Budgeting and Cash Flow

Budgeting and Cash Flow

Employment Insurance (EI) Premiums

For employees, EI deductions are mandatory, like with CPP. There is no minimum income amount like the $3500 for CPP, and EI will be deducted regardless of age or money earned. Like CPP, these contributions are divided into an employer portion and an employee portion. The employer portion is paid by the company you work for and is not taken from your salary or visible on your pay stub. The employee portion will come from your annual salary and would not be available for spending. For the year 2021, the rate of the employee portion is 1.58%. This rate may change each year so you would have to check the government sources to obtain the current rates. For EI, the maximum annual salary for contribution calculations is the maximum annual insurable earnings. For 2021, this maximum amount is $56,300. For a sample calculation, if your income is $80,000 per year, the EI contribution you would pay each year is equal to: $56,300 x 1.58% = $889.54 per year. If you make $40,000 per year, contributions would be applied to your entire salary and be equal to: $40,000 x 158% = $632 per year. If you make less than $2000 on a T4 slip and have no self-employment earnings, you would not pay EI premiums.(5)

Timing and Multiple Jobs

These concepts apply to EI as well as to CPP, and you contribute too much to EI for multiple employers. This would be reconciled on your tax return and you would be refunded any amounts overpaid for EI contributions. There would also be a bump in your take home pay when EI contributions stop during the year if your gross income exceeds the maximum annual insurable earnings for the year.

EI For the Self-Employed

EI for the self-employed is not mandatory but it is optional. However, once a self-employed person opts into EI they may not opt out again. It is sometimes opted into for cash flow management during maternity leave or for possible compensation due to injury, illness, or for compassionate care of a dying relative. If you have opted into this program, account for the EI deductions as part of your mandatory deductions. See this link for more information.

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