2020 Actuarial Report on the Employment Insurance Premium Rate

Date: 22 August 2019

Commissioners of the Canada Employment Insurance Commission

Dear Commissioners,

Pursuant to section 66.3 of the Employment Insurance Act, I am pleased to submit the 2020 report, which provides actuarial forecasts and estimates for the purposes of sections 4, 66 and 69 of the Employment Insurance Act. Please note that the estimates presented in this report are based on the Employment Insurance provisions as of 22 July 2019.

Yours sincerely,

Signature of Michel Millette
  • Annie St-Jacques, FCIA, FSA
  • Senior Actuary, Employment Insurance Premium Rate-Setting
  • Office of the Chief Actuary
  • Office of the Superintendent of Financial Institutions Canada

List of Tables

1 Executive Summary

1.1 Purpose of the Report

This Actuarial Report prepared by the Senior Actuary, Employment Insurance Premium Rate-Setting, is the seventh report to be presented to the Canada Employment Insurance Commission (Commission) in accordance with the Employment Insurance Act (“EI Act”).

Pursuant to section 66.3 of the EI Act, the purpose of this report is to provide the Commission with actuarial forecasts and estimates for the purposes of calculating the maximum insurable earnings (MIE) under section 4 of the EI Act, the employment insurance (EI) premium rate under section 66 of the EI Act, and the premium reductions under section 69 of the EI Act for employers who sponsor qualified wage-loss plans, and for employees and employers of a province that has established a provincial plan. The report also provides a detailed analysis in support of the forecasts, including data sources, methodology and assumptions.

This report reflects the new EI Training Support Benefit proposed in Budget 2019 and expected to be launched in late 2020.Changes introduced through Budget 2018 were already considered in the previous report, such as the EI Parental Sharing Benefit.

The Commission shall, on or before 14 September, make available to the public this report along with the summary of this report.

1.2 Overview of Methodology

In accordance with subsection 66(1) of the EI Act, the Commission shall set the premium rate each year in order to generate just enough premium revenue during the next seven years to ensure that at the end of this seven-year period, the total of the amounts credited to the EI Operating Account after 31 December 2008 is equal to the total of the amounts charged to that Account after that date. This calculated premium rate is referred to as the 7-year forecast break-even rate. Subsection 66(7) of the EI Act states that the premium rate may not be increased or decreased by more than five cents from one year to the next.

For 2020, the 7-year forecast break-even rate is determined such that the projected balance in the EI Operating Account as at 31 December 2026 is $0. This rate is expected to generate sufficient premium revenue during the 2020-2026 period to pay for the expected EI expenditures over that same period and to eliminate the projected surplus that has accumulated in the EI Operating Account as of 31 December 2019.

The 7-year forecast break-even rate is calculated each year based on a seven‑year projection of the insurable earnings, the EI expenditures, and the amount of premium reductions granted to employers who sponsor a qualified wage-loss plan as well as to employees and employers of a province that has established a provincial plan. All projections are based on a methodology developed by the Actuary using prescribed information and assumptions provided by the Ministers of Employment and Social Development (ESD) and Finance, as well as non-prescribed assumptions determined by the Actuary.

In addition to the calculation of the 7-year forecast break-even rate, this report sets out the premium reductions that will apply in 2020 for employers who sponsor a qualified wage-loss plan, and for employees and employers of a province that has established a provincial plan.

Generally, EI premiums paid by the employer are equal to 1.4 times the premiums deducted by the employer on behalf of its employees, referred to as the employer multiplier. However, pursuant to subsection 69(1) of the EI Act, the employer premiums can be reduced through a lower employer multiplier when its employees are covered under one of four types of qualified wage-loss plans which reduce EI special benefits otherwise payable. The 2020 premium reductions for those employers are determined in accordance with subsection 69(1) of the EI Act and related regulations.

Québec is currently the only province that has established a provincial plan through the Québec Parental Insurance Plan (QPIP) which has been providing maternity, parental and adoption (MPA) benefits to Québec residents since 1 January 2006. In accordance with subsection 69(2) of the EI Act and related regulations, a mechanism to reduce EI premiums paid by Québec residents and their employers was introduced. The 2020 reduction for Québec residents and their employers is determined in accordance with legislation. The reduction is granted through a reduced premium rate, referred to as the 2020 QPIP reduction.

1.3 Main Findings

The following estimates are based on the EI provisions as of 22 July 2019, on the information provided on or before 22 July 2019 by the Minister of ESD and the Minister of Finance, and on the methodology and assumptions developed by the Actuary.

In 2020, insured employees and their employers will pay EI premiums on their earnings up to the 2020 MIE of $54,200, an increase of $1,100, or 2.1%, from the 2019 MIE of $53,100.

The 2020 EI 7-year forecast break-even rate, which is the rate needed to generate just enough premium revenue such that the projected EI Operating Account balances out as of 31 December 2026, is 1.58%.

The 2020 QPIP reduction is 0.38% and represents the estimated savings to the EI program due to the existence of the Québec Parental Insurance Plan, which provides MPA benefits to residents of Québec.

Should the Commission set the 2020 premium rate at the 7-year forecast break‑even rate, the premium rate applicable to residents of all provinces except Québec would be 1.58% and the premium rate applicable to residents of Québec would be 1.20%. With the exception of employers who sponsor a qualified wage-loss plan, employers will pay 1.4 times the employees’ premiums.

The 2020 estimated cost savings to the EI program that are generated by employer sponsored qualified wage-loss plans are $1,049 million. This translates in premium reductions for employers who sponsor a qualified wage-loss plan corresponding to about 0.22%, 0.37%, 0.36% and 0.40% of insurable earnings for categories 1 through 4 respectively. Assuming a premium rate of 1.58%, the employer multipliers for out-of-Québec employers are thus reduced from 1.4 to 1.259, 1.169, 1.171 and 1.149 for categories 1 through 4 respectively (1.215, 1.095, 1.098 and 1.069 for Québec employers).

Table 1 shows the status of the EI Operating Account for 2018, as well as its projected evolution until 2026. Using a premium rate corresponding to the 7-year forecast break-even rate (1.58%) from 2020 to 2026, the EI Operating Account is expected to balance out at the end of 2026. The cumulative balance in the EI Operating Account at the end of 2026 is not exactly $0 since the 7‑year forecast break-even rate is rounded to the nearest cent.

Table 1 Summary of the EI Operating Account
($ million)
Calendar
Year
Break-Even
Rate
Premium
Revenue
Expenditures Annual Surplus
(Deficit)
Cumulative Surplus
(Deficit)
31 December
2018             3,274
2019 1.62% 22,605 21,758 847 4,121
2020 1.58% 22,567 22,850 (283) 3,838
2021 1.58% 23,250 24,232 (982) 2,856
2022 1.58% 23,967 24,897 (930) 1,926
2023 1.58% 24,770 25,160 (390) 1,536
2024 1.58% 25,509 26,130 (621) 915
2025 1.58% 26,486 26,761 (275) 640
2026 1.58% 27,450 27,592 (142) 498

It is important to note that the figures included in this report are projections, and eventual differences between future experience and these projections will be analyzed and taken into account in subsequent reports.

1.4 Sensitivity of the 7-Year Forecast Break-Even Rate

Two of the most relevant assumptions used to determine the 7-year forecast break-even rate are the unemployment rate, which is provided by the Minister of Finance, and the recipiency rate, which is projected by the Actuary.

With all other assumptions remaining constant:

  • a variation in the average unemployment rate of 0.5% over the period 2020-2026 would result in an increase/decrease of about 0.07% in the 2020 EI 7-year forecast break‑even rate;
  • a variation in the average recipiency rate of 5% over the period 2020-2026 would result in an increase/decrease of about 0.05% in the 2020 EI 7-year forecast break-even rate; and
  • a variation in the premium rate of 0.01% of insurable earnings would result in a $1,219 million increase/decrease in the cumulative balance of the EI Operating Account at the end of the 7‑year forecast period.

1.5 Conclusion

This report was prepared by the Actuary in accordance with the relevant legislation.

In accordance with the methodology detailed in the EI Act and the relevant economic data, the 2020 MIE is $54,200.

Should the Commission set the 2020 premium rate at the 7-year forecast break‑even rate, the 2020 premium rate would be equal to:

  • 1.58% of insurable earnings for residents of all provinces except Québec; and
  • 1.20% of insurable earnings for residents of Québec, after taking into account the QPIP reduction of 0.38%.

The 7-year forecast break-even rate for residents of all provinces except Québec decreases from 1.62% in the 2019 Actuarial Report to 1.58% in the current report. A reconciliation of the rate is shown in Section 7. The decrease is mainly attributable to the anticipated lower than expected benefits payable in 2019 and the related changes in assumptions, along with the decrease in the unemployment rate assumption. This is partially offset by the slightly slower assumed progression of earnings and the cost of the new EI Training Support Benefit proposed in Budget 2019.

The 2020 premium reduction for employers who sponsor qualified wage-loss plans is estimated at $1,049 million.

2 Introduction

2.1 Purpose of the Report

This Actuarial Report prepared by the Actuary, Employment Insurance Premium Rate-Setting is the seventh one to be presented to the Canada Employment Insurance Commission (Commission) in compliance with section 66.3 of the EI Act.

The Actuary is a Fellow of the Canadian Institute of Actuaries who is an employee of the Office of the Superintendent of Financial Institutions and who is engaged by the Commission to perform duties under section 66.3 of the EI Act. Pursuant to this section, the Actuary shall prepare actuarial forecasts and estimates for the purposes of sections 4, 66 and 69 of the EI Act, and shall, on or before 22 August of each year, provide the Commission with a report that sets out:

  • the forecast premium rate for the following year and a detailed analysis in support of the forecast;
  • the calculations performed for the purposes of sections 4 and 69 of the EI Act;
  • the information provided under section 66.1 of the EI Act; and
  • the source of the data, the actuarial and economic assumptions and the actuarial methodology used.

The purpose of this report is to provide the Commission with all the information prescribed under section 66.3 of the EI Act. The Commission will make available to the public this report along with its summary. More information on the rate setting process along with the inherent deadlines can be found in Appendix A.

2.2 Recent Legislative Changes

2.2.1 Changes announced in 2019

The following changes were proposed in Budget 2019:

  • Introducing the Canada Training Benefit which includes: a new, non-taxable Canada Training Credit (funded through the Consolidated Revenue Fund) to help with the cost of training fees, and a new EI Training Support Benefit (funded through the EI Operating Account) to help workers cover their living expenses when they require time off work to pursue training. This new EI Training Support Benefit, proposed to be launched in late 2020, would provide eligible claimants up to four weeks of income support in a four-year period at 55 per cent of their average weekly insurable earnings.
  • Introducing the EI Small Business Premium Rebate to help offset the upward pressure on EI premiums resulting from the introduction of the new EI Training Support Benefit. This rebate would be available to employers who pay employer EI premiums equal to or less than $20,000 per year.

In Budget 2019, the Government of Canada also committed to make the recourse process for EI easier to navigate and to shorten timelines at every stage of the process. The proposed changes will build on the recommendations of an independent review and on the views expressed by Canadians through subsequent consultations.

2.2.2 Changes announced in 2018

The following changes were introduced in the Budget Implementation Act 2018, No. 1 (An Act to implement certain provisions of the budget tabled in Parliament on February 27, 2018 and other measures):

  • Making the EI Working While on Claim latest pilot project rules permanent, as of 12 August 2018, enabling EI claimants to keep 50 cents of their benefits for every dollar they earn, up to a maximum of 90% of the weekly insurable earnings used to calculate their EI benefit amount.
  • Extending the Working While on Claim provisions to EI maternity and sickness benefits, effective 12 August 2018, to provide greater flexibility to mothers and those dealing with an illness or injury to stage their return to work and keep more of their EI benefits.

Further measures that were announced in Budget 2018:

  • Investing $230 million over two years to better support workers in seasonal industries affected by a loss of income in the off-season. In August 2018, the Government of Canada specified that, as part of this Budget 2018 commitment, it would invest:
    • Approximately $189 million to implement a new pilot project to provide up to five additional weeks of EI regular benefits to eligible seasonal claimants in 13 targeted EI economic regions. The additional five weeks of benefits are available for claims established between 5 August 2018 and 30 May 2020; and,
    • Approximately $41 million over two years (2018-19 and 2019-20) to all provinces and territories through Labour Market Development Agreements (LMDAs) to provide skills training, wage subsidies and employment supports for workers in seasonal industries.
  • Introducing the EI Parental Sharing Benefit. This measure became available on 17 March 2019, three months earlier than originally planned. It provides an additional five weeks of standard parental benefits or eight weeks of extended parental benefits for parents who agree to share these benefits. This is available to eligible parents, including adoptive and same-sex parents.

On 29 June 2018, the Government of Canada also announced support for workers and families who may be affected by the recent U.S. tariffs imposed on Canadian steel and aluminium:

  • Introducing temporary special Work-Sharing measures for affected employers, including extending the maximum duration of Work-Sharing agreements, waiving the mandatory cooling-off period and easing employer Recovery Plan requirements.
  • Investing an additional $50 million over two years (2018-19 and 2019-20) through the LMDAs for provincially delivered skills training and employment services to support affected workers.

2.3 Scope of the Report

The methodology used in determining the premium rate, including the premium rate reduction for employees and employers of a province that has established a provincial plan such as Québec, and the reduction in employer premiums due to qualified wage-loss plans, is summarized in Section 3.

The main variables used in determining the premium rate are the expected insurable earnings, the expected EI expenditures, the reduction in employer premiums due to qualified wage-loss plans, the reduction for employees and employers of a province that has established a provincial plan, the Small Business Premium Rebate (related to the proposed new EI Training Benefit expected to be launched in late 2020) and the projected EI Operating Account balance as of 31 December 2019. An overview of the key assumptions used in projecting these variables is outlined in Section 4.

Based on the methodology and assumptions from the previous sections, Section 5 provides the resulting 2020 EI 7-year forecast break-even rate, the 2020 reduction in employer premiums due to qualified wage-loss plans, the 2020 QPIP reduction, which is the premium reduction applicable to residents of Québec due to its provincial plan, and the projection of the status of the EI Operating Account. The uncertainty of the results to the main assumptions is outlined in Section 6 along with two alternative economic growth scenarios.

A reconciliation between the 2019 and 2020 EI 7-year forecast break-even rates is presented in Section 7.

