Employment Insurance and the various types of earnings
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You should know
Earnings paid or payable at the end of your employment or during your benefit period may affect the amount of benefits you receive. Some earnings paid or payable upon separation can:
- delay the start date of your claim
- delay the 1-week waiting period to serve
- delay the date on which you begin receiving benefits
- reduce the amount of benefits you receive
- extend your benefit period
Section 35 of EI Regulations determines what income is considered earnings, while section 36 of EI Regulations sets out how those earnings are to be allocated.
Several types of earnings may be paid or payable upon separation from employment or during a benefit period. Earnings can also be paid for different reasons. You can refer to the earnings chart to find out if a payment is considered earnings for benefit purposes and, if so, how those earnings are deducted from benefits.
Various types of earnings
Earnings are any amount paid or payable that's related to or has originated from employment, such as:
- wages or salary and commissions
- monetary employment benefits, such as:
- vacation pay
- severance pay
- wages in lieu of notice
- retirement pension
- statutory holidays, or
- all other employment benefits, monetary or otherwise, such as:
- meals, or
- insurance coverage
- self-employment income
Compensation received after losing your employment or from other sources may also be considered earnings for benefit purposes, for example:
- certain workers’ compensation benefits, or
- group wage-loss insurance
However, other moneys and payments for benefits not related to employment don't constitute earnings for benefit purposes, for example:
- refund of Goods and Services Tax (GST)
- alimony payments
- lottery winnings, and
Earnings paid or payable
Earnings are "paid" when:
- you’ve received and accepted the payment. This includes amounts directly deposited to your bank account or used to satisfy a debt of yours
- you’re expecting the payment to be in your possession shortly, usually by the next scheduled pay date
- wages and salary
- vacation pay paid with each pay
- periodic pensions, and
- separation pay
Earnings are "payable" when:
- your employer or other person is required to pay you
- you can legally demand payment, and
- the obligation to pay the earnings is immediate
Only earnings that are payable immediately will be allocated for EI benefit purposes. Earnings that are to be paid in the future will be considered and allocated when the obligation to pay them exists and only if the payment is for a period when benefits were claimed.
You're responsible for reporting all your income
You're responsible for reporting:
- any income paid or payable to you
- any benefits, cash or other, received, and
- income that you earn from any self-employment activities
To determine if the amounts or benefits paid or payable are earnings for EI benefit purposes, we must determine the true nature of the payment. To reach this decision, we may ask:
- the amount and type of payment
- who made the payment
- the reason for the payment and the terms and conditions of the payment
- where the payment came from and where it is going
The earnings we consider are the amount before deductions. Earnings paid in foreign funds are converted into Canadian dollars at the current exchange rate at the time the earnings were paid or became payable.
Your normal weekly earnings
Some earnings shown on the earnings chart are deducted from your EI benefits at the rate of your normal weekly earnings. Generally, your normal weekly earnings correspond to your regular weekly salary, before deductions, from your employment that paid the earnings. When you receive a weekly wage, the normal weekly earnings are calculated by multiplying the number of hours normally worked per week by the hourly wage rate.
Examples: Conversion for determining normal weekly earnings
- Your rate of pay is $10 per hour and you normally work 40 hours per week.
Your normal weekly earnings will be $10 x 40 = $400.
- Your bi-weekly salary is $800.
Your normal weekly earnings will be $800 ÷ 2 = $400
- Your semi-monthly salary is $866.66.
Your normal weekly earnings will be $866.66 x 24 ÷ 52 = $399.99
- Your monthly salary is $1,733.33.
Your normal weekly earnings will be $1,733.33 x 12 ÷ 52 = $399.99
- Your yearly salary is $20,800.
Your normal weekly earnings will be $20,800 ÷ 52 = $400
In addition to wages paid for normal and overtime hours, the normal weekly earnings can also include:
- regular shift premiums
- incentives or cost of living allowances
- a percentage paid as vacation pay included with each pay, and
- commissions paid at regular intervals or other amounts
We generally use the information you provided in your EI application to determine normal weekly earnings. If the information provided seems unreasonable or is incorrect, we’ll contact you to determine your normal weekly earnings. If your normal weekly earnings vary, we'll use an amount corresponding to 85% of the weeks used in calculating your EI benefit rate.
