Modernizing Canada’s Employment Insurance (EI) Program: Consultations – The What we heard report (Phase 2)

Executive summary

The Government of Canada is committed to modernizing the Employment Insurance (EI) program. We consulted with Canadians in two phases. In April 2022, we published our report summarizing what we heard in Phase 1 (August 2021 to February 2022) of the consultations. The current report summarizes what we heard in Phase 2 (April 2022 to July 2022). Phase 2 focused on gathering input on:

• the adequacy of EI benefits
• the financing of the program
• supports for self-employed workers
• supports for workers in seasonal industries and
• the Premium Reduction Program

In Phase 2, we engaged with Canadians through 12 roundtables, 3 technical workshops, and an open call for written submissions.

The views expressed by stakeholders in Phase 2 were consistent with what we heard in Phase 1. Worker groups continued to express the need to prioritize increasing access to EI and noted that benefits are currently not adequate for meeting the needs of recipients, in particular for lower income workers. Employers cautioned that there should not be additional financial burden on businesses, in particular during the pandemic recovery period. They also re-iterated the importance of ensuring that the program incentivizes return to work especially in light of current labour shortages.

There were some points of convergence between employers, workers, and other groups. Many participants called for increasing flexibilities for how much an EI claimant can earn while receiving EI benefits (Working While on Claim rules) and improving the Premium Reduction Program so that it is simpler, more flexible and modernized with a digital application process. They also stressed the importance of ensuring coordination between:

• passive income support provided through the EI program; and
• active employment benefits and support measures to enable the return to work

Finally, they also requested that the government contribute to ease the cost of modernization. However, there were differing views on the principles and approach that should trigger government funding.

There was no consensus on the need for a separate income benefit for self-employed workers. Participants were generally more supportive of increasing access and flexibility for workers with some self-employment rather than establishing a new standalone benefit. If there were to be a separate income benefit, some labour groups and sectoral associations (for example, for arts and cultural workers) were more supportive of it being mandatory while employer groups and other sectoral associations (for example, for truckers) advocated for it to be voluntary.

There was recognition among worker and employer groups for the need to better define eligibility for seasonal benefit.

Overview

EI modernization

The Government of Canada is committed to modernizing the Employment Insurance (EI) program. The Minister of Employment, Workforce Development and Disability Inclusion has consulted with Canadians and stakeholders on the EI program. The consultations focused on what we need to do to build an EI system that better meets the current and future needs of workers and employers.

A crucial part in developing this modern EI system is gathering input from interested Canadians and EI stakeholders. After the government gathers and considers all the input, it will release its long-term plan for the future of the EI program.

About the consultations

We took a phased approach to consulting with Canadians to ensure that there was time to capture the best input possible on EI modernization.

Phase 1 (August 2021 to February 2022) focused on gathering input from interested Canadians on:

• the changing nature of work
• access to EI
• simplifying EI
• self-employed and gig workers
• life events
• seasonal work, and
• the Premium Reduction Program (PRP)

We published a report summarizing what we heard during this first phase in April 2022.

Phase 2 (April 2022 to July 2022) focused on gathering input on the adequacy of EI benefits and the financing of the program. It also took a deeper dive into areas discussed in Phase 1 that required additional examination. This included supports for self-employed workers and workers in seasonal industries and the PRP.

We have also engaged provincial and territorial officials and national Indigenous organizations as part of these consultations.

The second phase

The second phase of the consultations is now complete. During this phase, we heard from Canadians in the following ways:

• Targeted stakeholder roundtables: 12 national and regional roundtables were jointly hosted by:
  • the Minister of Employment, Workforce Development, and Disability Inclusion or her delegates or departmental officials
  • the Commissioner for Workers, and
  • the Commissioner for Employers

More than 100 stakeholders participated from across the country representing:

• workers
• employers
• unions
• industry groups
• academics
• labour market experts
• other key stakeholders, including:
  • self-employed and gig worker associations
  • community advocacy groups, and
  • health organizations

See Annex A for list of roundtable participants.

Targeted workshops: We held 3 technical workshops with experts on the self-employed and gig workers, seasonal work and EI financing.

Written submissions: More than 90 individuals and organizations provided written submissions on various aspects of EI modernization. See Annex B for a summary of who submitted written submissions.

What we heard – key takeaways

In this section we summarize the views from those who participated in the second phase of the consultations. The key takeaways should not be projected as representative of the entire Canadian population or of all Employment and Social Development Canada stakeholders and partners.