Concluding remarks and the actuarial opinion are presented in Section 8 and Section 9, respectively. The various appendices provide supplemental information on the EI program and on the data, assumptions and methodology employed. Detailed information on the calculation of the maximum insurable earnings (MIE) is presented in Appendix C.

3 Methodology

In accordance with subsection 66(1) of the EI Act, the Commission shall set the premium rate each year in order to generate just enough premium revenue during the next seven years to ensure that at the end of this seven-year period, the total of the amounts credited to the EI Operating Account after 31 December 2008 is equal to the total of the amounts charged to that Account after that date. This calculated premium rate is referred to as the 7-year forecast break-even rate. The 2019 Actuarial Report calculated the 2019 7-year forecast break-even rate at 1.62%. Annual adjustments to the premium rate are limited to five cents.

Based on relevant assumptions, the 2020 EI 7-year forecast break-even rate is the premium rate that is expected to generate sufficient premium revenue to ensure that at the end of 2026 the amounts credited and charged to the EI Operating Account after 31 December 2008 are equal. It is therefore based on the projected balance of the EI Operating Account as of 31 December 2019 and the projection over a period of seven years of the earnings base, the EI expenditures as well as the amount of premium reductions granted to employers who sponsor a qualified wage-loss plan and to employees and employers of a province that has established a provincial plan. The projected rebate amounts for small businesses related to the new EI Training Support Benefit expected to be launched in late 2020 are also considered.

The earnings base represents the total insurable earnings on which salaried employees and their employers pay EI premiums, and the earnings on which self‑employed individuals that opted into the EI program pay EI premiums. Prior to an adjustment to reflect employee premium refunds, the employer portion of the earnings base is equal to 1.4 times the employee portion of the earnings base.

For purposes of determining the 7-year forecast break-even rate, the earnings base and EI expenditures are projected over a seven‑year period. The base year for the earnings base is 2017, which is the most recent year for which fully assessed T4 slips (Statement of Remuneration Paid) data are available. However, for certain assumptions, the 2018 partially assessed information is used. Complete data for 2018 will not become available until January 2020. The base year for EI benefits is calendar year 2018.

The earnings base and EI expenditures are projected from the base year using:

  • Data and assumptions provided by the Minister of Employment and Social Development (ESD), including prescribed information as set out in section 66.1 of the EI Act (presented in Table 23, Appendix D);
  • Assumptions and forecasts provided by the Minister of Finance in accordance with section 66.2 of the EI Act (presented in Table 24, Appendix D);
  • Additional data provided by Service Canada, Employment and Social Development Canada (ESDC), and the Canada Revenue Agency (CRA); and,
  • Methodology and other assumptions developed by the Actuary.

In accordance with section 69 of the EI Act and related regulations, premium reductions are granted to employers who sponsor a qualified wage-loss plan as well as to employees residing in a province that has established a provincial plan and their employers. In addition, Budget 2019 proposed a Small Business Premium Rebate (related to the new EI Training Support Benefit expected to be launched in late 2020). The expected amounts of these premium reductions and rebate over the next seven years are included in the EI expenditures for purposes of determining the 7-year forecast break-even rate.

Generally, EI premiums paid by the employer are equal to 1.4 times the premiums deducted by the employer on behalf of its employees, referred to as the employer multiplier. However, pursuant to subsection 69(1) of the EI Act, the employer premiums can be reduced through a lower employer multiplier when its employees are covered under one of four types of qualified wage-loss plans which reduce EI special benefits otherwise payable. The 2020 premium reductions for those employers are determined in accordance with subsection 69(1) of the EI Act and related regulations, and are based on the methodology and assumptions developed by the Actuary.

Québec is currently the only province that has established a provincial plan through the Québec Parental Insurance Plan (QPIP) which has been providing maternity, parental and adoption (MPA) benefits to Québec residents since 1 January 2006. In accordance with subsection 69(2) of the EI Act and related regulations, a mechanism to reduce EI premiums paid by Québec residents and their employers was introduced. The 2020 reduction for Québec residents and their employers is determined in accordance with legislation and based on a methodology and on assumptions developed by the Actuary. The reduction is granted through a reduced premium rate. For 2020, this reduction is referred to as the 2020 QPIP reduction.

More information on the methodology used for calculating the 7-year forecast break-even rate and the premium reductions for 2020 is provided in Appendix B.

4 Assumptions

This section provides a brief overview of the main assumptions used in projecting the variables included in the calculation of the 7-year forecast break‑even rate. More detailed information and supporting data are provided in Appendix D. The section is broken down into two subsections: assumptions related to the projected earnings base and assumptions related to the projected expenditures.

4.1 Earnings Base

The earnings base is detailed in the denominator of the formula for the 7-year forecast break-even rate and the QPIP reduction developed in Appendix B. The earnings base is comprised of:

  • the total insurable earnings on which employers pay EI premiums prior to any adjustment for wage-loss plans or provincial plans;
  • the total insurable earnings on which employees pay EI premiums adjusted to reflect employee premium refunds, and;
  • the earnings on which self‑employed individuals that opted into the EI program pay EI premiums.

The main assumptions used in determining the earnings base are presented in Table 2 below.

Table 2 Assumptions for Earnings Base
2018 2019 2020 2021 2022 2023 2024 2025 2026
Increase in Maximum Insurable EarningsFootnote Table 2* 0.78% 2.71% 2.07% 2.58% 2.88% 3.15% 3.05% 3.29% 3.34%
Increase in Number of Earners 2.60% 0.73% 0.41% 0.40% 0.20% 0.14% -0.04% 0.43% 0.32%
Increase in Average Employment Income Footnote Table 2* 3.25% 1.85% 2.79% 2.81% 3.03% 3.25% 3.33% 3.10% 3.22%
Increase in Total Employment Income 5.93% 2.59% 3.21% 3.22% 3.23% 3.39% 3.29% 3.55% 3.55%
Increase in Total Insurable Earnings 4.78% 2.64% 2.81% 3.09% 3.15% 3.33% 3.13% 3.65% 3.62%
Net Transfer of Insurable Earnings to Québec Reflecting the Province of Residence 0.29% 0.29% 0.29% 0.29% 0.29% 0.29% 0.29% 0.29% 0.29%
Adjustment Due to Employee Premium Refunds (% of Total Insurable Earnings) 2.46% 2.46% 2.46% 2.46% 2.46% 2.46% 2.46% 2.46% 2.46%
Increase in Covered Self-Employed Earnings:
Total 14% 12% 11% 10% 10% 10% 10% 9% 9%
Out-of-Québec Residents 14% 12% 11% 11% 11% 10% 10% 9% 9%
Québec Residents 9% 7% 7% 7% 7% 7% 7% 7% 7%
Footnote Table 2* Provided by the Minister of Finance.

4.1.1 Maximum Insurable Earnings

The MIE represents the income level up to which EI premiums are paid and up to which EI benefits are calculated, and is a key element in determining the earnings base. Section 4 of the EI Act provides details on how to determine the yearly MIE. In accordance with this section, the MIE increases annually based on increases in the average weekly earnings, as reported by Statistics Canada.

The 2020 MIE is equal to $54,200, which represents a 2.1% increase to the 2019 MIE of $53,100. The projected MIE for years 2021 to 2026 are calculated based on estimates of the average weekly earnings provided by the Minister of Finance. Detailed explanations and calculations of the 2020 MIE are provided in Appendix C.

4.1.2 Number of Earners

The number of earners and their distribution across income ranges is used to determine the earnings base of salaried employees. The projected number of employees per year, which is based on an average of the number of employees per month, is provided by the Minister of Finance. The total number of earners for a year is higher than the number of employees provided given that the number of earners includes all individuals who had earnings at any time during the year rather than an average per month.

The preliminary number of earners for the year 2018 is set such that the resulting insurable earnings are in line with the expected assessed premiums for 2018, which are derived from the 2018 year-to-date assessed premiums and the 2018 increase in average employment income provided by the Minister of Finance. The projected number of earners from 2019 to 2026 is derived from a regression analysis based on the number of earnersFootnote 1 and the number of employeesFootnote 2.

The number of earners is expected to increase by 2.60% and 0.73% in 2018 and 2019 respectively. The average annual increase for the following seven years, from 2020 to 2026, is 0.26%. Given the historical year-to-year stability of the distribution of earners across income ranges, the projected distribution of earners as a percentage of average employment income is based on the 2017 distribution.

4.1.3 Average and Total Employment Income

The increase in average employment income, combined with the increase in the number of earners, is used to determine the increase in total employment income. The 2017 distribution of the total employment income across income ranges is used to determine the future distribution of total employment income.

The increase in average employment income is provided by the Minister of Finance and is expected to be 3.25% and 1.85% in 2018 and 2019 respectively. The average annual increase for the following seven years, from 2020 to 2026, is 3.08%. Based on these increases in average employment income and the expected increases in the total number of earners, the total employment income is expected to increase by 5.93% and 2.59% in 2018 and 2019 respectively. The average annual increase for the following seven years, from 2020 to 2026, is 3.35%.

4.1.4 Total Insurable Earnings

The total insurable earnings of salaried employees are equal to the total employment income, up to the annual MIE, earned by a person employed in insured employment. They are used to determine the earnings base for salaried employees. Prior to any adjustments for employee premium refunds, the earnings base for salaried employees is equal to 2.4 times the total insurable earnings (employer premiums are generally equal to 1.4 times the employee premiums, for a combined total of 2.4).

Historical information regarding total insurable earnings is derived from aggregate assessed premiums gathered from T4 slips of all salaried employees, and is provided by CRA. For employees with multiple employments in the year, this information is based on the combined total EI premiums. This means that, although insurable earnings of each employment are capped at the MIE, the combined total insurable earnings can exceed the MIE. The adjustment to insurable earnings and the earnings base reflecting multiple employments is captured in the employee premium refund section below.

The expected total employment income capped at the annual MIE for 2018 to 2026 is derived from the 2017 distribution of the total employment income and of the total number of earners as a percentage of average employment income, and the expected increases in these variables.

Based on this methodology, the total insurable earnings, before any adjustment for premium refunds, are expected to increase by 4.78% and 2.64% in 2018 and 2019 respectively. The average annual increase for the following seven years, from 2020 to 2026, is 3.25%. For 2018, the resulting insurable earnings reflect the year-to-date assessed premiums and related total expected assessed premiums for 2018.

4.1.5 Split of Total Insurable Earnings Due to Provincial Plan

For the purposes of determining the reduction that applies to residents of a province with a provincial plan, the earnings base for salaried employees must be split between residents of provinces with and without a provincial plan. The only province that currently has a provincial plan is Québec. Therefore, the earnings base for salaried employees must be split based on the province of residence (between out-of-Québec residents and Québec residents).

The information used to derive historical insurable earnings provided by CRA is on a T4 basis, and is therefore based on the province of employment. The historical distribution of insurable earnings on a T4 basis shows that the proportion of insurable earnings that relates to employment in Québec has generally been decreasing, albeit a slight increase from 2016 to 2018. Based on the historical pattern, it is expected that the proportion of insurable earnings that relates to employment in Québec will decrease from 22.0% in 2018 to 21.9% in 2019, and to 21.6% in 2026.

The information on historical assessed premiums provided by CRA includes adjustment payments made between the Government of Canada and the Government of Québec each year to reflect the province of residence rather than the province of employment of each employee. These adjustment payments are the object of an administrative agreement between both parties, and can be used as a basis to adjust the distribution of insurable earnings to reflect the province of residence. The methodology used in adjusting the distribution of insurable earnings based on aggregated adjustment payments was validated against administrative data. The administrative data were provided by CRA and are part of the annual exchange of information between the Government of Canada and the Government of Québec.

Based on information provided by CRA, the net annual transfer of insurable earnings on a T4 basis to reflect actual province of residence was on average 0.29% of total insurable earnings for the last five years of available data, 2013 to 2017, with the transfer of insurable earnings on a T4 basis going to Québec from the rest of Canada. It is assumed to remain at 0.29% of total insurable earnings until 2026.

4.1.6 Employee Premium Refunds

In general, salaried employees contribute EI premiums on their total insurable earnings in a given tax year up to the annual MIE. However, when filing their tax returns, some employees may exceed the maximum contribution and receive a refund of all or a portion of the EI premiums paid in the year (e.g. employees with multiple employers in the same year and employees with insurable earnings below $2,000). The insurable earnings that are subject to any subsequent premium refund must be excluded from the earnings base. Given that the data used for projection purposes (T4 slips) include insurable earnings for which premiums may later be refunded, an adjustment must be made to reduce the earnings base. It is important to note that the employer does not receive a refund. Thus, only the employee’s portion of the total earnings base is adjusted, which is reflected in the formulas presented in Appendix B.

The historical data provided by CRA show that the total insurable earnings subject to a subsequent employee refund as a percentage of total insurable earnings is relatively stable. Based on the average for the last five years of available data, 2013 to 2017, it is assumed that this percentage is 2.46% from 2018 to 2026.

4.1.7 Self-Employed Earnings

Since 31 January 2010, self‑employed workers may voluntarily opt into the EI program to receive EI special benefits for those who are sick, pregnant or caring for a newborn or adopted child, and for those caring for a critically ill or injured family member (family caregiver benefit), or at end-of-life (compassionate care benefit). Although self-employed residents of Québec are able to access MPA benefits through their provincial plan, they may voluntarily opt into the EI program to access other special benefits. As such, the earnings base used in calculating the forecast break-even rate must take into account the covered earnings of self-employed individuals who opt into the EI program.

Self-employed individuals who participate in the EI program contribute premiums based on their self-employed earnings, up to the annual MIE, at the employee rate which corresponds to their province of residence, and there are no employer premium contributions. Therefore, as with the insurable earnings of salaried employees, self-employed covered earnings must be split between out-of-Québec residents and Québec residents.

The increase in self-employed earnings reflects the expected increase in the number of participants, and in the average earnings of self-employed individuals.

The projected number of participants is based on historical enrolment information, adjusted to reflect expected future changes in enrolment. The increase in average earnings is assumed to be the same increase in average earnings as the salaried employees.

Based on this methodology, the covered earnings of all self-employed individuals are expected to increase on average by 10% per year from 2020 to 2026.

4.2 Expenditures

EI Part I benefits are projected from actual 2018 benefits paid using several economic and demographic assumptions.