Example 1: Shift premium included in your normal weekly earnings
You work 35 hours per week at $9.50 per hour. Because you work evenings, you receive a shift premium of $0.50 per hour. Since starting work last year, you have worked evenings, with the exception of your first 2 weeks of work. Your normal weekly earnings will be 35 x $10 = $350. In this example, the shift premium is included with the hourly rate because you earned that wage regularly for more than 85% of your employment period.
Example 2: Shift premium not included in your normal weekly earnings
You normally work on a day shift for 40 hours per week. You earn $10 per hour for the day shift. You receive a shift premium of $0.25 per hour for the evening shift and $0.35 per hour for the night shift. Since starting work 8 months ago, you have worked 3 weeks of evening shifts and 6 weeks of night shifts. Every Thursday, you work 3 hours of overtime at $15 per hour. Your normal weekly earnings will be 40 hours x $10 ($400) + 3 hours of overtime x $15 ($45) = $445. In this example, the shift premium isn't included, as you only worked evenings or nights for approximately 15% of your employment period. However, the overtime is included, as you worked it every Thursday.
Example 3: Work on call, weekly earnings vary
You work on call, earning $9 per hour. On your EI application, you indicated that you worked 10 to 20 hours per week. When we questioned you further, you were unable to be more specific. In this type of situation, we averaged the number of hours worked and determined that your weekly earnings will be 15 hours x $9 = $135.
Choosing the appropriate allocation period
Once it has been determined that earnings have been paid or are payable, the appropriate allocation period must be chosen. When allocating earnings, we consider the following 3 factors:
- the type of earnings
- the amount before deductions
- if the amount was paid for a specific work period, if it was paid by reason of a lay‑off or separation or for some other reason
When the earnings were not paid due to a lay-off or separation, the allocation period is determined based on the type of earnings paid or payable and the reason for payment. For example, earnings paid under the terms of a contract of employment in exchange for services rendered must be allocated over the period during which the services were rendered even if they are paid at a later date. For instance, the wages for the performance of services are payable for the number of hours or days that you worked, meaning the period during which the work was performed.
All earnings paid or payable because of a lay‑off or separation are normally allocated from starting the week of the lay‑off or separation, based on the normal weekly earnings for that employment, no matter the period for which the earnings are supposed to be paid or payable. These earnings include all amounts paid to compensate the worker for the loss of employment, such as:
- pay in lieu of notice
- severance pay
- closure bonuses
- any payment of unused employment benefits to which the employee is entitled, such as:
- vacation pay
- accumulated sick leave credits
Example 1: vacation pay and severance pay
Your employment ended on October 13, 2022, due to a plant closure and you're not expected to return. In the week of October 16, 2022, you apply for regular benefits. Your normal salary was $500 per week. Following your lay‑off, your employer paid you the following:
- your salary for October 10 to 13, 2022: $400
- vacation pay: $600
- severance pay: $1,500
The wages, vacation pay and severance pay are earnings and are therefore deductible from your benefits. The vacation pay and severance pay are earnings allocated as follows, based on the normal weekly earnings for that employment:
- October 9 to 15, 2022: Salary of $400 + Vacation pay of $100
- October 16 to 22, 2022: Vacation pay of $500
- October 23 to 29, 2022: Severance pay of $500
- October 30 to November 5, 2022: Severance pay of $500
- November 6 to 12, 2022: Severance pay of $500
- November 13 to 19, 2022: Waiting period to serve, and
- November 20 to 26, 2022: EI benefits paid
In this example, the allocations of these earnings have the following effects:
- delays the required 1-week waiting period to serve
- delays the date on which you begin receiving benefits, and
- allows a 4-week extension of your benefit period because these monies are paid due to a complete separation from employment
Example 2: part-time income
Your claim for benefits begins November 27, 2022. You served the 1-week waiting period from November 27 to December 3, 2022. Your weekly benefit rate is $350. During your claim, you work part-time for 3 weeks, from March 8 to 30, 2023. On April 7, 2023, your employer pays you $925 as wages, which represent:
- $300 for March 8, 9 and 10, 2023
- $125 for March 15, 2023
- $500 for March 27, 28, 29 and 30, 2023
The part-time wages are earnings and are therefore deductible from your benefits as follows:
- March 5 to 11, 2023:
- $300 salary for March 8, 9 and 10, 2023
- March 12 to 18, 2023:
- $125 salary for March 15, 2023
- March 19 to 25, 2023:
- no salary or other income earned; you receive a complete week of EI benefits
- March 26 to April 1, 2023:
- $500 salary for March 27, 28, 29 and 30, 2023
In this example, although your employer paid your salary as a lump sum, it's allocated over the periods during which the work was performed.