You should read this report alongside the Phase 1 report. Overall, the views expressed by stakeholders in Phase 2 were consistent with what we heard in Phase 1. As such, we will limit repeating issues discussed in the Phase 1 report.

Worker groups prioritized the need to increase access to EI. They noted that benefits are currently not adequate for meeting the needs of recipients, in particular for lower income workers. Employers cautioned that EI modernization changes should not place additional financial burdens on businesses. This is particularly important during the period of economic recovery from the COVID-19 pandemic. They also re-iterated the importance of ensuring the system maintains incentives to return to work, especially in light of current labour shortages. There was general support from all stakeholders for:

• the government making financial contributions to ease the costs of modernizing EI
• increasing flexibilities for how much an EI claimant can earn while receiving EI benefits (Working While on Claim)
• ensuring coordination between:
  • EI Part I (which provides for passive income support through benefits for people temporarily out of work), and
  • EI Part II (which provides for active employment benefits and support measures to enable unemployed people to return to work)
• improving the Premium Reduction Program (PRP)

Adequacy of EI benefits

One of the goals of EI modernization is to make sure that EI benefits adequately provide for the workers who rely on them during temporary periods of unemployment or when facing specific life events. The adequacy of EI benefits is determined by how much is provided and how long benefits are available to the claimant.

How much support EI should provide

An EI claimant’s weekly EI benefit is calculated by multiplying their average weekly insurable earnings by the EI replacement rate. The replacement rate is set out in the Employment Insurance Act at 55%, and is the percentage of a claimant’s average weekly insurable earnings that is payable to them on a weekly basis.

Average weekly insurable earnings are calculated according to the Variable Best Weeks provisions that take the claimant’s highest weeks of earnings within the qualifying period. The number of weeks taken into account vary from 14 to 22, depending on the unemployment rate in the EI region where the claimant lives at the time a claim is established (the number of weeks used increases as the unemployment rate decreases). The number of weeks used to calculate these average weekly insurable earnings is also known as the divisor.

Many participants voiced concerns that EI benefits are inadequate. They expressed that the current replacement rate is at a historical low and provides insufficient weekly benefit amounts for low- and middle-income unemployed individuals. Labour groups and some academics commonly suggested to increase the replacement rate to 66.67% or 75% for all claimants. Some labour groups also recommended that a lower divisor, such as 12 weeks, apply to all regions of Canada, regardless of the unemployment rate.

Some stakeholders also proposed the replacement rate for special benefits be made higher than for regular benefits since the intent of these benefits is different. Regular benefits support the unemployed to return to work while special benefits enable people to take time away from work for specific life events.

Labour groups also suggested an increase to the Maximum Insurable Earnings (MIE) as a means of providing more adequate benefits. The MIE is the maximum annual income insured under the program ($60,300 in 2022). It is also the threshold up to which workers and employers pay EI premiums. Consequently, the MIE determines the maximum weekly benefit amount that claimants can receive for all types of EI benefits ($638 in 2022). A common suggestion was to increase the MIE to match the MIE of the Québec Parental Insurance Plan, which is $88,000. It was also suggested that it could be increased up to $100,000. This would result in both higher premiums for those who earn more than the current MIE and a higher maximum weekly benefit amount for all claimants.

Some labour and community groups suggested increasing premiums for workers with higher earnings in return for higher benefits. They suggested higher income workers would be willing to pay higher premiums if it meant they would receive higher benefits if they became unemployed. They also suggested that there should be a guaranteed minimum benefit amount (or benefit floor) for anyone who qualifies for EI of around $300 to $500 a week. This benefit floor would match the minimum amount in EI benefits that the government provided during the pandemic on a temporary basis. Labour and community groups suggested that the creation of a permanent EI benefit amount would better enable lower-paid workers to subsist on the weekly amount.

Some participants also suggested changes to the family supplement. The family supplement is a top-up targeted to unemployed low-income EI claimants with children under the age of 18. It is available to claimants of all benefit types. They suggested the government increase and expand the supplement, which has not been indexed over time. This would provide better support to workers, including to lower income workers. Other participants however noted that the family supplement is outdated having been put in place before the Canada Child Benefit. Some participants noted that the supplement is based on household rather than individual income, which disadvantages low income individuals, and in particular women. They noted that there are other federal supports that better meet the needs of low-income families.

Employers cautioned that increasing and varying the replacement rate would increase program costs, which could result in higher premiums for employers and employees. Employers also did not support increasing the MIE or increasing the duration of benefits. They were generally concerned that increasing the benefit amount may be a disincentive to a rapid return to work and could also exacerbate the current labour shortage. In addition, employers recommended that there be increased enforcement and investigation measures of EI claimants. They also asked for the government to increase targeting efforts to match EI claimants to job opportunities.