Table 3 presents a summary of the key expenditure assumptions used in this report, followed by a short description for each of them. A detailed description of the methodology used to project all benefits is available in Appendix D.

Table 3 Assumptions for Expenditures
2018 2019 2020 2021 2022 2023 2024 2025 2026
Increase in Labour Force Footnote Table 3* 0.8% 1.8% 0.4% 0.5% 0.3% 0.2% 0.1% 0.5% 0.4%
Unemployment Rate Footnote Table 3* 5.8% 5.7% 5.7% 5.8% 5.8% 5.8% 5.9% 5.8% 5.8%
Increase in Average Weekly Earnings Footnote Table 3* 2.6% 2.3% 2.7% 3.0% 3.1% 3.2% 3.3% 3.2% 3.3%
Increase in Average Weekly Benefits 1.2% 2.8% 2.2% 2.8% 3.0% 3.2% 3.2% 3.2% 3.3%
Potential Claimants (as a % of Unemployed) 52.9% 54.8% 55.8% 56.8% 56.8% 56.8% 56.8% 56.8% 56.8%
Recipiency Rate (as a % of Potential Claimants) 75.9% 70.0% 72.5% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0%
Number of weeks 52.2 52.2 52.4 52.2 52.0 52.0 52.4 52.2 52.2
Percentage of Benefit Weeks for Claimants with Insurable Earnings above the MIE 47.0% 47.6% 47.3% 47.3% 47.3% 47.3% 47.3% 47.3% 47.3%
Footnote Table 3* Provided by the Minister of Finance.

4.2.1 Labour Force

The labour force affects most of Part I benefits directly by increasing/decreasing the number of potential claimants. The labour force population is expected to increase from 19.8 million in 2018 to 20.6 million in 2026. This represents an annual average increase of 0.5%. This assumption is provided by the Minister of Finance.

4.2.2 Unemployment Rate

The unemployment rate affects regular EI benefits directly by also increasing/decreasing the number of potential claimants. The average unemployment rate was 5.8% in 2018, and is expected to decrease to 5.7% in 2019 and 2020 before increasing to 5.8% the following year and remaining at that level throughout the projection other than in 2024, when it is expected to be 5.9%. This assumption is provided by the Minister of Finance.

4.2.3 Average Weekly Earnings

The growth in average weekly earnings on a calendar year basis is used, in conjunction with the increase in the MIE, to project the average weekly benefits. The expected growth in average weekly earnings is 2.3% in 2019 and increases to 2.7% in 2020. The average annual growth for years 2021 to 2026 is 3.2%. This assumption is provided by the Minister of Finance.

4.2.4 Average Weekly Benefits

The average weekly benefits growth affects EI expenditures directly through a corresponding increase/decrease in Part I expenditures. The average weekly benefits are equal to the benefit payments divided by the number of benefit weeks paid for Part I benefits.

The annual average weekly benefits growth rates are forecasted at 2.8% for 2019 and 2.2% for 2020. The average annual increase for years 2021 to 2026 is 3.1%. The growth rates are generally the same for all benefit types.

4.2.5 Potential Claimants

The EI Program is designed to provide temporary income support to eligible insured persons who have lost their jobs through no fault of their own, such as due to a shortage of work, or as a result of seasonal or mass lay-offs, and are available for work. The potential claimants represent the number of individuals or the percentage of unemployed individuals that meet the basic coverage criteria of the EI program. The number of potential claimants as a percentage of unemployed decreased from 54.8% in 2017 to 52.9% in 2018. Based on the experience of the first six months of 2019, it is expected to increase to 54.8% in 2019 before reaching its ultimate value of 56.8% in 2021.

4.2.6 Recipiency Rate

The recipiency rate represents the proportion of potential claimants in a given period who are receiving EI regular benefits. It is directly linked to the target population of the EI program (i.e. potential claimants) and does not consider individuals outside the target population of the EI program, such as the long-term unemployed and those who did not contribute to the program in the previous year. The recipiency rate is lower than 100% for multiple reasons including that some potential claimants have not accumulated the required number of insurable hours, while other potential claimants do not apply for benefits, are serving the one-week waiting period, or have exhausted the number of weeks they were entitled to receive and remain unemployed.

The actual recipiency rate was 78.0% in 2017 and decreased to 75.9% in 2018 due to the termination of some temporary measures. Based on the experience of the first six months of 2019, it is assumed to decrease to 70.0% for the whole year 2019. The recipiency rate is set at 72.5% for 2020 and 75.0% from 2021 onwards.

4.2.7 Number of Weeks

EI expenditures are reported in the EI Operating Account on an accrual basis, that is, they are recorded in the period for which they should have been paid, regardless of the delay in processing the payment. Furthermore, EI benefits are paid on a weekly basis, but only weekdays that belong to a particular period are reported in that period.

The number of weeks affects Part I expenditures as benefits are payable for every weekday of the year, regardless of holidays. The number of workdays in a year ranges from 260 days to 262 days. Therefore, an adjustment is included to reflect the number of days benefits are paid in any year. The number of weeks for years 2018 to 2026 ranges between 52.0 and 52.4.

4.2.8 Percentage of Benefit Weeks for Claimants with Earnings Above MIE

From analyses of administrative data provided by ESDC, 47.0% of benefit weeks for claims that accrued in 2018 were based on insurable earnings above the MIE compared to 46.5% in 2017. Based on partial data for 2019, the proportion of benefit weeks for claimants with insurable earnings above the MIE is assumed to increase slightly in 2019 to 47.6%. It is set at 47.3% the following year and remains constant thereafter.

4.2.9 Other Expenditures

Additional information used to project expenditures such as pilot projects and temporary measures, the cost of new program changes, administration costs and employment benefits and support measures (EI Part II benefits) are provided by ESDC.

5 Results

5.1 Overview

This report provides actuarial forecasts and estimates for purposes of sections 4, 66 and 69 of the EI Act. It has been prepared based on EI provisions as of 22 July 2019, on the information provided on or before 22 July 2019 by the Ministers of ESD and Finance, and on the methodology and non-prescribed assumptions developed by the Actuary. The key findings are as follows:

  • The 2020 MIE is equal to $54,200, which represents a 2.1% increase to the 2019 MIE of $53,100.
  • The 2020 EI 7-year forecast break-even rate is 1.58% of insurable earnings.
  • The 2020 premium reduction for residents of Québec due to its provincial plan is 0.38%.
  • Should the Commission set the 2020 premium rate at the 7-year forecast break-even rate, the premium rate applicable to residents of all provinces except Québec would be 1.58% and the premium rate applicable to residents of Québec would be 1.20%. With the exception of employers who sponsor a qualified wage-loss plan, employers will pay 1.4 times the employees’ premiums.
  • The 2020 estimated cost savings to the EI program that are generated by employer sponsored qualified wage-loss plans are $1,049 million. This translates in premium reductions for employers who sponsor a qualified wage-loss plan corresponding to about 0.22%, 0.37%, 0.36% and 0.40% of insurable earnings for categories 1 through 4 respectively. Assuming a premium rate of 1.58%, the employer multipliers for out-of-Québec employers are thus reduced from 1.4 to 1.259, 1.169, 1.171 and 1.149 for categories 1 through 4 respectively (1.215, 1.095, 1.098 and 1.069 for Québec employers).
  • The total earnings base is expected to grow from $1,496 billion in 2018 to $1,922 billion in 2026.
  • Total expenditures are expected to increase from $21 billion in 2018 to $28 billion in 2026.
  • The EI Operating Account is expected to have a cumulative surplus of $4.1 billion as of 31 December 2019

5.2 Earnings Base

EI premiums, prior to any adjustment for wage-loss plans, are determined by the product of the premium rate and the earnings base. The national earnings base is required to determine the 7‑year forecast break-even rate while the earnings base of provinces not offering a provincial plan is required to determine the reduction due to those plans. Since Québec is the only province offering a provincial plan, the earnings base is split between Québec and out-of-Québec residents.

Based on the methodology and assumptions presented in Section 4, Table 4 shows the earnings base for Québec and out-of-Québec residents as well as the total number of earners.

Table 4 Earnings Base and Number of Earners
Calendar Year Earnings Base ($ million) Number of Earners
(thousands)
Out-of-Québec Québec Total
2017 1,111,204 316,661 1,427,864 19,219
2018 1,163,120 333,024 1,496,145 19,718
2019 1,194,798 340,906 1,535,704 19,862
2020 1,229,140 349,686 1,578,826 19,942
2021 1,267,966 359,682 1,627,648 20,022
2022 1,308,738 370,166 1,678,904 20,061
2023 1,353,251 381,640 1,734,891 20,089
2024 1,396,509 392,688 1,789,198 20,081
2025 1,448,494 406,114 1,854,608 20,168
2026 1,502,108 419,666 1,921,774 20,232

These results are used in the calculation of the 2020 EI 7-year forecast break‑even rate and the 2020 QPIP reduction. A detailed explanation of the methodology and assumptions used to derive the results is available in Appendix D.

5.3 Expenditures

This section examines the expenditures side of the 7-year forecast break-even rate. EI expenditures include Part I (income benefits), Part II (Employment Benefits and Support Measures (EBSM)), administration costs, benefit repayments and bad debts. EI benefits may also include temporary spending initiatives, such as pilot projects and special measures announced by the Government of Canada. A detailed explanation of the methodology and assumptions used to derive the results is available in Appendix D.

For the purposes of the 7-year forecast break-even rate calculation, penalties and interest on overdue accounts receivable are included on the expenditures side of the equation.

Table 5 shows the breakdown of the 2018 EI expenditures, as well as a projection up to 2026.

Table 5 Expenditures
($ million)
Calendar
Year
Part I Part II Admin.
Costs
Benefit
Repayments
Bad Debt Penalties Interest Total
2018 17,201 2,267 1,842 (299) 92 (63) (20) 21,020
2019 17,247 2,907 1,870 (263) 81 (62) (22) 21,758
2020 18,880 2,424 1,854 (320) 80 (68) (25) 22,824
2021 20,299 2,499 1,784 (347) 72 (73) (28) 24,206
2022 21,008 2,499 1,760 (360) 69 (76) (29) 24,870
2023 21,711 2,074 1,753 (373) 75 (79) (31) 25,132
2024 22,713 2,074 1,748 (392) 73 (82) (33) 26,102
2025 23,357 2,074 1,747 (402) 76 (84) (35) 26,732
2026 24,205 2,074 1,747 (417) 80 (88) (38) 27,563

Table 6 shows the breakdown of Part I EI expenditures.

Table 6 Part I Expenditures
($ million)
Calendar
Year
Regular Fishing Work-
Sharing
Training
BenefitFootnote Table 6*
Special Benefits  
MPFootnote Table 6** Sickness Compas-
sionate
Family Caregiver Benefit Sub-
Total
Total
Children Adults
2018 10,960 335 6 - 4,005 1,759 59 34 44 5,900 17,201
2019 10,639 334 18 - 4,243 1,866 62 36 50 6,256 17,247
2020 11,715 343 19 17 4,710 1,923 64 37 53 6,786 18,880
2021 12,695 351 11 259 4,848 1,978 65 38 55 6,984 20,299
2022 13,169 360 8 285 4,989 2,033 67 39 58 7,186 21,008
2023 13,608 372 8 294 5,158 2,101 69 40 61 7,430 21,711
2024 14,300 386 9 296 5,361 2,183 72 42 64 7,722 22,713
2025 14,674 397 9 296 5,543 2,256 75 43 64 7,980 23,357
2026 15,217 410 9 296 5,749 2,338 77 45 64 8,273 24,205

Return to footnote table 6* In Budget 2019, the Government of Canada announced a new EI Training Support Benefit expected to be launched in late 2020; this benefit will provide up to 4 weeks of EI benefits to workers who take time off to pursue training.

Return to footnote table 6** EI Maternity and Parental benefits; EI parental benefits are offered to parents who are caring for a newborn or newly adopted child or children. The new Parental Sharing Benefit implemented in March 2019 is included in the projection.

5.4 Premium Reductions and Rebate

The employer premiums can be reduced through a lower employer multiplier when its employees are covered under a qualified wage-loss plan which reduces EI special benefits otherwise payable, provided that at least 5/12 of the reduction is passed on to the employees. Premiums paid by employees and their employers can also be reduced when employees are covered under a plan established under provincial law which reduces EI maternity and parental (MP) benefits otherwise payable. An agreement must be in place between the Government of Canada and the province to establish a system for reducing premiums paid by residents of that province and their employers.

With the introduction of the new EI Training Support Benefit expected to be launched in late 2020, Budget 2019 also announced an EI Small Business Premium Rebate to offset the upward pressure on EI premiums resulting from the EI Training Support Benefit. This rebate is proposed to be available to any business that pays employer EI premiums equal to or less than $20,000 for the 2020 calendar year. Using forecasted calendar expenditures received from the Minister of ESD (corresponding to Budget 2019 fiscal year expenditures), the cost of the EI Training Support Benefit in 2020 is expected to represent 2 cents (1.79 cents unrounded, or 0.0179%). This cost is included in the forecasted 2020 EI Premium Rate of 1.58%. The details of the rebate were not confirmed at the time the report was produced and will still need to be approved through legislation.

Table 7 shows the projection of the expected premium reductions and rebate up to 2026 taken into account in the determination of the 7-year forecast break-even rate.

Table 7 Premium Reductions and Rebate
($ million)
Calendar Year Qualified Wage-Loss Plans Provincial Plans SBPRFootnote Table 7*
2020 1,049 1,329 26
2021 1,100 1,367 26
2022 1,153 1,407 27
2023 1,191 1,450 28
2024 1,228 1,531 29
2025 1,273 1,543 29
2026 1,319 1,595 29

Return to footnote Table 7* Small Business Premium Rebate; the details of the rebate were not confirmed at the time the report was produced and will still need to be approved through legislation. The projected amounts of the rebate were provided by the Minister of ESD.

 

5.5 7-Year Forecast Break-Even Rate

The 7-year forecast break-even rate is the rate that, based on the relevant assumptions, is expected to generate sufficient premium revenue during the next seven years to ensure that, at the end of that seven-year period, the amounts credited and charged to the EI Operating Account (EIOA) after 31 December 2008 are equal. It is therefore based on the projection over a period of seven years of EI expenditures, the earnings base and the projected balance of the EIOA as of 31 December 2019.

