What is Employment Insurance (EI)?

Payroll Management

Let’s be honest—insurance, taxes and unemployment aren’t the most exciting topics in the world. There’s just no getting around that. But, it’s something that many Canadians have to think (and worry) about after losing their job. Heck, it’s something that many employers have to think about too — especially when they are running payroll! That’s why in this post we’re covering everything you need to know about employment insurance (EI). Whether you’re an employee or an employer, we’ve got your most pressing EI questions covered.

So, what is EI? 

Employment insurance is a temporary income support for people who have lost their job and have therefore found themselves in a state of unemployment. EI benefits can last between 14 to a maximum of 45 weeks, which depends on each region's unemployment rate. The ultimate goal of EI is to help financially support Canadians during their brief period between jobs so that they can focus more time and energy on finding their next role and/or career.

On top of the standard EI, in 2017 the Government of Canada also introduced an EI caregiving benefit that ranges from 15 to 35 weeks. This new benefit is for eligible caregivers who are in a situation where a child is critically injured or ill, or where a loved one is very ill and at risk of death.

What are the maximum EI contributions?

Though EI may seem like “free” money, it’s actually something that both Canadian employees and employers pay into. 

Every year, the Government of Canada provides the maximum insurable earnings and rate for employers to calculate the amount of EI they should deduct from their employees. 

The current 2020 Federal EI premium rates and maximums are:

$54,200: maximum annual insurable earnings

1.58%: premium rate

$856.36: maximum annual employee premium

$1,198.90: maximum annual employer premium

As seen above, for employees, the maximum annual employee premium for 2020 is $856.36. This means that once this amount has been deducted from your salary in 2020, there will be no further EI deductions for the year.

For employers, you actually withhold a portion of your employee’s salary, and in addition, contribute 1.4 times that amount. This takes the maximum annual employer premium in 2020 to a total of $1,198.90.

Quebec, on the other hand, has its own EI premium rates and maximums. The current 2020 Federal EI premium rates and maximums for Quebec are:

$54,200: maximum annual insurable earnings

1.2%: premium rate

$650.40: maximum annual employee premium

$910.56: maximum annual employer premium

What happens when someone starts a new job?

Unfortunately, if an employee starts at a new company at any time during the year, their maximum annual employee premium is essentially reset. This means that the new employer also has to deduct EI premiums regardless of what the previous employer has paid, even if the maximum premium amount was hit.

How to calculate EI deductions

As employees, some of you may notice that your pay cheques are lower in the beginning of the year, this in part is due to EI deductions. Once you hit your maximum total deductions for the year, there will be no more EI taken off of your salary. The more you make, the less time it will take to pay the total premiums.

For the majority of people, the basic rate for calculating EI benefits is 55% of your average insurable weekly earnings, up to a maximum amount. Once you hit that maximum amount, there will be no more EI deductions for the year.

Employee EI rate: EI = (gross salary x *% = z)

For example:

  • Employee’s annual salary is $85,000
  • EI premium deducted from the employee’s salary monthly: $7,083.33 x 1.58% = $111.91 / month
  • Maximum total deductions for the year = $856.36

Employer EI rate: EI = (gross salary x *% = z) + (z x 1.4) = total amount remitted to Revenue Canada

For example:

  • EI premiums deducted from your employee for the month = $111.91
  • Your share of EI (111.91 x 1.4) = $156.67
  • Total amount you remit for EI premiums (employee deductions + your share) = $268.58

It’s important to note that this number is reflective of one employee. The more employees you have, the more premiums you will need to calculate and remit to the government.

You can also check out this payroll deductions online calculator (PDOC) provided by the Government of Canada, or our hassle-free payroll software that does the calculations automatically.

Once you’ve actually deducted the EI amounts from your employees, added your 1.4x share, you will then withhold and remit this money to the CRA. Like any other payroll deductions, you need to ensure that you file all payroll taxes on time (this is very important)! Moreover, you should be sure that you have the right employee forms in place, so that you are not making any mistakes when filing.

There are a few different remittance schedules to be aware of, such as new remitter, regular remitter, and quarterly remitter. If this sounds complicated, don’t worry, we’ve got you covered. Check out this post to learn about how and when to remit EI.

Who is exempt from EI?

The Government of Canada receives around 240,000 EI applications every month. Yet, only a fraction of those who apply actually qualify for the insurance.

To be eligible for EI, there are two critical factors which must apply to the candidate:

  1. They lost their job at no fault of their own (such as a company layoff) 
  2. They’re now looking for a new role or upgrading their skills (taking classes, courses, etc)

Here’s how the Government of Canada defines it

“The Employment Insurance (EI) program provides temporary income support to unemployed workers while they look for employment or to upgrade their skills... Workers receive EI benefits only if they have paid premiums in the past year and meet qualifying and entitlement conditions.”

Though losing a job is never easy, there are technical differences between getting laid off, and getting fired. 

Here are a few reasons why a company may lay off an employee, or group of employees:

  • Merger or acquisition
  • Downsizing
  • Restructuring/reorganization
  • Loss of a grant or contract for which the employee was originally hired for

Being fired, on the other hand, often has to do with the employee's performance, and is therefore due to reasons that are specific to the employee in discussion. 

Here’s a few examples of why a company may fire an employee:

  • Poor performance
  • Violation of a company policy
  • Some other act that isn’t in line with how the business wants to operate

Overall, if an employee is fired, or if an individual hasn’t paid premiums in the past year, they will not be qualified to receive EI. 


As mentioned earlier, there are hundreds of thousands of EI applications sent into the government monthly, with numbers soaring in early-mid 2020 in the wake of COVID-19. In April 2020 alone, 2 million Canadian jobs were lost, with the unemployment rate jumping to 13%. Of course, these are unprecedented times, and are not a true reflection of Canada’s jobless numbers.

That being said, EI is clearly something that many Canadians turn to in times of job loss. Losing a job, particularly when it’s at no fault of your own, is actually a common thing! If you find yourself in this situation, it’s important to remember that you have financial aid options available.

Related: What is CPP?

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