How long EI should provide support

How long EI is provided to workers currently varies by benefit type. For EI special benefits, a set number of weeks are available to claimants depending on the benefit type, provided claimants have the number of insurable hours required and meet all other qualifying and entitlement conditions. For EI regular benefits, a claimant can receive them for a minimum of 14 weeks up to a maximum of 45 weeks. The number of weeks depends on:

• the unemployment rate in the region where they live, and
• the number of insurable hours accumulated during their qualifying period

The qualifying period is usually the 52 weeks prior to establishing a claim. Workers living in regions with higher unemployment rates have access to a longer duration of EI regular benefits. This is because these workers could face a higher likelihood of layoff or sporadic employment. They may also have more difficulty securing a job than workers in regions with lower unemployment rates.

Labour groups recommended increasing the duration of EI regular benefits. A common suggestion was to increase it to around a 50-week maximum in all regions. Some employer groups expressed concerns with de-linking unemployment rates from EI duration and increasing the maximum number of weeks of regular benefits. They worried it may affect a rapid return to work. They were concerned that this could also lead to higher premiums.

“The current benefit rate of 55% of weekly insurable earnings has many consequences for claimants and their families. The inadequacy of the rate causes a decline in the living conditions of workers who become unemployed. (...) Thus, a state of involuntary unemployment can be catastrophic for a household.” (translation)

Written submission from organization

“We cannot and should not expect EI to address all of the labour market related issues faced by low-income workers.”

Participant in roundtable

EI financing

The financing of the program is based on a sustainable model that ensures stable and predictable premium rates for Canadian workers and employers. The program is financed through contributions paid by employers and employees up to the MIE income threshold. Employers currently pay 1.4 times the employee premium rate for each of their workers. The EI premium rate is set each year by the Canada Employment Insurance Commission based on a forecasted 7-year break-even cycle. Annual changes to the premium rate are subject to a legislated limit of 5 cents. Under the current EI financing mechanism premiums increase when there is increased use of program, resulting in benefits paid to more workers. They also decrease when the labour market is strong and there is less demand for EI benefits and fewer claimants.

Overall, participants agreed that EI needs to function as an economic stabilizer during economic downturns. Some participants suggested that the premium rate setting mechanism should be changed, and some proposed that the increases in EI premiums should not happen when there is a recession.

Proposals for reforms to the EI financing model included:

• separating how regular, special and Part II benefits are funded. Some argue that premiums from employers and employees should not fund special and Part II benefits. Some employer and employee group representatives indicated that special benefits provide support for program objectives outside of the core basic insurance principles of the program (that is to say, supporting workers who become unemployed) and partial or full funding of those benefits by the government would reduce funding pressure on the EI Account
• creating a reserve fund to respond to increased costs during economic downturns

Some participants also suggested applying an experience rating, whereby premiums are set based on a claimants past interactions with program.

Participants also suggested that the EI program is not recession-ready, especially given the current state of the deficit in the EI Operating Account following the pandemic. Some participants suggested that we need reforms to better counter recessions which may arise in the future. There were calls for the government to contribute to the program and return to a tri-partite model. Views differed on the principles and approach that could trigger government funding.

The most common suggestions to make EI more recession-ready were:

• raising the MIE to increase program revenues. This suggestion was also favoured by worker groups because it would increase the maximum weekly benefit for all claimants
• requiring government contribution to EI to reduce risk when there is a recession, for example by tying government funding to significant changes in the unemployment rate

Some employer groups suggested that the government should pay off the current deficit, incurred as a result of the temporary measures brought forward during the pandemic. Several employers noted that the government should undertake a proper cost and benefit analysis of any proposed reforms to EI.

Employer groups also called for changing the employer-employee EI contribution ratio. They suggested a 50:50 shared model rather than the current model where employers pay 1.4 times in premiums what employees do.

“Cost predictability is essential for employers and employees. Fluctuations in premium rates are difficult to manage for employers and may have significant impacts for employees.”

Written submission from organization

“An EI program properly fit to meet the needs of the labour force and realities of the 21st Century labour market will require sustainable, improved and more appropriate funding.”

Written submission from organization

Self-employment and gig work

Phase 1 of the consultations explored the topic of supports in times of financial hardship for self-employed and gig workers. Participants in those discussions broadly recommended further review given the complexity of the issue. In Phase 2 of the EI consultations, participants had more in-depth discussions on enhancing flexibilities in the existing program for self-employment and gig work. They also discussed the design of a potential income support for self-employed workers.

