2016 Employment Insurance Premium Rate

Summary of the Actuarial Report on the Employment Insurance Premium Rate

Pursuant to section 66.31 of the Employment Insurance Act, the Canada Employment Insurance Commission (the Commission) is pleased to present the following summary of the results of the Actuary’s Report prepared by the Commission’s Chief Actuary, Employment Insurance (EI) Premium Rate Setting, in respect of the 2016 EI premium rate.

Context

The global recession led to an increase in EI benefit expenditures over a relatively short period of time. As a result, the EI Operating Account, which records all amounts received or paid out under the Employment Insurance Act, reached a cumulative deficit of $9.2 billion in 2011.

However, since 2012, the EI Operating Account has been recording annual surpluses as falling unemployment over the economic recovery put the Account on track to return to cumulative balance.

In September 2013, the Government took steps to ensure the affordability, predictability and stability of EI premium rates by freezing the 2014 rate at the 2013 level of $1.88, and legislating the 2015 and 2016 rates at that amount. As a result, the EI Operating Account is expected to return to cumulative balance in 2015. This approach is consistent with the principle of breaking even over time.

In September 2014, the Government announced the introduction of the Small Business Job Credit for 2015 and 2016. This new credit effectively lowers small businesses’ EI premiums from the legislated rate of $1.88 to $1.60 per $100 of insurable earnings in each of these years. This credit is expected to save small businesses more than $630 million in EI premiums over 2015 and 2016.

Beginning in 2017, the EI Commission will assume responsibility for setting the annual EI premium rate. The Commission will set the premium rate each year based on the seven-year break-even rate, which is a rate determined by the EI Chief Actuary that is expected to result in a balance of $0 in the EI Operating Account in seven years, including the elimination of any cumulative surplus or deficit in the Account as of December 31, 2016. After the seven-year rate setting mechanism comes into force, annual adjustments to the rate will maintain the current legislated limit of five cents, with the exception of 2017, when there will be no limit on how much the rate can decline. The rate is projected to drop significantly in that year.

To ensure continued transparency and accountability in the rate setting process, the EI Chief Actuary is required to submit to the Commission an actuarial report on the EI premium rate for the year. In turn, the Commission is required to prepare a summary of that report and make both the actuarial report and its summary publicly available. In addition, the EI Act requires the Minister of Employment and Social Development to table in Parliament the Actuary’s report and the Commission’s summary report within 10 sitting days of September 14th.

In addition to its reporting obligations, the Commission is also responsible for the annual Maximum Insurable Earnings (MIE), as well as the premium reductions related to the Quebec Parental Insurance Plan (QPIP) and employer wage-loss plans under the Premium Reduction Program (PRP).

The legislative provisions of the Department of Employment and Social Development Act require the Commission to engage the services of a Fellow of the Canadian Institute of Actuaries who is an employee of the Office of the Superintendent of Financial Institutions (OSFI) to perform the actuarial forecasts and estimates for the purposes of EI premium rate setting.

On March 14, 2013, Mr. Michel Millette was appointed as the Commission’s Chief Actuary, EI Premium Rate Setting. Mr. Millette, who is a fellow of the Canadian Institute of Actuaries and of the Society of Actuaries, is a managing director at OSFI with over 30 years of actuarial experience, including recent experience working on the EI program and premium rate setting.

The Canada Employment Insurance Commission

The Commission is a departmental corporation of the Department of Employment and Social Development Canada (ESDC) and plays a key role in administering the EI program, including through the making of regulations, with the approval of the Governor-in-Council, and reviewing — as well as approving — policies related to EI program administration and delivery. In addition to its role in EI premium rate setting, the Commission produces the annual EI Monitoring and Assessment Report in order to monitor and assess the impact and effectiveness of the benefits and other assistance provided for in the Employment Insurance Act for individuals, communities and the economy.

The Commission is a tripartite organization that has been overseeing the EI program for 75 years. The Commission has four members, three of whom are voting members representing the interests of workers, employers, and government. The Commissioner for Workers and the Commissioner for Employers are appointed by the Governor in Council for terms of up to five years. They are mandated to represent and reflect the views of their respective constituencies. The Deputy Minister of the Department of ESDC, representing government, acts as the Chairperson, while the Senior Associate Deputy Minister of the Department of ESDC and Chief Operating Officer for Service Canada acts as the Vice-Chairperson and has voting privileges only when acting on behalf of the Chairperson.

Summary of Actuary’s report

Pursuant to section 66.31 of the Employment Insurance Act, this summary presents the results of the EI Chief Actuary’s report in respect of the 2016 EI premium rate. In accordance with the legislation, the actuarial forecasts and estimates included are for the purposes of the calculation of the EI premium rate, the annual MIE, as well as the premium reductions related to the QPIP and employer wage-loss plans under the PRP.