The expected amounts of the premium reductions over the next seven years for qualified wage-loss plans (WLP) and for provincial plans (PP), as well as the Small Business Premium Rebate related to the EI Training Support Benefit expected to launch in late 2020 are included in the EI expenditures for purposes of determining the 7-year forecast break-even rate. This ensures that in the absence of wage-loss plans, provincial plans and Small Business Premium Rebate, a premium rate set at the 7-year forecast break-even rate would generate enough revenues to cover all EI expenses for employees of every employer residing in any province.

Table 8 shows the projection of the variables used to determine the 7-year forecast break-even rate. The annual expected pay-as-you-go rates (PayGo) are the rates required to cover the expected expenditures of that year. The 7-year forecast break-even rate is lower than the average PayGo rates since the projected surplus as at 31 December 2019 is considered.

Table 8 Calculation of the 7-Year Forecast Break-Even Rate
($ million)
Calendar
Year
Expenditures Covered by the 7-Year Forecast Break-Even Rate Surplus (Deficit)
in the EIOA as at
31 December
2019
Earnings
Base
Annual PayGo
Rate / 7-Year
Forecast Break-
Even Rate
EI Expenditures Reduction
for WLP
Reduction
for PP
SBPRFootnote Table 8* Total Expenditures
Before Reductions
and Rebate
2020 22,824 1,049 1,329 26 25,228   1,578,826 1.60%
2021 24,206 1,100 1,367 26 26,699   1,627,648 1.64%
2022 24,870 1,153 1,407 27 27,457   1,678,904 1.64%
2023 25,132 1,191 1,450 28 27,801   1,734,891 1.60%
2024 26,102 1,228 1,531 29 28,890   1,789,198 1.61%
2025 26,732 1,273 1,543 29 29,578   1,854,608 1.59%
2026 27,563 1,319 1,595 29 30,506   1,921,774 1.59%
2020-26 177,429 8,314 10,222 195 196,159 4,121 12,185,849 1.58%Footnote Table 8**

Return to footnote Table 8* Small Business Premium Rebate (related to the new EI Training Support Benefit announced in Budget 2019 and proposed to be launched in late 2020).

Return to footnote Table 8** The surplus in the EIOA as at 31 December 2019 is used in the calculation of the 7-year forecast break-even rate: (196,159 - 4,121) / 12,185,849 = 1.58%.

Table 9 shows the projection of revenues, EI expenditures, and the account balance using the 7-year forecast break-even rate and the premium reductions.

Table 9 Projection of the EI Operating Account
($ million)
Calendar
Year
Premium
Rate (%)
Revenues Net
Premiums
  Expenditures Annual
Surplus
(Deficit)  
Cumulative
Surplus
(Deficit)
31 December  
Gross
Premiums
after
Refunds
Reduction
for WLP
Reduction
for
Provincial
Plans
SBPRFootnote Table 9* Other
Adj. Footnote Table 9**
2018 1.66% 24,836 (968) (1,199) - 24 22,692 21,020 1,672 3,274
2019 1.62% 24,878 (997) (1,261) - (15) 22,605 21,758 847 4,121
2020 1.58% 24,945 (1,049) (1,329) (26) - 22,541 22,824 (283) 3,838
2021 1.58% 25,717 (1,100) (1,367) (26) - 23,224 24,206 (982) 2,856
2022 1.58% 26,527 (1,153) (1,407) (27) - 23,940 24,870 (930) 1,926
2023 1.58% 27,411 (1,191) (1,450) (28) - 24,742 25,132 (390) 1,536
2024 1.58% 28,269 (1,228) (1,531) (29) - 25,481 26,102 (621) 915
2025 1.58% 29,303 (1,273) (1,543) (29) - 26,457 26,732 (275) 640
2026 1.58% 30,364 (1,319) (1,595) (29) - 27,421 27,563 (142) 498

Return to footnote Table 9* Small Business Premium Rebate.

Return to footnote Table 9** Adjustments for the timing of premium assessment.

The 2020 EI 7-year forecast break‑even rate is 1.58%. This rate is expected to generate just enough premium revenue to ensure that, at the end of 2026, all amounts credited and charged to the EI Operating Account after 31 December 2008 are equal. The cumulative balance in the EI Operating Account at the end of 2026 is not exactly $0 since the 7-year forecast break-even rate is rounded to the nearest cent.

5.6 Québec Parental Insurance Plan (QPIP) Reduction for 2020

EI MP benefits included in Part I special benefits, as well as direct EI administrative costs incurred to provide MP benefits (variable administration costs (VAC)), are required to determine the QPIP reduction. The VAC represent the direct operating costs incurred by the EI program associated with the administration of EI MP benefits outside Québec. They are determined each year by ESDC in accordance with the agreement between Canada and Québec which stipulates a minimum VAC amount.

EI MP benefits are projected from the base year (2018) and reflect the impacts of any program changes and pilot projects. The projected EI MP expenditures used to determine the 2020 QPIP reduction are shown in Table 10. They include the cost for the new Parental Sharing Benefits implemented in March 2019 as provided by ESDC.

Table 10 MP Expenditures
($ million)
    Actual Forecast
  2018 2019 2020
EI MP Benefits 4,005 4,243 4,710
Variable Administration Costs 17 18 18
MP Expenditures 4,022 4,260 4,727

The QPIP reduction is equal to the ratio of EI MP expenditures (EI MP benefits and VAC) to the earnings base of residents of all provinces without a provincial plan, that is, residents of all provinces except Québec. It is the premium reduction for Québec residents as it relates to the savings to the EI Program resulting from the QPIP.

Table 11 shows the estimates of the variables that are required in the calculation of the 2020 QPIP reduction, as well as the resulting 2020 QPIP reduction.

Table 11 Calculation of the QPIP Reduction
($ million)
  2020 Forecast
MP Expenditures 4,727
MP Earnings Base (Out-of-Québec residents) 1,229,140
Unrounded QPIP Reduction 0.3846%
QPIP Reduction 0.38%

5.7 Qualified Wage-Loss Plan Reductions for 2020

Based on the methodology developed in Appendix B and on the 2020 projected insurable earnings of employees covered by a qualified wage-loss plan, the 2020 estimated reduction in employer premiums due to qualified wage-loss plans is $1,049 million, compared to $997 million for 2019.

Table 12 shows the main results. A detailed explanation of the data and methodology used to derive the results are available in Appendix E. Note that pursuant to section 62 of the EI Regulations and section 68 of the EI Act, the employer multiplier is calculated from the unrounded rates of reduction and the rounded rates of reduction are shown for illustration purposes only.

Table 12    Reduction in Employer Premiums Due to Qualified Wage-Loss Plans
Wage-Loss
Plan
Category
Unrounded
Rate of
Reduction
Rounded
Rate of
Reduction
Employer
Multiplier
(Out-of-Québec)
Employer
Multiplier
(Québec)
2020 Estimated
Insurable
Earnings
($ million)
2020 Estimated
Premium
Reduction
($ million)
Category 1 0.2225% 0.22% 1.259 1.215 51,836 115
Category 2 0.3657% 0.37% 1.169 1.095 25,386 93
Category 3 0.3625% 0.36% 1.171 1.098 205,681 746
Category 4 0.3970% 0.40% 1.149 1.069 24,057 96
Total N/A N/A N/A N/A 306,960 1,049

6 Uncertainty of Results

The 7-year forecast break-even rate and the subsequent impact on the EI Operating Account (EIOA) depends on different demographic and economic factors. The age distribution of the Canadian population has changed considerably over the last decades; the average age has been increasing as the baby boom cohorts have continued to age, the fertility rate has remained low and longevity has been increasing. Larger numbers of young people have chosen to pursue higher levels of education, delaying their full-time entry into the workforce. These changes have had a direct impact on the labour force. Countering these effects have been factors such as younger cohorts’ greater attachment to the labour force due to their higher level of education and older workers delaying their retirement due to their expected increase in longevity.

Economic cycles have also had an impact on the labour force and the unemployment rate. In times of recession, jobs were lost and workers found themselves involuntarily unemployed, while in times of growth, more workers were needed and wages tended to increase as companies competed for qualified labour.

The determination of the 7-year forecast break-even rate is based on the assumptions provided by the Ministers of ESD and Finance, as well as the Actuary’s best-estimate assumptions. However, as assumptions generally do not materialize exactly as expected, the objective of this section is to illustrate the sensitivity of the 7-year forecast break-even rate and the EIOA to changes in assumptions.

6.1 Individual Tests

The individual tests focus on two different assumptions: the unemployment rate and the recipiency rate. The impact on the 7-year forecast break-even rate of a change in each of these two assumptions is being analysed. Afterwards, the effect of a variation in the premium rate on the EIOA is examined.

6.1.1 Unemployment Rate

The unemployment rate is closely related to the state of the economy and the supply of labour. The following table shows that a variation in the average unemployment rate 0.5% over the period 2020-2026 would result in an increase/decrease of about 0.07% in the 2020 EI 7‑year forecast break-even rate (assuming all other assumptions remain constant).

Table 13 Sensitivity of the 7-Year Forecast Break-Even Rate to the Unemployment Rate (UR)
Variation in Average UR
(2020-2026)
Average UR
(2020-2026)
Resulting
7-Year Forecast Break-Even Rate
(1.0%) 4.8% 1.44%
(0.5%) 5.3% 1.51%
Base 5.8% 1.58%
0.5% 6.3% 1.65%
1.0% 6.8% 1.72%

6.1.2 Recipiency Rate

The volatility shown by the recipiency rate in the past can be attributed to a number of factors, such as the decision of those eligible for EI to apply (or not) for the benefit. The following table shows that a variation in the average recipiency rate of 5% over the period 2020-2026 would result in an increase/decrease of about 0.05% in the 2020 EI 7-year forecast break-even rate (assuming all other assumptions remain constant).

Table 14 Sensitivity of the 7-Year Forecast Break-Even Rate to the Recipiency Rate (RR)
Variation in Average RR
(2020-2026)
Average RR
(2020-2026)
Resulting
7-Year Forecast Break-Even Rate
(10.0%) 64.6% 1.47%
(5.0%) 69.6% 1.53%
Base 74.6% 1.58%
5.0% 79.6% 1.63%
10.0% 84.6% 1.68%

6.1.3 Premium Rate

As shown in the following table, a variation in the premium rate of one‑hundredth percentage point (0.01% of insurable earnings) from the 7-year forecast break-even rate would result in a $1,219 million increase/decrease in the cumulative balance of the EIOA at the end of the 7‑year forecast period.

Table 15 Sensitivity of the EIOA Balance to the 7-Year Forecast Break-Even Rate
Variation in EI 7-Year Forecast Break-Even Rate Resulting EI 7-Year Forecast Break-Even Rate Cumulative EIOA Balance as at 31 Dec. 2026 ($ million) Variation in EIOA Cumulative Balance as at 31 Dec. 2026 ($ million)
(0.05%) 1.53% (5,595) (6,093)
(0.01%) 1.57% (720) (1,219)
Base 1.58% 498 -
0.01% 1.59% 1,717 1,219
0.05% 1.63% 6,591 6,093

6.2 Scenarios

The Canadian economy has been relatively strong recently. However, Canada faces challenges to sustain this consistent growth; persistent low interest rates, slow productivity growth and the aging of the population could adversely affect the Canadian economy.This section combines changes to various assumptions to create scenarios of high and low economic growth. These scenarios assume a sudden change in the economic environment starting in 2020. Consequently, the 2020 break-even rate remains at 1.58% as already calculated in this report, while the 2021 break-even rate (that would apply from 2021 to 2027) shows the impact of the economic change. It is also worth noting that given the current strength of the Canadian economy, the impact under the high economic growth scenario is smaller than the one under the low economic growth scenario since the upswing to the economy is more limited than the downswing.

For comparison purposes, Table 16 below presents the key assumptions used in this report that vary in the low and high economic growth scenarios.

Table 16 Assumptions for Base Scenario
Calendar Year Labour Force Increase Unemployment Rate Increase in Average Employment Income Recipiency Rate
2020 0.4% 5.7% 2.7% 72.5%
2021 0.5% 5.8% 3.0% 75.0%
2022 0.3% 5.8% 3.1% 75.0%
2023 0.2% 5.8% 3.2% 75.0%
2024 0.1% 5.9% 3.3% 75.0%
2025 0.5% 5.8% 3.2% 75.0%
2026 0.4% 5.8% 3.3% 75.0%

6.2.1 High Economic Growth

Under this scenario, the economy is doing better than what is assumed under the base scenario; the population aging and the baby-boomers’ retirement are expected to create additional labour demands, which means that unemployment is down, while wages and the labour force increase at a faster rate than originally anticipated. In addition, the recipiency rate decreases since it is expected that most people remain unemployed for short periods only and are therefore less likely to apply for EI benefit. Table 17 presents the alternate assumptions for the high economic growth scenario.

Table 17 Alternate Assumptions for High Economic Growth Scenario
Calendar Year Labour Force Increase Unemployment Rate Increase in Average Employment Income Recipiency Rate
2020 1.2% 5.5% 3.2% 71.5%
2021 0.5% 5.5% 3.5% 74.0%
2022 0.3% 5.5% 3.6% 74.0%
2023 0.2% 5.5% 3.7% 74.0%
2024 0.1% 5.5% 3.8% 74.0%
2025 0.5% 5.5% 3.7% 74.0%
2026 0.4% 5.5% 3.8% 74.0%
2027Footnote Table 17* 0.4% 5.5% 3.8% 74.0%

Return to footnote Table 17* Assumptions for calendar year 2027 are necessary to determine the 2021 7-year break-even rate. They are the same as 2026.

The results of such an economic development on the EI program are illustrated in Table 18. The 7-year forecast break-even rate would decrease by 8 cents, from 1.58% in 2020 to 1.50% in 2021, which would result in an application of the five-cent limit to adjust the premium rate for one year. After 2021, for illustration purposes, the premium rate corresponds to the 7-year forecast break-even rate, i.e. 1.50%. As for the EIOA, it would increase in the short-term and would balance in 2027.

