Digest of Benefit Entitlement Principles Chapter 24 - Section 7

24.7.0 Earnings arising from self-employment

With an employer-employee relationship, workers who require special benefits commonly take a period of leave without pay from their employment. The reality for the self-employed, however, is that regardless of their need for special benefits, the business may be required to continue or it could face risk of closure. The business of farming is an example where, despite an illness, the farm must be maintained. Accordingly, it is not required that self-employed persons completely cease their self-employment activities in order to be eligible, but demonstrate a reduction in the time devoted to their business activities by more than 40% of the normal level and then continue to experience a week of unemployment (EIR 30.1; section 24.3.2 of the Digest).

Therefore, it follows that self-employed workers who continue to perform some work during their claim will also generate income from their business during the same period for which they are seeking special benefits. In some cases even though the self-employed person ceases to perform any work, the business may still continue to generate income for them and this income must be considered when determining the amount of benefits payable.

Employment Insurance Regulation 35 lists what constitutes earnings to be deducted from any benefits payable to a claimant. Self-employment earnings for benefit purposes includes the entire income of a claimant arising out of any employment.

Any income generated from self-employment, be it from the performance of service, a transaction or any other combination thereof, including profits, commission and farming subsidies, are deducted from benefits (EIR 35(2)). Earnings nullify the financial loss incurred by the claimant, so in order to prevent double indemnification, these benefits and advantages are deducted from benefits.

The sole consideration in determining whether income is earnings for EI purposes lies in the relationship of that income to employment. If there is no direct correlation to employment, income earned by a claimant who requests EI benefits will not be deducted from benefits. For example, lottery winnings are not considered earnings since they are gained from luck, not work. Likewise, inheritance monies or capital gains from the sale of a personal home or cottage bear no link to employment and so are not earnings for EI purposes.

The income of a self-employed claimant, including farmers, is the amount remaining after deducting the operating expenses excluding capital expenditures.

Employment Insurance Regulation 36(6) explains where to allocate self-employment earnings in a benefit period. The provision makes a distinction between allocating earnings arising from the performance of service, or resulting from a transaction, as well as earnings that arise from neither, such as participation in profits or commissions. Exceptionally, earnings for self-employed fishers are determined and allocated based on the Employment Insurance (Fishing) Regulations.

Further details on all elements of the determination and treatment of self-employment earnings are contained in section 5.16 of the Digest.

24.7.1 Earnings deducted from benefits

Earnings must be declared (EIA 152.18(3)) and will be deducted from EI benefits received at a rate of 50 cents of EI benefits for every dollar earned or received while on claim, up to a maximum of 90% of the weekly earnings used to establish the EI benefit rate. Any earnings above this threshold are deducted dollar for dollar from benefits (EIA 152.18(2)).

24.7.1.1 Earnings in the Waiting Period

If a self-employed person has earnings during their waiting period, an amount not exceeding those earnings shall, as prescribed, be deducted from the benefits payable for the first three weeks for which benefits would otherwise be payable (EIA 152.18 (1)).

24.7.1.2 Examples

Self-employment earnings and sickness benefits

Mark is a self-employed IT consultant who works on contract. Mark registered with the EI program so he could access EI special benefits if needed. Some years later, Mark falls ill and is unable to continue working. He applies for EI sickness benefits. His benefit rate is set at $562 weekly. Mark receives the final payment of $1,200 for the last contract that he had completed before he became ill. Since he provided services over an 8-week period before he became ill and the start of his EI claim, the amount of his EI benefits is unaffected by the $1,200 payment.

Self-employment earnings and parental benefits

Anne and her son Louis are co-owners of a campground. According to their partnership agreement, they divide the annual revenues equally between them. Anne and Louis registered with the EI program so they could access EI special benefits if needed.  Eighteen months later, Louis' wife gave birth to a child and Louis was eligible for 35 weeks of parental benefits. While Louis is no longer working, the business continues to generate income. In accordance with their partnership agreement, Louis continues to be entitled to half of the partnership's net income while he is on parental leave. During the week of July 8-14, Louis earned $300 in net income from camping services rendered. Earnings are deducted at a rate of 50 cents of EI benefits for every dollar earned during the week where services were rendered. Therefore, since 50% of his net self-employment earnings of $300 is $150, $150 will be deducted from his benefit rate for the week of July 8-14.

Self-employment earnings and maternity, parental benefits

Simone is a real estate agent. Her income consists solely of commissions from the sale of houses. Simone registered with the EI program so she could access EI special benefits if needed.  Some years later, Simone has her first child and applies for maternity benefits. She is entitled to 15 weeks of maternity benefits and is claiming 61 weeks of extended parental benefits. Her benefit rate is calculated at $562 per week for maternity benefits and $337 per week for extended parental benefits. On September 9, a house listed by Simone before she left on leave sells and her net commission on the sale is $6,500. The amount of the commission is allocated to the weeks in which the work that gave rise to the transaction was performed, in other words, over 21 weeks (from the date of the listing until September 9). The amount to be allocated to each of the 21 weeks is $310 ($6,500 ÷ 21 weeks). Earnings are deducted at a rate of 50 cents of EI benefits for every dollar earned during each week in which the work that gave rise to the transaction was performed. Therefore, since 50% of her allocated net self-employment commission earnings of $310 is $155, $155 will be deducted from her weekly benefit rate for that period.

Self-employment earnings and compassionate care benefits

Eric is a self-employed farmer who works year-round on his farm growing barley, wheat, and canola. Eric registered with the EI program in April 2018 so he could access EI special benefits if needed. In September 2019, Eric's mother becomes gravely ill with a significant risk of death within 26 weeks. He applies for EI compassionate care benefits and based on the medical certificate he provides, is entitled to the maximum 26 weeks of benefits. His benefit rate is established at $212 a week.  On October 17, 2019, Eric sells some of his barley, resulting in net farming earnings of $1,900 that are allocated to the weeks in which the work that gave rise to the transaction was performed. Since the work was performed from March 29 to August 19, 2019, his EI benefit amount is not affected by this transaction.

24.7.2 Earnings arising from insured employment

A self-employed person may also be employed in insured employment with an employer. Income arising from this type of work is also considered earnings (EIA 152.18(2); EIR 35(2)).

Any compensation received for the loss of employment, as well as any wages, salary and any other pecuniary or non-pecuniary benefits related to, attached to, or arising out of employment are deducted from benefits.

Chapter 5 of the Digest provides details on the determination and allocation of these earnings.

24.7.3 Pension earnings

Some pension benefits are considered earnings for EI purposes, such as periodic benefits, lump sum payments, and locked-in pensions. There are other types of pensions that are not considered earnings for EI purposes such as disability pensions, old age security and supplements. Details on the treatment of pensions are found in section 5.13.0 of the Digest.

[November 2023]