Similar to input received during Phase 1, we heard that workers who are classified as self-employed are a diverse group with divergent income support needs. We also heard from labour groups representing workers in different sectors that there is a need to address what they perceived as the misclassification of some workers as self-employed. In their view, this would help improve access to EI for a greater number of workers.

Participants were generally more supportive of increasing access and flexibility for workers with some self-employment rather than establishing a new standalone benefit. In particular, they supported enhancing flexibilities for workers in “mixed employment”. These workers receive income and pay EI premiums from a job where they are in a traditional employer-employee relationship, while also from some form of self-employment. Often these workers who combine different types of work (that is to say independent contract supplemented by insurable employment), do not accumulate enough hours to qualify for EI, or if they do qualify for EI when they experience an involuntary interruption of work, they may not be able to pursue self-employment activities and keep their EI benefits due to current rules requiring availability and search for traditional work.

There was no consensus on the topic of a separate income benefit for the self-employed and gig workers. If the government established a new benefit, some labour groups and sector associations (for example representing artists and cultural workers) were more supportive of it being mandatory. Business and employer groups as well as other sectoral associations (for example trucking) however were more supportive of a voluntary benefit. These groups noted that many workers choose to be self-employed knowing that while there are greater financial risks compared to traditional employment, there is also the potential for greater financial reward. In most cases the individual worker should be responsible for managing these risks. Business and employer groups also noted that the circumstances of the pandemic were exceptional. It created the need for immediate income support for self-employed workers, but because this was an exception, they were not supportive of a permanent program for the self-employed.

Participants also emphasized the unique nature of work for those who are self employed. In many cases, it is not easy to define income, or to determine the beginning and ending of employment. This makes it challenging to fit into a benefit program such as EI. A number of organizations representing artists and cultural workers raised the unique nature of their work. They noted the lack of social supports available to them to continue to pursue careers in arts and culture. Many self-employed artists and cultural workers spoke to:

• unpaid preparation work between contracts
• the low wages in the sector
• challenges of income volatility
• having limited control over hours of work, and
• gaps in income between contracts with fixed start and end dates

The Quebec Parental Insurance Plan was flagged as a possible model for the special benefits program for the self-employed. Some worker stakeholders suggested that access to special benefits should be made mandatory similar to the Quebec Plan and if this was not possible, that there should be auto-enrollment for self-employed to access special benefits with the possibility of opting out. Some stakeholders representing self-employed workers and employers called for more and better information to increase awareness and the voluntary opt in for EI special benefits for the self-employed.

“It is an outdated, antiquated system that is focused on those classified as ‘employees.’ When EI was established, it was focused on employees that had been with companies for years, sometimes decades. A reclassification of what an employee is would begin to repair the damage done to the self-employed, ‘gig economy’ workers.”

Written submission from organization

“No issue with there being income support during times of extreme economic shock but do not believe this should be part of an EI program which is meant as insurance for temporary, unexpected job loss. We are in a period of low unemployment and labour shortages. EI principles point to not being a disincentive to work or labour mobility. If we layer on self-employed, for example, we move away from these fundamental objectives.”

Participant in roundtable

Seasonal work

Workers in seasonal industries are regularly employed in the same industry, but only for part of the year. Seasonal work is present in all parts of Canada, and is an integral component of many local economies. For many of these workers, EI benefits are an important source of income in the off-season when work in seasonal industries is not available. However, some workers in seasonal industries face challenges. Some have trouble finding enough work to accumulate enough insurable hours to qualify for EI regular or special benefits. For others, the weeks of EI that they are entitled to may not be sufficient to bridge the period between the seasonal lay-off and their return to seasonal work. In this case, if the claimant is unable to find other work in the off-season, they experience an income gap.

In Phase 1, labour groups and employer groups emphasized that workers in seasonal industries are an important asset to seasonal industries and the regions where these employers are located. There was also general support for a special measure to support these workers similar to the current temporary seasonal measure(an additional five weeks of regular benefits for workers who live in 1 of the 13 targeted regions), although some worker groups also asked to increase beyond 5 weeks.

A challenge in designing a measure for workers in seasonal industries is defining seasonal work. In Phase 2, worker and employer groups recognized that these workers needed to be better identified in order to better support the workers and the industries. Common suggestions raised by stakeholders included:

• classifying employees as seasonal based on their industry, or
• identifying seasonal lay-offs in the Record of Employment, or
• developing a registry of seasonal employers maintained by the EI Commission

Workers and employers also generally recognized that workers in seasonal industries may need a longer duration of benefits. Worker groups suggested that there should be a minimum duration of benefits of at least 35 weeks for those employed in seasonal industries. Employers also recognized need for longer duration. However, they noted regional variation on number of weeks of EI benefits is important to support responsiveness to regional labour market realities.