Earnings payable under the terms of an employment contract without services being provided or earnings payable by an employer in consideration of returning to or beginning work must be allocated over the period for which they're payable. Examples of these include:
- compensation allowance that you receive to return to work or begin work for an employer
- compensatory leave financed by the number of overtime hours worked in addition to your normal work week or the portion of your salary that's set aside when you work in order for you to be paid during your period of leave
Example 3: portion of salary set aside
Over a 5-year period, one fifth of your salary was set aside during the first 4 years to ensure you receive income during a 1-year leave in the fifth year. In this example, the portion of the salary that was set aside during the period worked will be paid to you during your leave period. This income is considered earnings and is allocated over the leave period (the period for which the earnings are payable).
Vacation pay is employment income and is considered earnings when it's paid or payable. There is, however, an exception when the vacation pay constitutes savings rather than earnings. This is the case when an employer, union or agency acts in trust and the vacation pay is credited to an employee and accumulated in a trust account.
Allocation of vacation pay depends on the reason for which it's paid and not the date when the payment is made. Vacation pay can be paid or payable:
- by reason of a lay-off or separation
- for a plant shut down for general vacation
- for a specific vacation period that coincides with other circumstances
- on an anniversary date
- on each pay check
- at the employee’s request
When vacation pay is paid or payable because of a lay-off or separation, the amount is allocated, based on the normal weekly earnings, to consecutive weeks from the week when the person was laid off or separated from employment. When the amount of the last week of work is less than the normal weekly earnings, the allocation of the vacation pay can start in that week and be added to the earnings for the last week worked to bring them to the normal weekly earnings.
Example 1: vacation pay paid by reason of lay-off or separation
Your employment ends on January 6, 2023, due to a work shortage. On January 9, 2023 you apply for regular benefits. Your normal weekly earnings are $500. Your last week worked, you earned $300. Your employer paid you a vacation pay of $756.
Your vacation pay will be allocated as follows:
- January 1 to 7, 2023: $300 salary and $200 vacation pay
- January 8 to 14, 2023: $500 vacation pay
- January 15 to 21, 2023: $56 vacation pay
In this example, a portion of the vacation pay is added to the amount of earnings in the last week worked to bring the earnings in that week to the normal weekly earnings of $500.
When the vacation pay is paid for a specific vacation period, it's allocated solely to that vacation period, based on the normal weekly earnings. The date that the vacation pay was actually paid isn't taken into consideration when allocating this vacation pay to a specific vacation period. For instance, when a workplace closes every year for a general vacation period, that period is considered the vacation period unless otherwise indicated.
Example 2: vacation pay paid following a plant shutdown for general vacation
On May 19, 2023, your employer paid you a vacation pay of $1,520 due to the plant closing for the general vacation during the period from May 28 to June 10, 2023 (2 weeks). Your salary for your last week of work from May 21 to 27, 2023, is $650, also your normal weekly earnings. You returned to work on June 19, 2023.
The vacation pay is allocated as follows:
- May 21 to 27, 2023: $650 salary
- May 28 to June 10, 2023, general vacation period: $1,300 (2 x $650) vacation pay
- June 19, 2023: Return to work
In this example, although the vacation pay was paid a week before the plant’s planned shutdown for vacation, it was paid for the general vacation period of 2 weeks. As a result, the date on which the vacation pay was paid isn't considered when allocating the vacation pay.
In fact, because the vacation pay is allocated to the specific vacation period of May 28 to June 10, 2023, based on normal weekly earnings of $650, the balance of $220 as vacation pay is ignored, meaning $1,520 - $1,300 = $220, as the amount can only be allocated over the actual specific vacation period.