Table 18 Impact of High Economic Growth Scenario
Calendar Year 7-Year Break-Even Rate Premium Rate (5 cents decrease limit) Annual Surplus / Deficit on EIOA ($ Billion) Cumulative Surplus / Deficit on EIOA (31 Dec.) ($ Billion)
2020 1.58% 1.58% 0.4 4.6
2021 1.50% 1.53% (0.9) 3.6
2022 1.50% 1.50% (1.2) 2.4
2023 1.50% 1.50% (0.7) 1.7
2024 1.50% 1.50% (0.7) 0.9
2025 1.50% 1.50% (0.5) 0.4
2026 1.50% 1.50% (0.4) 0.1
2027Footnote Table 18* 1.50% 1.50% (0.3) (0.3)

Return to footnote Table 18* Calendar year 2027 is presented in the high economic scenario as the 2021 7-year break-even rate would apply until 2027.

6.2.2 Low Economic Growth

Under this scenario, the economy is doing worse than what is assumed under the base scenario. This development is similar to what happened during the 2008-2009 recession, which means that the unemployment rate is going up. In addition, the labour force stops increasing from year-to-year, and wages increase at a slower rate than originally anticipated. Finally, the recipiency rate increases since it is expected that most people remain unemployed for a longer period and are therefore more likely to apply for EI benefit. In 2026, the unemployment rate is assumed to be 120 basis points higher than the base scenario (7.0% compared to 5.8%). Although the Canadian labour force has evolved during the last decade, the 2008-2009 recession serves as a basis to determine the variation in key variables following an economic slowdown. Table 19 below presents the alternate assumptions for the low economic growth scenario.

Table 19 Alternate Assumptions for Low Economic Growth Scenario
Calendar Year Labour Force Increase Unemployment Rate Increase in Average Employment Income Recipiency Rate
2020 0.0% 8.5% 1.7% 78.0%
2021 0.0% 8.3% 2.1% 78.0%
2022 0.0% 8.0% 2.3% 77.0%
2023 0.0% 7.8% 2.5% 76.0%
2024 0.0% 7.5% 2.7% 76.0%
2025 0.0% 7.3% 2.7% 76.0%
2026 0.0% 7.0% 2.8% 76.0%
2027Footnote Table 19* 0.0% 7.0% 2.8% 76.0%

Return to footnote Table 19* Assumptions for calendar year 2027 are necessary to determine the 2021 7-year break-even rate. They are the same as 2026.

The results of such an economic development on the EI program are illustrated in Table 20. The 7-year forecast break-even rate would increase by 21 cents, from 1.58% in 2020 to 1.79% in 2021, which would result in the application of the five-cent limit to adjust the premium rate for four years. After this period (in year 2025), for illustration purposes, the premium rate corresponds to the 7‑year forecast break-even rate, i.e. 1.79%. As for the EIOA, it would decrease to a maximum deficit of $12.3 billion in 2023.In 2027, the account would show a deficit of $5.9 billion. The results presented below do not include any special temporary measures that the Government could put in place to stabilize the economy, such as a premium rate freeze, regular benefit extensions or pilot projects.

Table 20 Impact of Low Economic Growth Scenario
Calendar Year 7-Year Break Even Rate Premium Rate (5 cents decrease limit) Annual Surplus / Deficit on EIOA ($ Billion) Cumulative Surplus / Deficit on EIOA (31 Dec.) ($ Billion)
2020 1.58% 1.58% (8.6) (4.5)
2021 1.79% 1.63% (5.1) (9.6)
2022 1.79% 1.68% (2.2) (11.8)
2023 1.79% 1.73% (0.5) (12.3)
2024 1.79% 1.78% 0.8 (11.5)
2025 1.79% 1.79% 1.5 (10.0)
2026 1.79% 1.79% 2.2 (7.9)
2027Footnote Table 20* 1.79% 1.79% 1.9 (5.9)Footnote Table 20**

Return to footnote table 20* Calendar year 2027 is presented in the low economic scenario as the 2021 7-year break-even rate would apply until 2027.

Return to footnote table 20** The cumulative surplus/deficit will reach zero once the 7-year forecast break-even rate has been stable for a period of 7 years. In this scenario, this would be year 2031.

7 Reconciliation of Changes in the 7-Year Forecast Break‑Even Rate

The main elements of change in the 7-year forecast break-even rate since the 2019 Actuarial Report are presented in Table 21.

Table 21 Reconciliation of Changes in the 7-Year Forecast Break-Even Rate
  7-Year Forecast Break-Even Rate (%)
2019 Actuarial Report - After Rounding 1.62
2019 Actuarial Report - Before Rounding 1.6160
Higher than Projected EI Operating Account as at 31 December 2018 (0.0058)
Change in Unemployment Rate assumptions over 7-year period (0.0259)
Changes in Economics - Earnings Base 0.0177
Changes in Economics - Expenditures (0.0379)
Change in 7-year period (2019-2025 to 2020-2026) (0.0056)
New measures - Budget 2019 0.0179
2020 Actuarial Report - Before Rounding 1.5764
2020 Actuarial Report - After Rounding 1.58

The 2018 experience was better than anticipated overall as revenues were slightly higher than projected in the 2019 Actuarial Report while expenditures were lower than expected. The net effect is an increase in the Cumulative Surplus of the EI Operating Account as at 31 December 2018 of $695 million, i.e. $3,274 million compared to $2,579 million projected in the 2019 Actuarial Report. This lowered the 7‑year forecast break-even rate.

As shown in the sensitivity test section, the unemployment rate assumption has a significant impact on the 7-year forecast break-even rate. In comparison with the 2019 Actuarial Report, the unemployment rate assumption was revised downward, from around 6.0% to 5.8% on average for the 2019-2025 period. This lowered the 7-year forecast break-even rate.

The largest decrease in the 7-year forecast break-even rate came from the decrease in projected benefits paid. Based on the most recent experience, the 2019 benefits are expected to be lower than projected in the previous actuarial report. As a result, the related assumptions, such as the recipiency rate, were adjusted to reflect the decrease. This, in turn, impacts the projection of benefits.  

The decrease resulting from the three elements mentioned above is partially offset by a slightly slower assumed progression in earnings and the new EI Training Support Benefit proposed in Budget 2019.

Overall, the 7-year forecast break‑even rate decreased from 1.62% in 2019 to 1.58% in 2020.

8 Conclusion

This report was prepared by the Actuary in accordance with the relevant legislation and provides to the Commission the forecasts and estimates for the purposes of sections 4 (MIE), 66 (EI premium rate) and 69 (employers who sponsor qualified wage-loss plans and premium reductions for Québec residents and their employers) of the EI Act.

In accordance with the methodology detailed in the EI Act and the relevant economic data, the 2020 MIE is $54,200. In addition, the 2020 estimated employer premium reduction due to qualified wage-loss plans is $1,049 million, and the 2020 QPIP reduction is 0.38%.

Based on the assumptions of the relevant economic and demographic variables provided by the Minister of Finance, on the expenditure estimates provided by the Minister of ESD, and on the methodology and other assumptions developed by the Actuary, the 7-year forecast break-even rate which would generate sufficient premium revenue to cover the expected cost of the EI program in the period 2020-2026 and eliminate the projected $4.1 billion cumulative surplus in the EI Operating Account as of 31 December 2019, is:

  • 1.58% of insurable earnings for residents of all provinces except Québec; and
  • 1.20% of insurable earnings for residents of Québec, after taking into account the QPIP reduction.

The 7-year forecast break-even rate for residents of all provinces except Québec decreases from 1.62% in the 2019 Actuarial Report to 1.58% in the current report. The decrease is mainly attributable to the anticipated lower than expected benefits payable in 2019 and the related changes in assumptions, along with the decrease in the unemployment rate assumption. This is partially offset by the slightly slower assumed progression of earnings and the cost of the new EI Training Support Benefit proposed in Budget 2019.

It is important to note that the figures included in this report are projections, and eventual differences between future experience and these projections will be analyzed and taken into account in subsequent reports.

9 Actuarial Opinion

In our opinion, considering that this report was prepared pursuant to the Canada Employment Insurance Act and Regulations:

  • the data on which this report is based are sufficient and reliable for the purposes of this report;
  • the assumptions used are, individually and in aggregate, reasonable and appropriate for the purposes of this report; and
  • the methods employed are appropriate for the purposes of this report.

Based on the results of this valuation, we hereby certify that the 7-year forecast break-even rate required to generate sufficient premium revenue to cover the expected cost of the EI program over the period 2020-2026 and eliminate the projected cumulative surplus in the EI Operating Account as of 31 December 2019, is 1.58% of insurable earnings.

This report has been prepared, and our opinions given, in accordance with accepted actuarial practice in Canada, in particular, the General Standards of the Standards of Practice of the Canadian Institute of Actuaries.

As of the date of the signing of this report, we have not learned of any events, subsequent to 22 July 2019, that would have a material impact on the 7-year forecast break-even rate presented in this report.

Signature of Annie St-Jacques
  • Annie St-Jacques, FCIA, FSA
  • Senior Actuary, Employment Insurance Premium Rate-Setting
Signature of Thierry Truong
  • Thierry Truong, FCIA, FSA
Signature of Myriam Demers
  • Myriam Demers, ACIA, ASA

Ottawa, Canada
22 August 2019

Appendix A - Summary of EI Legislation

The Unemployment Insurance program was first implemented in 1940, with the last major reform occurring in 1996. At that time, the name of the program was changed from “Unemployment Insurance” to “Employment Insurance” to reflect the program’s primary objective of promoting employment in the labour force and to better emphasize that individuals’ access to the program is linked to significant workforce attachment.

The EI program provides temporary income support to individuals who have lost their employment through no fault of their own or are unable to work due to specific life circumstances. This Appendix provides a brief overview of the EI program.

A.1 EI Part I Benefits

Benefits provided under Part I are described below.

Although access and entitlement to benefits vary depending on each benefit type, the calculation of weekly benefit rates is the same for most benefit types. Weekly benefits are generally equal to 55% of the claimants’ insurable earnings, during their variable best weeks over the qualifying period (generally 52 weeks), up to a maximum amount. The number of best weeks taken into account is determined by the regional unemployment rate and varies from 14 to 22 insurable earnings weeks. The maximum amount payable is determined by the maximum insurable earnings (MIE).

The EI family supplement provides additional benefits to low-income families with children. The family supplement rate is based on the net family income up to a maximum of $25,921 per year and the number of children in the family and their ages. The family supplement may increase benefits up to 80% of average insurable earnings.

Benefits are not paid until claimants have served a waiting period of one week of unemployment.

To stay connected to the labour market and earn some additional income, EI claimants can work while they are on claim. This measure is available to those collecting regular, fishing, maternity, parental, sickness, compassionate care or family caregiver benefits. Claimants can keep 50 cents of their EI benefits for every dollar they earn, up to a maximum of 90 per cent of the weekly insurable earnings used to calculate their EI benefit amount.

A.1.1 Regular Benefits

EI regular benefits are provided to eligible insured persons who have lost their jobs through no fault of their own (for example, due to a shortage of work, seasonal or mass lay-offs) and are available for and able to work but can’t find a job.

To qualify for regular benefits, individuals must have been without work and without pay for at least seven consecutive days. Claimants must have worked at least the minimum required hours of insurable employment, between 420 and 700 hours, as determined by the regional unemployment rate, in the last 52-week qualifying period. The number of insurable hours required to qualify is increased in cases of violations regarding prior EI claims. Claimants must also be actively looking for work in order to maintain eligibility.

The maximum number of regular benefit weeks varies from 14 to 45 weeks, depending on the number of insurable hours accumulated in the qualifying period and the regional unemployment rate. From time to time, the maximum duration of benefits can be extended through temporary special measures.

A.1.2 Fishing Benefits

EI provides fishing benefits to qualifying self-employed fishers who are actively seeking work. Unlike regular EI benefits, eligibility for EI fishing benefits is determined by the claimant's insurable fishing earnings accumulated during the qualifying period, not the number of hours worked. A self‑employed person engaged in fishing who has earned at least between $2,500 and $4,200 (depending on the regional unemployment rate) during the maximum 31 week qualifying period is eligible to receive up to 26 weeks of EI fishing benefits.

A.1.3 Work-Sharing Benefits

To avoid lay-offs due to a temporary reduction in the normal level of business activity that is beyond the control of the employer, employers and employees can enter into a Work-Sharing agreement with the Canada Employment Insurance Commission (Commission) through Service Canada to provide EI benefits to eligible workers willing to work a temporarily reduced work week. This enables employers to retain staff and adjust their work activity during temporary work shortages, as well as avoid the expenses of hiring and training new staff once business levels return to normal. Employees are able to retain their skills and jobs while receiving EI benefits for the days that they do not work.

Work-Sharing agreements have a minimum duration of 6 weeks and a maximum of 26 weeks, with a possible extension of up to 12 weeks for a maximum duration of 38 weeks. From time to time, the maximum duration of Work-Sharing agreements may be extended through temporary special measures.

A.1.4 Special Benefits

To qualify for special benefits, the claimant's normal weekly earnings must be reduced by over 40%. In addition, special benefits require a minimum of 600 hours of insurable employment in the 52-week qualifying period.

Special benefits include:

  • Maternity benefits, for mothers who give birth. These benefits can be paid for a maximum of 15 weeks. They can start as early as 12 weeks before the expected date of birth, and can end as late as 17 weeks after the actual date of birth.
  • Parental benefits, for a parent to take care of their newborn or newly adopted child. Parents may share the available weeks of parental benefits. There are two options available:
    • Standard parental benefits can be paid for a maximum of 40 weeks at 55% of the claimant’s average weekly insurable earnings (up to a maximum) and must be claimed within a 52 week period (12 months) after the week the child was born or placed for the purpose of adoption. As no parent can access more than 35 weeks, sharing parental benefits is required to access the additional weeks.
    • Extended parental benefits can be paid for a maximum of 69 weeks at 33% of the claimant’s average weekly insurable earnings (up to a maximum) and must be claimed within a 78 week period (18 months) after the week the child was born or placed for the purpose of adoption. As no parent can access more than 61 weeks, sharing parental benefits is required to access the additional weeks.
  • Sickness benefits, for people who are unable to work due to illness, injury or quarantine. These benefits can be paid for a maximum of 15 weeks. 
  • Compassionate care benefits, for people who take a temporary leave from work to provide end-of-life care or support for a family member who has a significant risk of death in the next 6 months. These benefits can be paid for a maximum of 26 weeks, which can be shared among eligible family caregivers.
  • Family Caregiver Benefit for Children, for family members who must be away from work to care for or support a critically ill or injured child. This benefit can be paid for a maximum of 35 weeks, which can be shared among eligible family caregivers.
  • Family Caregiver Benefit for Adults, for family members who must be away from work to care for or support a critically ill or injured adult. This benefit can be paid for a maximum of 15 weeks, which can be shared among eligible family caregivers. 

