive benefits. The reporting proves an individual’s continued eligibility and ensures they receive the applicable benefits. For this, citizens must have a social insurance number along with the 4-digit access code mailed to them to enable report submission. Upon submission, the date for the next submission is communicated. If a person starts earning in the interim, they must notify the government department via the report. If they do not, they are considered at fault and may have to repay the sum to Service Canada.

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Benefits

The benefits of an employment insurance scheme are:

  • Regular benefits: EI provides temporary financial assistance to individuals who lose their source of income or livelihood without being responsible (at fault) for such employment loss.
  • Sickness benefits: People suffering from a critical health issue, disability, or injury are covered under this scheme and provided financial assistance accordingly.
  • Maternity and parental benefits: It also covers pregnancy, new parents, and individuals dealing with adoption.
  • Caregiving benefits or leaves: If an individual is ill or facing serious health risks, taking care of a sick family member, or dealing with a chronic illness, they can apply for EI.
  • Self-employed benefits: Self-employed individuals facing similar risks and problems are eligible to apply under this scheme, even if they have not worked as an employee with any company.
  • Benefits for those living abroad: Canadian citizens working outside the country are also eligible under certain rules for pensions, taxes, etc., under the EI program.
  • Fishing benefits: These are offered to eligible self-employed individuals actively seeking employment.
  • Seasonal workers benefits: The EI program also covers people working in seasonal industries or sectors and living and operating in impacted regions or areas.

Eligibility

Individuals must demonstrate the following to prove their eligibility for this insurance.

  • An individual must prove insurable employment and prove they did not lose their job due to their fault or mistake.
  • In case of job loss due to flooding or wildfire, individuals must be able to show their jobs were affected by these natural calamities.
  • They must demonstrate that they have been without work and pay for at least seven consecutive days in the last 52 weeks.
  • Applicants must prove they worked for the required insurable employment hours in the last 52 weeks or since their last EI claim started. These hours are determined per the locality and area the individual resides in, also factoring in the level of employment in the particular region.
  • Based on the unemployment rate, typically, an individual must have worked between 420 to 700 hours during the qualifying period to become eligible for regular benefits.
  • Applicants must communicate their willingness to work every day at full capacity.
  • They must submit records of their job applications, including employer names and interview timings to show they are actively seeking work.
  • To prove continued eligibility and receive timely payments, individuals must complete and submit bi-weekly reports online or by telephone. If this is kept pending, it will likely result in a loss of benefits.
  • Apart from the regular benefits, the EI program has separate benefits for fishers, farmers, teachers, self-employed people, and members of Canadian Forces, including those working outside Canada. The rules and eligibility criteria for such individuals differ from those discussed above.

Pros & Cons

The pros of this insurance are:

  • It is an important government initiative that benefits people facing social and financial challenges.
  • Such programs strengthen citizens’ faith in the government’s welfare mechanism.
  • It allows individuals to take time off to assess situations and analyze matters calmly.
  • The program is designed in a manner that ensures only eligible individuals who fit the criteria and have shown potential in the past are covered.

The cons of such insurance schemes are:

  • People may take financial assistance for granted, making little to no effort to change their situation.
  • This program is not funded by the government. Employers contribute to build this fund on behalf of their employees. This may be seen as a drain on employers’ finances.
  • In some areas where temporary assistance figures seem lucrative, people may prefer to stay unemployed to continue receiving the benefits.

Employment Insurance vs Unemployment Insurance

Employment and unemployment insurance are social welfare programs. However, they follow different criteria and systems. The key differences have been discussed below.

  • Employment insurance is a Canada-based temporary income support program for unemployed individuals. Unemployment insurance is a US-based insurance program.
  • Employment Insurance Canada is a central government program. Although the unemployment program in the US is administered by the US Department of Labor, it is mostly managed as a state-run program.
  • The compensation period of the Canadian employment program is longer than the US-regulated unemployment program. Depending on the state, the latter typically lasts only up to 26 weeks.
  • The Canadian EI program offers its citizens a wide range of benefits compared to the limited benefits extended under the US unemployment program.

Frequently Asked Questions (FAQs)

1. How to apply for employment insurance?

An individual can apply for employment insurance benefits through an online application form. Before doing so, they must check the eligibility criteria to verify if they qualify. If they do, signing up for direct deposits to receive the payments directly in their bank accounts is required within two business days.

2. How long does employment insurance last?

Based on two important factors, these regular insurance benefits last about 14 to 45 weeks. The unemployment rate in the area where the recipient resides and the number of insurable hours they have accumulated in the last year or 52 weeks since their last claim, whichever is shorter, is considered.

3. Is employment insurance federal or provincial?

Canada is a constitutional monarchy, and this insurance program is a federal program that applies to all states and provinces. However, the EI program has varying rules and regulations in different states and regions.

This has been a guide to What is Employment Insurance. We explain its benefits, eligibility, pros & cons, and differences with unemployment insurance. You can learn more about it from the following articles –

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