When the specific vacation period coincides with other circumstances, such as lay-off or separation or an anniversary date, the following 3 criteria must be met in order for the vacation pay to be allocated solely to the specific vacation period:
- the vacation period must have been scheduled by agreement between the employer and employee
- there must be a link between the payment of the vacation pay and the right to a period of time off for a vacation, and
- the individual must be considered an employee during the vacation period. See examples below
Example 3: vacation pay paid for a vacation period that coincides with other circumstances
On April 15, 2023, your employer pays you a vacation pay of $850 as they do every year on this specific anniversary date. You’ve already agreed to take your vacation from April 23 to May 6, 2023 and you’re considered employed during the vacation period. Your salary for your last week of work from April 20 to 22, 2023 is $425, which is also your normal weekly earnings.
Your vacation pay is allocated as follows:
- April 9 to 15, 2023: $425 salary
- April 16 to 22, 2023: $425 salary
- April 23 to 29, 2023, vacation period: $425 vacation pay, and
- April 30 to May 6, 2023, vacation period: $425 vacation pay
In this example, although your employer paid your vacation pay on the anniversary date of April 15, 2023, it’s allocated to your specific vacation period. You had scheduled the vacation period with your employer, and you were considered an employee during this period.
Example 4: vacation pay paid following a lay-off when a vacation was already planned
During your employment, you agree with your employer to take your vacation from June 4 to 17, 2023. However, on May 12, 2023, you are laid off due to a work shortage and your employer pays you your outstanding vacation pay of $956. Your salary for your last week of work from May 7 to 13, 2023 is $425, also your normal weekly earnings.
Your vacation pay is allocated as follows:
- May 7 to 13, 2023: $425 salary
- May 14 to 20, 2023: $425 vacation pay
- May 21 to 27, 2019: $425 vacation pay, and
- May 28 to June 3, 2023: $106 balance of vacation pay
In this example, you were laid off before the expected date of the vacation. As a result, you are no longer considered an employee during the planned vacation period. The vacation pay is therefore considered to be earnings paid as result of the lay-off.
Vacation pay paid on a specific anniversary date is allocated from the week of the anniversary date, based on your normal weekly earnings, so that the vacation pay earnings in each week are equal to your normal weekly earnings. In allocating these earnings, other earnings, such as salary, are not taken into account.
Example 5: vacation pay paid on a specific anniversary date
Your employer pays the vacation pay on April 30 of each year. On April 30, 2023, you are working full time and have not planned any vacation time when your employer pays you your vacation pay of $1,000. Your normal weekly earnings are $625.
Your vacation pay is allocated as follows:
- April 30 to May 6, 2023: $625 vacation pay and $625 salary, and
- May 7 to 13, 2023: $375 vacation pay and $625 salary
In this example, the only reason for payment of the vacation pay is the anniversary date; therefore, it is allocated from the week of payment. The salary earned is not considered in the allocation of the vacation pay paid under this circumstance.
Example 6: vacation pay paid on each paycheck
You work 40 hours per week at $14 per hour. On each pay, your employer pays you 6.5% of your salary as vacation pay. On August 17, 2023, you are laid off. For your last week of work from August 13 to 19, 2023, you earned $477.12, meaning $448 salary + $29.12 vacation pay. Your normal weekly earnings are $596.40, meaning $560 salary + 36.40 vacation pay. On the record of employment, your employer indicates vacation pay of $36.40, paid each week.
Your vacation pay is allocated as follows:
- August 6 to 12, 2023: $560 salary + $36.40 vacation pay, and
- August 13 to 19, 2023: $448 salary + $29.12 vacation pay
In this example, the vacation pay is allocated over the period in which it was earned.
Example 7: vacation pay paid at the employee’s request
You are working full time, earning $500 per week. Your collective agreement allows you to request your vacation pay without any requirement to take time off for vacation. On July 19, 2023, you ask that your employer pay your vacation pay. On August 11, 2023, your employer pays you a vacation pay of $1,410. You are still working full time.