Since 2006, the Province of Québec has been responsible for providing maternity, parental and adoption (MPA) benefits to residents of Québec through the Québec Parental Insurance Plan (QPIP). All other types of EI benefits remain available to residents of Québec.

Self-employed fishers can qualify for special benefits with fishing earnings of $3,760 during the 31-week qualifying period.

Self-employed Canadians voluntarily enter into an agreement with the Commission through Service Canada to contribute EI premiums and access EI special benefits. They must be registered for at least one year prior to claiming benefits and their self-employment earnings must meet the minimum self-employment eligibility threshold in the year preceding the claim.

Self-employed residents of Québec entering into an agreement with the Commission cannot access EI MP benefits, as maternity and parental (including adoption) benefits are already payable through QPIP, but can access sickness, compassionate care and family caregiver benefits.

A.2 EI Part II Benefits

Part II of the EI Act includes Employment Benefits and Support Measures (EBSM), which are labour market programs and services established to help Canadians find and keep employment and to develop a labour force that meets the current and emerging needs of employers. These programs are delivered mostly by provincial and territorial governments through Labour Market Development Agreements (LMDAs).

A.3 Financing

The EI program is financed by contributions from employees and employers, via premiums paid on insurable earnings up to the MIE. Employee premiums apply to insurable earnings, up to the MIE. However, the EI program has specific provisions for contributors who are unlikely to qualify for benefits, e.g. employees with insured earnings of less than $2,000 are entitled to a refund of their EI premiums when they file an income tax return.

In addition, in accordance with subsection 69(2) of the EI Act and related regulations, a mechanism to reduce EI premiums paid by Québec residents and their employers was introduced. The reduced premium rate reflects the savings to the EI program due to the existence of the QPIP.

Since 31 January 2010, self-employed individuals may voluntarily opt into the EI program to receive EI special benefits. Self-employed individuals pay the same EI premium rate as salaried employees but are not required to pay the employer portion of premiums, as they do not have access to EI regular benefits.

Employers pay premiums at the rate of 1.4 times those of employees. Employers bear a higher overall share of program costs based on the principle that they have more control over layoffs. However, in accordance with subsection 69(1) of the EI Act, employers who sponsor a qualified wage-loss plan which reduces the EI special benefits otherwise payable receive a premium reduction if they meet the requirements set out by the Commission. In such cases, the employer pays premiums at a rate that is lower than 1.4 times those of employees, and a portion of those savings must be returned to their employees.

A.4 Premium Rate

In accordance with subsection 66(1) of the EI Act, the Commission shall set the premium rate for each year in order to generate just enough premium revenue to ensure that, at the end of the seven-year period that commences at the beginning of that year, the total of the amounts credited to the EI Operating Account after 31 December 2008 is equal to the total of the amounts charged to that Account after that date. This calculated premium rate is referred to as the 7-year forecast break-even rate.

Legislative Framework

The EI Act includes the following dates by which various responsibilities related to the setting of the EI premium rate must be met.

22 July

The Minister of Employment and Social Development (ESD) shall provide the information prescribed in subsection 66.1(1) of the EI Act.

The Minister of Finance shall provide the information prescribed in subsection 66.2(1) of the EI Act.

22 August

In accordance with section 66.3 of the EI Act, the Actuary shall prepare actuarial forecasts and estimates for the purposes of sections 4, 66 and 69 of the EI Act, and shall provide the Commission with a report that sets out:

  • the forecast premium rate for the following year and a detailed analysis in support of the forecast;
  • the calculations performed under sections 4 and 69 of the EI Act;
  • the information provided under section 66.1 of the EI Act; and
  • the source of the data, the actuarial and economic assumptions and the actuarial methodology used.

31 August

The Commission shall provide the Ministers of ESD and Finance with the report referred to in section 66.3 and a summary of that report.

14 September

The Commission shall set the premium rate for the following year and make available to the public the report referred to in section 66.3 of the EI Act and a summary of that report. After the premium rate is set and the report and its summary are made available to the public, the Minister of ESD shall cause them to be laid before each House of Parliament on any of the next 10 days during which that House is sitting.

30 September

The Governor in Council may set a premium rate that is different from the one set by the Commission, based on the joint recommendation of the Ministers of ESD and Finance, if it is considered to be in the public interest.

Appendix B – Premium Calculation Methodology

B.1 Premium Rate

Based on relevant assumptions and prior to any limit to the annual change in the premium rate, the 7-year forecast break-even rate for 2020 is the premium rate that is expected to generate sufficient premium revenue to ensure that at the end of 2026 the amounts credited and charged to the EI Operating Account after 31 December 2008 are equal. It is therefore based on the projected balance of the EI Operating Account as of 31 December 2019 and the projection over a period of seven years (2020-2026) of both the earnings base and EI expenditures.

The earnings base represents the total insurable earnings on which salaried employees and their employers pay EI premiums, and the earnings on which self‑employed individuals that opted into the EI program pay EI premiums. The employer portion of the earnings base for salaried employees is equal to 1.4 times the employee portion of the earnings base for salaried employees, prior to the adjustment to reflect employee premium refunds.

In accordance with section 69 of the EI Act and related regulations, premium reductions are granted to employers who sponsor a qualified wage-loss plan as well as to employees residing in a province that has established a provincial plan and their employers. The expected costs of these premium reductions over the next seven years are included in the EI expenditures for purposes of determining the 7-year forecast break-even rate. More information on these premium reductions as well as the methodology used for calculating the applicable reductions for 2020 are provided in subsections B.2 (wage-loss) and B.3 (provincial plan).

For purposes of determining the 7-year forecast break-even rate, the earnings base and EI expenditures are projected over a seven-year period using the expected growth rates in the relevant economic and demographic variables applied to the base year, i.e. the last year for which complete data are available. The base year for the earnings base is 2017, which is the most recent year for which fully assessed T4 data are available. However, for certain assumptions, the 2018 partially assessed information is used. Complete data for 2018 will not become available until January 2020. The base year for EI benefits is calendar year 2018.

The earnings base and EI expenditures are projected from the base year using:

  • Data and assumptions provided by the Minister of ESD, including prescribed information as set out in section 66.1 of the EI Act;
  • Assumptions and forecasts provided by the Minister of Finance in accordance with section 66.2 of the EI Act;
  • Additional data provided by Service Canada, ESDC, and the Canada Revenue Agency (CRA); and
  • Methodology and other assumptions developed by the Actuary.

The 7-year forecast break-even rate is calculated such that the sum of expected revenues from insurable and self-employed covered earnings over the next seven years and the EI Operating Account balance as of 31 December 2019 are equal to the expected EI expenditures over the same period. For this purpose, the expected EI expenditures include the expected amount of premium reductions granted to employers who sponsor a qualified wage-loss plan as well as to employees residing in a province that has established a provincial plan and their employers.

The expected EI expenditures are comprised of:

  • Direct program expenditures, including:
    • EI Part I benefits, net of benefit repayments that apply in certain situations (e.g. if a claimant’s income for a tax year exceeds 1.25 times the annual MIE, the claimant may be required to repay a portion of benefits received);
    • EI Part II benefits, that is, employment benefits and support measures;
    • Additional benefits paid through various pilot projects and transitional measures, net of government funding;
    • Administration costs; and
    • Other costs such as bad debt expense, net of penalties and interests recovered from claimants.
  • Premium reductions granted to employers who sponsor qualified wage‑loss plans;
  • Premium reductions granted to employees residing in a province that has established a provincial plan and to their employers; and
  • Premium rebate granted to small businesses related to the new EI Training Support Benefit expected to launch in late 2020. The details of the rebate still need to be confirmed through legislation.

The expected revenues are comprised of:

  • Employer premiums paid on behalf of salaried employees over the next seven years prior to premium reductions and rebate;
  • Employee premiums over the next seven years for earnings included in insured employment of salaried employees, net of refunds that apply in certain situations (e.g. insurable earnings below $2,000, over contributions due to multiple employments in the year) and prior to premium reductions for provincial plans; and
  • Employee premiums over the next seven years for self-employed individuals who voluntarily opted into the EI program prior to premium reductions for provincial plans.

Depending on the projected cumulative balance in the EI Operating Account as at 31 December 2019, the 7-year forecast break-even rate could either increase or decrease. For 2020, given that the projected EI Operating Account as of 31 December 2019 is projected to be in surplus, the amortization of the projected EI Operating account balance decreases the 7-year forecast break-even rate.

The formula for calculating the 7-year forecast break-even rate is developed as follows:

EI Expenditures (over the next 7 years)  = Revenues (over the next 7 years) + EIOA as at 31 December 2019

Formula for calculating the 7-year forecast break-even rat

[text version]

Where:

RWLP  =  amount of reduction in employer premiums due to qualified wage-loss plans over the next 7 years;

RPP  =  amount of reduction in employee and employer premiums due to provincial plans over the next 7 years;

RSBPR = small business premium rebate to offset costs of the new EI training support benefit proposed in Budget 2019 and expected to launch in late 2020;

EIOA  =  EI Operating Account as of 31 December 2019 ;

TIE  =  total insurable earnings over the next 7 years for salaried employees prior to adjustments for employee premium refunds;

PR%  =  average adjustment over the next 7 years to reflect employee premium refunds (as a percentage of TIE);

TSEE  =  total self-employed earnings over the next 7 years for individuals who opt into the EI program.

A description of the assumptions used in projecting the variables included in the above formulas is provided in Section 4 of the main report, with additional supporting information provided in Appendix D.

B.2 Reduction in Employer Premiums Due to Qualified Wage-Loss Plans

Generally, EI premiums paid by the employer are equal to 1.4 times the premiums deducted by the employer on behalf of the employee, referred to as the employer multiplier. However, pursuant to subsection 69(1) of the EI Act, the employer premiums can be reduced through a lower employer multiplier when its employees are covered under a qualified wage-loss plan which reduces EI special benefits otherwise payable, provided that at least 5/12 of the reduction is passed on to the employees.

In accordance with sections 63, 64, 65 and 66 of the Employment Insurance Regulations (“EI Regulations”), there are four distinct categories of qualified wage-loss plans, and a separate rate of reduction, expressed as a percentage of insurable earnings, is calculated annually for each category. These rates of reduction are then converted into reduced employer multipliers for each category and applicable premium rate. The principle in determining the rates of reduction is that the EI program is paying lower sickness benefits due to the presence of qualified wage-loss plans, and that these savings to the EI program should be passed on to the employers who sponsor these plans and their employees. For administrative simplicity, the full premium reduction is provided to the employer who is then responsible for returning the employees’ portion of the reduction to them.

As discussed in the previous subsection, the projection over seven years of the reduction in employer premiums due to qualified wage-loss plans is taken into account in the determination of the 7-year forecast break-even rate. For this purpose, it is viewed as a cost to the EI program and included in the numerator of the 7-year forecast break-even rate calculation. However, the cost to the EI program of granting premium reductions to employers with qualified wage-loss plans is offset by the savings to the EI program generated by lower EI sickness benefits due to the existence of qualified wage-loss plans. In addition to determining the 7-year forecast break-even rate, one of the purposes of this report is to determine the reduction in employer premiums due to qualified wage‑loss plans that will apply for 2020. The remainder of this subsection provides summarized information on this.

The methodology to calculate the rates of reduction applicable for 2020 is prescribed in section 62 of the EI Regulations. Pursuant to this section, the employer’s premium rate shall be reduced by the percentage by which the first payer cost ratio in respect of all insured persons exceeds the experience cost ratio in respect of insured persons covered by a qualified wage-loss plan of that employer’s category. The formula used in determining the rate of reduction of each category is provided below:

 

Rate of reduction(x)  =  First Payer Cost ratio – Experience Cost ratio(x)

Where: x  =  Category of wage-loss plan (1 to 4).

First-Payer Cost (FPC) ratio

The FPC ratio, which is identical for all insured persons and categories, represents the average estimated job-attachedFootnote 3 EI sickness benefits that would have been paid if benefits payable under a group sickness or disability wage-loss indemnity plan or paid sick leave plan were disregarded for purposes of determining benefits otherwise payable to persons under the EI Act. It is expressed as a percentage of average insurable earnings for all insured persons. The FPC for each year is determined by multiplying the hypothetical number of first payer job-attached EI sickness benefit weeks by the average weekly sickness benefits that would apply in such circumstance.

For the purposes of calculating the 2020 rates of reduction, the FPC ratio is equal to the average of the FPC for the years 2016 to 2018, divided by the average insurable earnings of all insured persons for the years 2016 to 2018. The formula used in determining the FPC ratio is provided below:

Formula used in determining the FPC ratio

[text version]

Where: TIE  =    total insurable earnings for all salaried employees prior to adjustments for employee premium refunds.

Experience Cost (EC) ratio

The EC ratio is different for each category and reflects the actual average job‑attached EI sickness benefits paid for each category. It is expressed as a percentage of average insurable earnings for the insured persons in that category.

The EC for each year and category, as well as the allocation of insurable earnings amongst categories are based on an analysis of administrative data provided by Service Canada and ESDC.

Similarly to the calculation of the FPC ratio, for the purposes of calculating the 2020 rates of reduction, the EC ratio of each category is based on the years 2016  to 2018. The formula used in determining the EC ratio of each category is provided below:

Formula used in determining the EC ratio of each category

[text version]

Where:  x  =  Category of wage-loss plan (1 to 4);

TIE(x)  =  total insurable earnings for salaried employees of the category x, prior to adjustments for employee premium refunds.

Rates of Reduction and Amount of Premium Reduction

The resulting uniform FPC ratio applicable to all categories and the EC ratio of each category are used to determine the 2020 rates of reduction per category. The 2020 estimated insurable earnings per category are then used to estimate the 2020 employer premium reduction due to qualified wage-loss plans.

The estimated employer premium reduction due to qualified wage-loss plans for years 2021 to 2026 are projected assuming that the 2018 FPC and EC ratios remain constant throughout the projection. The 2017 and 2018 experience used to determine the 2020 rates of reduction reflects the change in the waiting period from two weeks to one week effective 1 January 2017.

Additional supporting information on the calculation of the 2020 employer premium reduction due to qualified wage-loss plans and of each separate component is provided in Appendix E.