Premium rate for 2016:

  • Section 66 of the Employment Insurance Act requires a premium rate to be set annually to ensure that EI cumulative revenues and expenditures break even after December 31, 2008, until the end of the year in question, subject to a five-cent limit on year-to-year changes.

    However, the Economic Action Plan 2013 Act, No. 2 Footnote 1 , amended the EI Act to set the EI premium rate for 2015 and 2016 at $1.88 per $100 of insurable earnings.
  • The break-even EI premium rate for 2016 is forecast to be $1.56 per $100 of insurable earnings. The break-even premium rate is the rate that would generate just enough premium revenue to cover the cost of program expenditures, and achieve a cumulative balance of $0 in the EI Operating Account.

QPIP premium reduction:

  • The Employment Insurance Act and Regulations provide for premium reductions for residents of a province that administers its own insurance plan for the payment of special benefits, whereby those provincial benefits replace federal EI benefits. As a result, EI premium rates are lower for residents of Quebec, because the province of Quebec administers its own parental insurance plan, known as the QPIP, which is financed by Quebec workers and their employers. The 2016 QPIP reduction is 36 cents, meaning the maximum premium rate that could be set for residents of Quebec in 2016 is $1.52 per $100 of insurable earnings.

Maximum insurable earnings:

  • Section 4 of the Employment Insurance Act provides for the annual calculation of the MIE, which is the maximum annual amount of employment income on which EI premiums are paid by workers and their employers and for which benefits may be paid. The MIE for 2016 is $50,800, up from $49,500 in 2015.
  • The MIE is indexed to the annual percentage increase in the average weekly earnings of the industrial aggregate in Canada, as published by Statistics Canada, to ensure that the level of income insured maintains its relative value.
  • As a result of the MIE and premium rates for the year, the maximum amounts of premiums paid by workers and employers (per employee) for 2016 are shown in the table below.
Premium rate (per $100 of insurable earnings) Maximum employee Premium Difference in maximum employee premium from 2015
Workers $1.88 $955.04 +$24.44
Employers $1.88 x 1.4 = $2.632 $1,337.06 +$34.22
Workers in Quebec $1.52 $772.16 +$9.86
Quebec employers $1.52 x 1.4 = $2.128 $1,081.02 +$13.80

The self-employed:

  • Self-employed individuals that have opted into the EI program in order to access EI special benefits pay the same premium rate as salaried employees and pay premiums up to the MIE.
  • Eligibility for benefits is a key feature of the EI program and ensures that those who receive benefits have a minimum level of attachment to the workforce. Pursuant to section 152.07 of the Employment Insurance Act, a self-employed person who opted into the EI program may qualify for EI special benefits providing they meet prescribed requirements, which includes a minimum amount of self-employed earnings. For 2016, the prescribed amount of self-employed earnings is $6,820.
  • The level of earnings required by self-employed persons to be eligible for special benefits is indexed annually to the growth in the MIE to ensure that the level of self-employed earnings required to be eligible for special benefits maintains its relative value over time.

Premium Reduction Program:

  • The Employment Insurance Act and Regulations also provide for premium reductions for employers who provide their employees with qualified wage-loss plans that meet certain requirements and reduce EI special benefits payable. There are four categories of qualified plans, and for each category a rate of reduction is calculated annually. The corresponding rates of reduction reflect the average rate of savings for EI generated by plans in each category. This is administered through the PRP.

In 2016, it is estimated that the reductions will provide registered employers and their employees with $915 million in premium relief. The premium reductions are shown in the table below. Employers registered in the PRP will be notified individually, as individual premium reductions may vary.

  • There are approximately 31,800 employers registered in the PRP, covering $287 billion in insurable earnings.
Category 1 Category 2 Category 3 Category 4
Premium reduction (per $100 of insurable earnings) $0.20 $0.35 $0.34 $0.37

EI Operating Account projections:

  • Based on the premium rates described above, the EI Operating Account is projected to record an annual surplus of $3.3 billion for 2016. As a result, the cumulative surplus in the Account is forecast to be $4.7 billion as of December 31, 2016. Forecast EI revenues and expenditures for 2016 are shown in the table below.
EI premium revenues (millions) EI benefit expenditures (millions) EI Operating Account annual surplus (Deficit) (millions) EI Operating Account opening cumulative surplus (deficit) as of December 31, 2015 (millions) EI Operating Account closing cumulative surplus (deficit) as of December 31, 2016 (millions)
$24,265 $20,921 $3,344 $1,336 $4,680
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