Your vacation pay is allocated as follows:
- July 16 to 22, 2023, requested your vacation pay: $500 vacation pay and $500 salary
- July 23 to 29, 2023: $500 vacation pay and $500 salary, and
- July 30 to August 5, 2023: $410 vacation pay and $500 salary
In this example, your vacation pay is paid because of your request and not by reason of a lay-off or separation or specific vacation period. As a result, it is allocated from the week in which you requested it as this was the date that the vacation pay became payable, and the date that the payment was actually made is not important. The salary earned is not considered in the allocation of the vacation pay paid under these circumstances.
The term "statutory holidays" refers to legal, provincial and territorial holidays designated by the federal, provincial or territorial government. Employers often use the same term to refer to those holidays set out by a custom or by a collective agreement.
Earnings for a statutory holiday are part of the overall earnings from any job. Payment received for a statutory holiday is allocated to the week in which the statutory holiday falls.
A statutory holiday can fall before or after lay-off or separation or during the benefit period. Payment made for specific statutory holidays is, nonetheless, always allocated to the week in which the statutory holiday falls because the reason for the payment is, in fact, your entitlement to the statutory holiday and not by reason of any lay-off or separation.
When the employer and the union agree that a statutory holiday be observed on another day, the earnings paid for that statutory holiday are allocated to the week in which that new day falls, to the extent that such terms are dictated by a custom or a collective agreement. However, if it is shown that the change in statutory holiday was made solely to bypass the EI Act, the earnings will be allocated to the week of the actual statutory holiday.
Example: statutory holidays
You have been receiving EI benefits since September 24, 2023. On November 22, 2023, your former employer pays you $375 for the statutory holidays of December 25 and 26, 2023 and January 1, 2024.
The statutory holiday pay is earnings and is deducted as follows:
- December 24 to 30, 2023:
- $250 for the statutory holidays of December 25 and 26, 2023
- December 31, 2023 to January 6, 2024:
- $125 for the statutory holiday of January 1, 2024
In this example, even though your employer paid the 3 statutory holidays as a lump sum amount, it is allocated to the week in which each statutory holiday falls.
Pension income resulting from any employment is considered earnings for benefit purposes. These include:
- employer pension plans, including employment as a member of the Armed Forces or any police force. This also applies to pensions from employment in another country, whether or not the employment was insurable
- the Canada Pension Plan, and
- the Quebec Pension Plan
However, pension income resulting indirectly from employment does not always constitute earnings. In the following cases, all or part of the pension is not considered to be earnings:
- the pension of an individual who requalifies for EI benefits after the date on which payment of the pension begins, or
- disability pensions from employment as well as disability pensions from the Canada Pension Plan or Quebec Pension Plan
The following pensions do not arise from your employment and, for that reason, do not constitute earnings for EI benefit purposes:
- personal pension plans such as:
- a registered retirement savings plan (RRSP), or
- a registered retirement income funds (RRIF)
- additional voluntary contributions (AVC) to a pension fund
- survivor’s pensions or dependent’s pensions
- the portion of the pension payable to you as a spouse in the case of:
- legal separation, or
- veteran’s pensions from the Department of Veterans Affairs
- Old Age Security pensions and supplements
The following pension earnings are not considered payable until the pension or annuity arising from these pension credits becomes payable:
- pension credits left in a pension plan to support a deferred pension or used to purchase an annuity. These pension credits are not considered as earnings for EI benefit purposes until the person applies for the deferred pension or the deferred annuity becomes payable
- pension credits transferred by the employer to a locked-in, non-commutable RRSP, such as a locked-in retirement account (LIRA) in Manitoba or a compte de retraite immobilisé (CRI) in Quebec that is locked in and non-commutable until retirement age. These pension credits are not considered as earnings for EI benefit purposes until an annuity is purchased with the proceeds from the account
- pension credits transferred to the pension fund of another employer if the new pension plan permits this transfer. The pension credits are not considered as earnings for EI benefit purposes until a pension arises from the new pension plan
The pension amount before deductions is allocated to the period for which it is paid or payable, no matter when or how it is paid. How the pension amount will be allocated varies according to whether it is paid on a periodic basis or as a lump sum.