B.3 Reduction in Premiums Due to Provincial Plan

In accordance with subsection 69(2) of the EI Act and related regulations, premiums paid by employees and their employers can be reduced when employees are covered under a plan established under provincial law which reduces EI maternity and parental (MP) benefits otherwise payable, provided that an agreement has been entered into between the Government of Canada and the province to establish a system for reducing premiums paid by residents of that province and their employers.

As discussed in the previous subsection, the projection over seven years of the reduction in premiums due to the presence of provincial plans is taken into account in the determination of the 7-year forecast break-even rate. For this purpose, it is viewed as a cost to the EI program and included in the numerator of the 7-year forecast break-even rate calculation. However, the cost to the EI program of granting these premium reductions is offset by the savings to the EI program generated by lower EI MP benefits due to the existence of provincial plans. In addition to determining the 7-year forecast break-even rate, one of the purposes of this report is to determine the reduction in premiums due to provincial plans that will apply for 2020. The remainder of this subsection provides more information on this.

Since 1 January 2006, the province of Québec has been responsible for providing maternity, parental and adoption (MPA) benefits to the residents of Québec through the Québec Parental Insurance Plan (QPIP). Pursuant to subsection 69(2) of the EI Act and related regulations, a mechanism to reduce EI premiums paid by Québec residents and their employers was introduced. The reduced premium rate reflects the savings to the EI program due to the existence of the QPIP. To date, the QPIP is the only provincial plan established in Canada.

Pursuant to the agreement signed between the Government of Canada and the Government of Québec and in accordance with Part III.1 of EI Regulations, the 2020 premium reduction for the MP provincial plan in the province of Québec, also referred to as the QPIP reduction, is equal to the ratio of the 2020 EI MP expenditures, including EI MP benefits and the variable administrative costs related to administering EI MP benefits, to the 2020 earnings base of residents outside the province of Québec. Accordingly, the formula for the QPIP reduction is as follows:

Formula for the QPIP reduction

[text version]

Where:

TIE(2020 OQ)  =    2020 total insurable earnings for out-of-Québec resident salaried employees, prior to adjustments for employee premium refunds; 

PR%  =  adjustment to reflect 2020 employee premium refunds (as a percentage of TIE);

TSEE(2020 OQ)  =  2020 total self-employed earnings for out-of-Québec residents who opted into the EI program.

Appendix C – Maximum Insurable Earnings (MIE)

Section 4 of the Employment Insurance Act (“EI Act”) provides details on how to determine the yearly MIE, the income level up to which EI premiums are paid and up to which EI benefits are calculated.

Based on the EI Act, the annual MIE is set at $39,000, beginning in 1996, until this threshold is surpassed by 52 times the product obtained by multiplying:

  • the average for the 12-month period ending on April 30 in the preceding year of the Average Weekly Earnings (AWE), according to the latest revision of Statistics CanadaFirst-Payer Cost (FPC) ratioFootnote 4, for each month in that period

    by

  • the ratio that the average for the 12-month period ending on April 30 in that preceding year of the AWE for each month in that 12-month period bears to the average for the 12-month period ending twelve months prior to April 30 of that preceding year of the AWE for each month in that 12-month period ending twelve months prior to April 30 of that preceding year.

In the year in which the threshold is surpassed, the MIE is equal to the amount calculated as described above, and is rounded down to the nearest multiple of $100.

For subsequent years, the MIE before rounding is equal to the previous year’s MIE before rounding, multiplied by the average of the AWE for each month for the twelve month period ending on April 30 of the previous year divided by the average of the AWE for each month for the twelve month period ending on April 30 in the year prior to the previous year. This unrounded MIE is then rounded down to the nearest multiple of $100.

In accordance with the EI Act, the first time the $39,000 threshold was exceeded was for 2007. The revised unrounded MIE for 2007 is $40,072.92Footnote 5.

The unrounded MIE for 2020 is equal to the unrounded MIE from 2007 ($40,072.92) multiplied by the average of the AWE for each month for the twelve month period ending 30 April 2019 ($1,007.1342) divided by the average of the AWE for each month for the twelve month period ending 30 April 2006 ($743.5792).

Rounded down to the nearest multiple of $100, the MIE is $54,200 for 2020. This is an increase of $1,100 or 2.1% from the 2019 MIE of $53,100.

Table 22 Maximum Insurable Earnings
($)
Year 12-Month AWE Average as of 30 April Revised Unrounded MIE Applicable MIE % change in Applicable MIE
2005 717.4750 37,256.86 39,000 -
2006 743.5792 38,374.17 39,000 -
2007 764.8708 40,072.92 40,000 2.6%
2008 796.5883 41,220.37 41,100 2.8%
2009 814.8108 42,929.69 42,300 2.9%
2010 830.0800 43,911.73 43,200 2.1%
2011 862.2917 44,734.62 44,200 2.3%
2012 878.4475 46,470.57 45,900 3.8%
2013 901.3567 47,341.24 47,400 3.3%
2014 919.1850 48,575.86 48,600 2.5%
2015 943.3833 49,536.66 49,500 1.9%
2016 952.6817 50,840.75 50,800 2.6%
2017 961.1342 51,341.86 51,300 1.0%
2018 985.1842 51,797.38 51,700 0.8%
2019 1,007.1342 53,093.48 53,100 2.7%
2020 N/A 54,276.41 54,200 2.1%

The MIE for years prior to 2020 are not revised and are based on the legislation that applied at the time they were determined. However, the 2020 MIE reflects retroactive adjustments to the calculation in accordance with current legislation.

2020 Minimum Self-Employed Earnings (MSEE)

To qualify for EI special benefits, self-employed individuals who opted in the EI program need to earn at least the MSEE during the calendar year before the year they submit a claim. For claims filed in 2019, in accordance with subsection 11.1 of the EI Regulations, the unrounded MSEE of 2019 was $7,121.25 of self‑employed earnings in 2018. It is adjusted annually on a compound basis by the same ratio used for the indexation of the MIE (see previous section), rounded down to the nearest dollar.

The MSEE for claims filed in 2020 is therefore set at $7,279 of self-employed earnings in 2019.

Appendix D – Data, Methodology and Assumptions

This appendix describes the data, methodology and assumptions that underlie the projections of the earnings base and expenditures included in this report. Although the assumptions have been developed using the most up-to-date available information, the resulting estimates should be interpreted with caution. These estimates are projections, and eventual differences between future experience and these projections will be analyzed and taken into account in subsequent reports.

D.1 Prescribed Data

D.1.1 Minister of Employment and Social Development

Under subsection 66.1(1) of the Employment Insurance Act (“EI Act”), the Minister of Employment and Social Development (ESD) shall provide the Actuary, on or before 22 July of each year, with:

  • the forecast change in payments to be made under paragraphs 77(1) (a), (b) or (c) of the EI Act during each of the following seven years if any changes to the payments to be made are announced;
  • the forecast administration costs to be paid under paragraphs 77(1) (d),(d.1) and (g) of the EI Act during each of the following seven years, including any forecast change in those costs resulting from any change to the payments to be made under paragraphs 77(1) (a), (b) or (c) of the EI Act; and
  • the total amounts charged to the EI Operating Account as of the last day of the most recent month for which that total is known.

Accordingly, for the purposes of determining the 2020 EI 7-year forecast break‑even rate under section 66 of the EI Act, the Minister of ESD has provided the Actuary with the following information:

Table 23 Prescribed Information Provided by the Minister of ESD
($ millions)
Part I Actual Forecast
2018 2019 2020 2021 2022 2023 2024 2025 2026
Pilot Projects/Special Measures
Pilot Project - Support for eligible seasonal claimants in targeted regions 0.0 51.4 83.6 25.0 - - - - -
Extending EI Regular Benefits for Regions Affected by Commodities Downturn 415.8 - - - - - - - -
Extending the Maximum Duration of Work-Sharing Agreements 0.2 10.5 11.5 2.9 - - - - -
Sub-Total 416.0 61.9 95.1 27.9 - - - - -
Recent Proposed and Permanent Changes
Family Caregiver Benefit for Adults 43.5 50.2 52.6 55.2 57.8 60.6 63.5 63.5 63.5
Expanding flexibilities to encourage lifelong learning 2.6 8.7 9.0 9.3 9.6 9.9 10.3 10.3 10.3
Parental Sharing Benefits - 223.1 277.1 288.6 300.5 312.9 325.8 339.2 353.2
EI Canada Training Benefit                  

Training Support Benefit

- - 16.8 259.1 285.0 294.0 296.3 296.3 296.3

Small Business Premium Rebate

- - 25.8 26.4 27.3 28.2 28.9 29.0 29.0
Sub-Total 46.1 282.0 381.3 638.6 680.2 705.6 724.8 738.3 752.3
Total 462.1 343.9 476.4 666.5 680.2 705.6 724.8 738.3 752.3
Part II Actual Forecast
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27
Employment Benefits and Support MeasuresFootnote Table 23* 2,307.9 2,463.5 2,424.1 2,499.1 2,499.1 2,074.1 2,074.1 2,074.1 2,074.1
Administration CostsFootnote Table 23** 1,830.4 1,897.4 1,825.1 1,770.5 1,756.5 1,751.9 1,747.1 1,747.1 1,747.1

Return to footnote table 23* Includes additional LMDA investment of $1.8 billion announced in Budget 2017 ($1.7 billion remaining for 2018-19 to 2022-23), Softwood Lumber Workforce Adjustment measures announced in June 2017 (revised cost of $24 million), LMDA funding to support unemployed workers in seasonal industries announced in Budget 2018 (revised cost of $37 million), and LMDA funding to support unemployed workers in steel and aluminium industries announced in June 2018 (revised cost of $47 million).

Return to footnote table 23** Includes administration costs related to the new EI Training Support Benefit proposed in Budget 2019 and expected to launch in late 2020.

In addition, the Minister of ESD provided an EI Operating Account summary that shows a preliminary cumulative surplus of $4.9 billion as of 31 March 2019, the most recent month for which that total is known.

Additional information with regards to the pilot projects, special measures and new permanent changes shown in Table 23 can be found below.

Pilot Projects and Special Measures

In August 2018, the Government of Canada announced, that as part of a Budget 2018 commitment, it would invest $189 million to implement a new pilot project to provide up to five additional weeks of EI regular benefits to eligible seasonal claimants in 13 targeted EI economic regions. The additional five weeks of benefits are available for claims established between 5 August 2018 and 30 May 2020. The revised projected cost for this pilot project provided by the Minister of ESD totals $160 million.

Budget 2016 provided eligible unemployed workers in 15 regions hardest hit by the downturn in commodity prices with additional weeks of EI regular benefits. Five additional weeks were available for all eligible unemployed workers in specified regions, up to a maximum of 50 weeks, and up to an additional 20 weeks were available to eligible unemployed long-tenured workers, in specified regions, up to a maximum of 70 weeks. Extended benefits came into effect on 3 July 2016, and were available to anyone who started a claim for regular benefits between 4 January 2015 and 8 July 2017, and was still unemployed. Consequently, this has an impact on 2018 regular benefits.

Budget 2016 extended the maximum duration of Work-Sharing agreements that began or ended between 1 April 2106 and 31 March 2017, from 38 weeks to 76 weeks. The Softwood Lumber Action Plan announced in June 2017 extended the maximum duration of Work-Sharing agreements beginning between 30 July 2017 and 28 March 2020 to support workers affected by the downturn in the Forestry sector. In June 2018, the Government of Canada also announced the extension to the maximum duration of Work-Sharing agreements from 5 August 2018 to 27 March 2021 to support workers who may be affected by the recent U.S. tariffs imposed on Canadian steel and aluminium shipments.

Budget 2017 announced additional funding under the LMDAs over six years starting in 2017-18 to provide more opportunities to Canadians to upgrade their skills, gain experience or get help to start their own business.

The Softwood Lumber Action Plan announced in June 2017 also provided additional targeted investments for training, and employment support to workers affected by adjustments in the forest sector through the LMDAs for 2017-18 and 2018-19. In addition, over the same period, there was a partnership with the most affected provinces in order to implement Target Earnings Supplements (TES) along with complementary employment supports.

Further amendments to the LMDAs were announced as part of a broader Budget 2018 commitment to support workers in seasonal industries and additional amendments were announced in June 2018 to support workers directly and indirectly affected by trade disputes in the steel and aluminium industries.

Recent Proposed and Permanent Changes

Budget 2017 incorporated a new Family Caregiver Benefit for Adults. Claimants are granted up to 15 weeks per period of 52 weeks to care for or support an adult family member who is critically ill or injured.

Budget 2017 introduced a new Skills Boost EI measure to expand the existing flexibilities within the EI program to allow claimants who have lost their job after several years in the workforce to pursue self-funded full-time training while continuing to receive EI benefits.

Budget 2018 introduced a new EI Parental Sharing Benefit. This benefit became permanent in March 2019, three months earlier than originally planned. The measure provides parents with an additional 5 weeks of standard parental benefits or 8 weeks of extended parental benefits for new parents who agree to share parental benefits. This new benefit is available to eligible two-parent families, including adoptive and same-sex couples.

Budget 2019 announced a new EI Training Support Benefit to help workers cover their living expenses when they require time off work to pursue training. This benefit, proposed to be launched in late 2020, would provide eligible claimants up to four weeks of income support in a four-year period at 55 per cent of their average weekly insurable earnings. In addition, the Government announced an EI Premium Rebate for Small Businesses to help offset the upward pressure on EI premiums resulting from the introduction of the new EI Training Support Benefit. This rebate would be available to employers who pay employer EI premiums equal to or less than $20,000 staring in 2020.

D.1.2 Minister of Finance

Under subsection 66.2(1) of the EI Act, the Minister of Finance shall provide the Actuary, on or before 22 July of each year, with the following:

  • the most current forecast values of the economic variables relevant to the determination of the 7-year forecast break-even rate for the following seven years;
  • the forecast amounts to be credited and charged to the EI Operating Account for the current year and an estimate of the total amounts credited to the Account as at 31 December of the previous year.