Worker groups in Phase 2 reiterated their support for making the current temporary seasonal measure permanent, in combination with other universal measures to increase the access and adequacy of benefits, such as:

• a common entrance requirement
• a higher replacement rate, and
• a standardized number of best weeks to determine the average weekly insurable earnings

Participants suggested expanding flexibilities under the Working While on Claim rules to allow workers to keep more earnings before reducing EI benefits. Employers saw this as a useful tool. It incentivizes workers to work in the shoulder- and off-seasons and retains experienced employees in those industries. Worker groups also raised the need for more for flexibility for claimants to try a job while on claim in the off-season and quit without penalty.

Some economists expressed concern that EI is limiting productivity and economic development in areas with highly seasonal regional economies. They called for incremental changes towards less regional EI policies. They suggested that we should consider EI as just one policy tool among many to support workers in seasonal industries. In addition to proposing changes to existing rules, the government should consider the role of EI relative to other existing or potential policies. They suggested we reconsider how we finance supports for seasonal claimants given their usage of EI. They proposed greater contributions from higher-income workers or experience-rating mechanisms for employers / workers in seasonal industries as alternate approaches.

“Seasonal work should not be punished due to the nature of the work, we need to acknowledge all seasonal workers and support them.”

Written submission from organization

“There are jobs that seasonal workers can take during their off seasons to help the economy and ease the strain on the EI system. Reforms should be introduced to encourage that.”

Written submission from organization

Premium Reduction Program (PRP)

The PRP allows employers to apply for a reduction of EI premiums if they offer income-protection coverage to employees. They can do this through a short-term disability plan that is similar to EI sickness benefits. Employer-sponsored short-term disability plans can reduce the financial and administrative load on the EI program and the EI Operating Account. For this reason, employers are offered a premium reduction who offer such plans.

During Phase 1 of the consultations, stakeholders proposed several recommendations on how to improve the PRP, centering on two main themes: accessibility/awareness and flexibility.

In Phase 2, participants provided additional suggestions on how to simplify the program conditions. Employer groups told us that the program is complex in part because of the complicated process to meet the program requirements. They recommended that the process to meet the requirements be easier, including more comprehensive guidance, as well as taking on an attestation approach for applications and allowing third parties to assist organizations with their applications. They also noted that the PRP savings need to outweigh the administrative costs of applying to the program.

Participants reiterated that awareness of the program is low. They also noted that many small employers view current short-term disability plans as being too expensive, even with the incentive of reduced premiums.

As in Phase 1, participants suggested that the program allow for other types of benefits to be eligible for a premium reduction. This includes long-term disability plans and paid sick days.

On the question of the financial incentives to participate in the program, employer groups told us that employers perceive the requirement to redistribute 5/12 of the premium reduction to employees as unfair, burdensome and costly. In Phase 1, we also heard that employees would like to see more transparency on how their share of the premium reduction is managed.

Finally, stakeholders repeated the request made in Phase 1 to add a transition period to the program should reforms be made to the PRP. This would allow employers enough time to make adjustments.

“The Premium Reduction Plan application should be transformed into a completely digitized and simplified process. The government should also explore digital administration opportunities, including attestations from employers that their plans meet the program guidelines.”

Submission from organization

Other issues

Stakeholders raised many of the same issues described in the Phase 1 What We Heard report on the themes of:

• incentives to work and training
• migrant workers
• the delivery and oversight of benefits, and
• the board of appeal and tripartite management

In addition, a few stakeholders wrote in about supporting families after the loss of a child who are unable to return to work because of grief. In particular they suggested the program allow parents who lose a child while on parental leave to use the remainder of their leave instead of having to transition to sick leave.

“Those who lose a child who passes away suddenly are in no way prepared to go back to work after such a tragic loss.”

Submission from individual

Next steps

During the consultations, many participants across Canada and across sectors agreed that the EI program needs to be modernized. We heard that we need a program that works when unemployment is high as well as in times of labour shortages. We heard that we need a program that is simpler and more accessible. Building on the views expressed during the consultations, the government will be releasing a long-term plan for the future of EI in the coming months.

Annexes

Annex A – List of roundtables and participants

Annex B – Profile of stakeholders providing written submissions

We received 93 submissions as part of Phase 2 of the consultations.

Table 1: Profile of stakeholders providing written submissions