Pension paid on a periodic basis
- Pension amount paid periodically by month for the rest of the person’s life
- Amount can increase or decrease over time
- Amount paid is the amount payable for the specific period, based on 5 days per week from Monday to Friday
- The pension amount payable each month is converted to a weekly amount as follows:
- the monthly amount is multiplied by 12
- the result is divided by 52
- the weekly amount is rounded to the nearest dollar
Example: monthly retirement pension
Your employment ends on September 15, 2023 and you are entitled to a monthly retirement pension of $2,000 as of September 20, 2023.
The weekly and daily pension amounts are converted as follows:
- weekly = $2,000 x 12÷ 52 = $461.54 rounded to $462, and
- daily = $462 ÷ 5 = $92.40
The pension is allocated as follows:
- week of September 17 to 23, 2023: $92.40 x 3 days = $277.20 rounded to $277, and
- from the week of September 24, 2023, $462 ($92.40 x 5 days) is allocated to each week until the end of the benefit period, unless the pension amount increases or decreases
In this example, because the day on which the pension payment began is a Wednesday, the daily amount of $92.40 is multiplied by 3, for September 20, 21 and 22, 2023.
Pension paid as a lump sum
- Pension amount paid as a lump sum
- Designed to replace monthly pension payments
- For benefit purposes, the lump sum amount is converted to a weekly amount in accordance with table "Weekly annuity equivalents for a lump sum of $1,000 according to age of claimant" (see below). This table indicates the weekly annuity equivalent, based on the person's age, for each $1,000 portion of the lump sum payment
- The weekly earnings value is converted as follows:
- the lump sum amount is divided by 1,000
- the result is multiplied by the weekly annuity equivalent in the table found below
- the weekly earnings amount to allocate is rounded to the nearest dollar
Weekly annuity equivalents for a lump sum of $1,000 according to age of claimant
|Age of claimant||Weekly annuity equivalent|
|19 and under||0.58|
|90 and over||3.96|
Please refer to the tables in the Digest of Entitlement Principles for previous years.
Example: lump-sum pension
You worked 23 years for the ABC Company. On September 30, 2022, you retire and a lump-sum pension amount of $93,000 is payable to you as of October 6, 2022. You’re 59 years old at the time when the lump-sum payment is payable.
According to the "Weekly annuity equivalents for a lump sum of $1,000 according to age of claimant" table, the weekly annuity equivalent for each $1,000 for a person 59 years old is $0.87.
The weekly and daily pension amounts are converted as follows:
- weekly: $93 000 ÷ 1,000 x $0.87 = $80.91, rounded to $81.00, and
- daily: $81.00 ÷ 5 = $16.20
The pension will be allocated as follows:
- October 2 to 8, 2022: $16.20 x 2 = $32.40 rounded to $32.00, and
- from the week of October 9, 2022: $81.00 is allocated to each week until the end of the benefit period. Since this is based on the conversion of a lump-sum pension, the amount of this pension allocation remains constant for the duration of the benefit period
In this example, because the lump-sum pension is payable on Thursday October 6, 2022, the daily amount of $16.20 is multiplied by 2, for October 6 and 7, 2022.
Pension income paid not considered earnings
Pension income is not considered earnings when an individual requalifies for EI benefits after the date on which payment of the pension begins.
In order for a pension income to not be considered earnings or be deducted from benefits, you must:
- after the date on which the pension became payable, and while receiving your pension, have worked and accumulated the necessary number of insurable hours to establish a claim, and
- have established that claim using the insurable hours accumulated after the start of the retirement pension
Example: weekly retirement pension income not earnings
You ended work for the ABC Company on October 7, 2022. From that date, you will receive a retirement pension of $369 per week from that employer for the rest of your life. You begin a new job with DEF Company. Between October 24, 2022 and March 24, 2023, you accumulate 600 insurable hours with this new employer. On March 27, 2023, you file a claim for sickness benefits.
After the start date of your pension payment, October 8, 2022, you worked for DEF Company and accumulated 600 hours of insurable employment. Your sickness claim is established using the insurable hours accumulated after payment of your pension began. As a result, your pension of $369 per week from ABC Company is not considered as earnings and will not be deducted from your benefits.
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