Accordingly, for the purposes of determining the 2020 EI 7-year forecast break‑even rate under section 66 of the EI Act, the Minister of Finance has provided the Actuary with the following information:

Table 24 Prescribed Information Provided by the Minister of Finance
(thousands)
Actual Forecast
2018 2019 2020 2021 2022 2023 2024 2025 2026
Population (15+) 30,290 30,691 30,978 31,254 31,535 31,825 32,117 32,408 32,694
Labour Force 19,813 20,168 20,256 20,349 20,412 20,450 20,460 20,553 20,630
Employment 18,658 19,024 19,094 19,175 19,223 19,258 19,256 19,352 19,424
Employees 15,794 16,148 16,219 16,288 16,323 16,347 16,340 16,416 16,472
Self-Employed 2,863 2,875 2,876 2,887 2,900 2,911 2,916 2,936 2,952
Unemployed 1,156 1,145 1,162 1,174 1,189 1,191 1,204 1,202 1,206
Unemployment Rate 5.8% 5.7% 5.7% 5.8% 5.8% 5.8% 5.9% 5.8% 5.8%
Average Weekly Earnings ($) 1,001 1,024 1,052 1,084 1,118 1,154 1,192 1,230 1,270
Average Employment Income Growth 3.2% 1.9% 2.8% 2.8% 3.0% 3.2% 3.3% 3.1% 3.2%

D.2 Earnings Base

The earnings base represents the total insurable earnings on which salaried employees and their employers pay EI premiums, and the earnings on which self‑employed individuals that opted into the EI program pay EI premiums. The earnings base is comprised of:

  • the total insurable earnings on which employers pay EI premiums prior to any adjustment for qualified wage-loss plans or the small business premium rebate;
  • the total insurable earnings on which employees pay EI premiums, adjusted to reflect employee premium refunds; and
  • the earnings on which self‑employed individuals that opted into the EI program pay EI premiums.

Section 4 of the report presents an overview of the assumptions used in determining the earnings base. The following subsections provide additional information and data in support of the development of these assumptions.

D.2.1 Number of Earners

In order to calculate the earnings base, an assumption is required for the number of earners, as well as the split of these earners between those who have earnings below and above the maximum insurable earnings (MIE).

The annual statistic on the number of employees provided by the Minister of Finance represents an average of the number of individuals who work for a public or private sector employer in a month. The number of earners provided by CRA is always greater than the average monthly number of employees since it represents a count of all individuals who received one or more T4 slips in the year and had employment income and/or insurable earnings during the year. This is mainly due to the fact that the number of earners includes all individuals who had earnings at any time during the year, whereas the number of employees only indicates a monthly average.

A historical comparison of the number of employees and the number of earners is presented in Table 25. The preliminary number of earners for the year 2018 is set such that the resulting insurable earnings are in line with the expected assessed premiums for 2018, which are derived from the 2018 year-to-date assessed premiums and the 2018 increase in average employment income provided by the Minister of Finance.

Table 25 Historical Comparison of the Number of Employees and Number of Earners
(thousands)
Year Number of Employees Increase in Number of Employees Number of Earners (CRA T4 Data) Increase in Number of Earners Difference in Annual Increases (%)
2012 14,765   18,244    
2013 14,955 1.28% 18,424 0.99% (0.29%)
2014 15,072 0.78% 18,645 1.20% 0.41%
2015 15,189 0.78% 18,851 1.11% 0.33%
2016 15,314 0.83% 18,874 0.12% (0.71%)
2017 15,613 1.95% 19,219 1.83% (0.12%)
2018 15,794 1.16% 19,718 2.60% 1.44%

The projected number of earners is obtained by a regression based on a correlated historical relationship from 1989 to 2017 between the number of earners and the number of employees.

Table 26 shows projected number of employees as provided by the Minister of Finance as well as the projected number of earners for the years 2019 to 2026.

Table 26 Projected Number of Earners
(thousands)
Year Projected Number of Employees Increase in Number of Employees Projected Number of Earners Increase in Number of Earners
2019 16,148   19,862  
2020 16,219 0.44% 19,942 0.41%
2021 16,288 0.43% 20,022 0.40%
2022 16,323 0.21% 20,061 0.20%
2023 16,347 0.15% 20,089 0.14%
2024 16,340 -0.04% 20,081 -0.04%
2025 16,416 0.47% 20,168 0.43%
2026 16,472 0.34% 20,232 0.32%

As shown in Table 27, based on information with regards to the historical number of earners across income ranges, the distribution of earners by level of average employment income is fairly stable from year to year.

Table 27 Historical Distribution of Earners by Level of Average Employment Income
Year Average Employment Income ($) Range as a %of Average Employment Income
0 - 25 % 25 - 50 % 50 - 75 % 75 - 100 % 100 - 125 % > 125 %
2012 44,073 21.9% 14.7% 12.9% 12.3% 10.0% 28.2%
2013 45,227 21.9% 14.7% 13.0% 12.4% 9.9% 28.2%
2014 46,415 21.8% 14.7% 13.1% 12.4% 9.9% 28.1%
2015 47,223 22.0% 14.7% 13.3% 12.4% 9.9% 27.8%
2016 46,872 21.4% 14.6% 13.2% 12.4% 10.0% 28.4%
2017 48,209 21.6% 14.5% 13.3% 12.4% 9.9% 28.2%

The 2017 distribution of the number of earners by level of average employment income is used to determine the proportion of earners with employment income below and above the MIE for years 2018 to 2026.

Table 28 shows the resulting split of the number of earners between those with employment income below the MIE and those with employment income above the MIE. Actual data is also shown for the years 2012 to 2017.

Table 28 Number of Earners Below and Above the MIE
Year MIE ($) MIE as a Proportion of Average Employment Income Proportion of Earners Below MIE Thousands
Total Number of Earners Number of Earners Below MIE Number of Earners Above MIE
2012 45,900 1.0415 63.7% 18,244 11,621 6,622
2013 47,400 1.0480 64.1% 18,424 11,803 6,621
2014 48,600 1.0471 64.2% 18,645 11,962 6,683
2015 49,500 1.0482 64.5% 18,851 12,168 6,683
2016 50,800 1.0838 65.3% 18,874 12,327 6,547
2017 51,300 1.0641 64.7% 19,219 12,425 6,794
2018 51,700 1.0387 63.6% 19,718 12,533 7,185
2019 53,100 1.0474 63.9% 19,862 12,700 7,162
2020 54,200 1.0401 63.6% 19,942 12,688 7,254
2021 55,600 1.0378 63.5% 20,022 12,718 7,303
2022 57,200 1.0363 63.5% 20,061 12,730 7,331
2023 59,000 1.0353 63.4% 20,089 12,739 7,350
2024 60,800 1.0325 63.3% 20,081 12,709 7,371
2025 62,800 1.0344 63.4% 20,168 12,781 7,387
2026 64,900 1.0356 63.4% 20,232 12,833 7,399

D.2.2 Average and Total Employment Income

The projected increase in average employment income, provided by the Minister of Finance, combined with the increase in the projected number of earners, are used to determine the total employment income for the years 2018 to 2026. Table 29 shows the derivation of the projected total employment income for the years 2018 to 2026, as well as actual data provided by CRA for the years 2012 to 2017.

Table 29 Projected Total Employment Income
Year Number of Earners from CRA T4 Data (thousands) Increase in Number of Earners Average Employment Income from CRA T4 Data ($) Increase in Average Employment Income Increase in Total Employment Income Total Employment Income ($ thousands)
2012 18,244   44,073     804,060,540
2013 18,424 0.99% 45,227 2.62% 3.63% 833,270,357
2014 18,645 1.20% 46,415 2.63% 3.85% 865,389,791
2015 18,851 1.11% 47,223 1.74% 2.87% 890,187,256
2016 18,874 0.12% 46,872 (0.74%) (0.62%) 884,643,535
2017 19,219 1.83% 48,209 2.85% 4.73% 926,511,511
2018 N/A 2.60% N/A 3.25% 5.93% 981,476,324
2019 N/A 0.73% N/A 1.85% 2.59% 1,006,907,085
2020 N/A 0.41% N/A 2.79% 3.21% 1,039,203,930
2021 N/A 0.40% N/A 2.81% 3.22% 1,072,654,263
2022 N/A 0.20% N/A 3.03% 3.23% 1,107,341,248
2023 N/A 0.14% N/A 3.25% 3.39% 1,144,881,404
2024 N/A (0.04%) N/A 3.33% 3.29% 1,182,514,013
2025 N/A 0.43% N/A 3.10% 3.55% 1,224,459,249
2026 N/A 0.32% N/A 3.22% 3.55% 1,267,931,593

As shown in Table 30, based on information with regards to the historical employment income across income ranges, the distribution of total employment income as a percentage of average employment income is stable from year to year.

Table 30 Historical Distribution of Employment Income as a % of Average Employment Income
Year Average Employment Income ($) Range as a % of Average Employment Income
0 - 25 % 25 - 50 % 50 - 75 % 75 - 100 % 100 - 125 % > 125%
2012 44,073 2.4% 5.4% 8.1% 10.7% 11.2% 62.2%
2013 45,227 2.4% 5.4% 8.1% 10.8% 11.1% 62.3%
2014 46,415 2.4% 5.4% 8.2% 10.8% 11.1% 62.2%
2015 47,223 2.3% 5.4% 8.3% 10.8% 11.1% 62.1%
2016 46,872 2.3% 5.4% 8.2% 10.8% 11.2% 62.1%
2017 48,209 2.3% 5.4% 8.3% 10.8% 11.1% 62.0%

The 2017 distribution of the total employment income as a percentage of average employment income is used to determine the proportion of employment income that relates to earners with employment income below and above the MIE for the years 2018 to 2026. Table 31 shows the total employment income split between the earners with employment income below the MIE and earners with employment income above the MIE for the years 2018 to 2026. Actual data is also shown for the years 2012 to 2017.

Table 31 Distribution of Employment Income for Earners Below and Above the MIE
Year MIE ($) MIE as a Proportion of Average Employment Income Proportion of Employment Income for Earners Below MIE ($ thousands)
Total Employment Income Total Employment Income for Earners Below MIE Total Employment Income for Earners Above MIE
2012 45,900 1.0415 28.5% 804,060,540 229,466,429 574,594,111
2013 47,400 1.0480 28.9% 833,270,357 240,789,645 592,480,712
2014 48,600 1.0471 28.9% 865,389,791 250,470,009 614,919,782
2015 49,500 1.0482 29.1% 890,187,256 259,085,340 631,101,916
2016 50,800 1.0838 30.6% 884,643,535 271,084,982 613,558,553
2017 51,300 1.0641 29.8% 926,511,511 275,896,902 650,614,609
2018 51,700 1.0387 28.6% 981,476,324 281,141,449 700,334,875
2019 53,100 1.0474 29.0% 1,006,907,085 292,352,614 714,554,471
2020 54,200 1.0401 28.7% 1,039,203,930 298,339,001 740,864,929
2021 55,600 1.0378 28.6% 1,072,654,263 306,844,239 765,810,024
2022 57,200 1.0363 28.5% 1,107,341,248 316,009,648 791,331,600
2023 59,000 1.0353 28.5% 1,144,881,404 326,209,823 818,671,582
2024 60,800 1.0325 28.4% 1,182,514,013 335,458,333 847,055,680
2025 62,800 1.0344 28.5% 1,224,459,249 348,392,997 876,066,252
2026 64,900 1.0356 28.5% 1,267,931,593 361,464,047 906,467,545

D.2.3 Total Insurable Earnings

The total insurable earnings of salaried employees are equal to the total employment income, up to the annual MIE, earned by a person employed in insured employment. They are used to determine the earnings base for salaried employees. Prior to any adjustments for employee premium refunds, the earnings base for salaried employees is equal to 2.4 times the total insurable earnings.

Historical information regarding total insurable earnings is derived from aggregate assessed EI premiums gathered from T4 slips of all salaried employees, and is provided by CRA. The insurable earnings can be calculated by dividing the gross EI premium revenues by 2.4 times the weighted-average premium rate. The gross EI premium revenues are derived by adding the following components to the net EI assessed premiums:

  • Unadjusted employee premium refunds (multiple employments, insurable earnings below $2,000 and net adjustments for Québec residents working outside of Québec and vice-versa);
  • Overage (correction to EI premiums due to employer-related administrative errors);
  • Employer premium reductions for qualified wage-loss plans;
  • Net adjustment payments between the Government of Canada and the Government of Québec for Québec residents working outside of Québec and vice-versa; and
  • Other accounting adjustments.

The gross EI premium revenues represent the employee EI premiums deducted at source and the corresponding employer premium before adjusting for qualified wage-loss plans, and reflect the employee’s province of work. Therefore, the annual weighted-average premium rates are calculated from the split of insurable earnings between Québec and out-of-Québec as reflected in the T4 data provided by CRA (i.e. on a province of employment basis, not province of residence). The derivation of insurable earnings for the years 2012 to 2017 from the CRA statement of premium revenue is shown in Table 32. The net premiums assessed shown in the table are prior to the reduction in premiums due to the hiring credit for small businesses and small business job credit.

Table 32 Derived Insurable Earnings from Assessed Premiums
($ millions)
  2012 2013 2014 2015 2016 2017
Net Premiums Assessed 20,379.4 21,881.2 22,838.3 23,459.0 23,915.1 21,198.6
Unadjusted Employee Premium Refunds 243.5 253.8 266.0 254.0 241.1 237.9
Overage 3.1 3.1 3.0 3.1 2.7 3.2
Wage-Loss Premium Reduction 920.0 909.0 854.0 837.4 871.2 922.3
Net Adjustment Payments (QPIP) 8.1 8.4 7.4 6.3 7.3 6.5
Other Accounting Adjustments 6.1 8.8 5.7 5.0 21.7 7.3
Gross EI Premium Revenues 21,560.3 23,064.4 23,974.3 24,564.7 25,059.2 22,375.8
Distribution of Insurable Earnings (Province of Employment)
Out-of-Québec 77.8% 78.0% 78.2% 78.4% 78.2% 78.1%
Québec 22.2% 22.0% 21.8% 21.6% 21.8% 21.9%
EI Premium Rate
Out-of-Québec 1.83% 1.88% 1.88% 1.88% 1.88% 1.63%
Québec 1.47% 1.52% 1.53% 1.54% 1.52% 1.27%
Weighted Average Premium Rate 1.75% 1.80% 1.80% 1.81% 1.80% 1.55%
Total Insurable Earnings 513,328 533,682 553,812 566,606 579,630 601,065

For employees with multiple employments in a year, the information is based on the combined total EI premiums. This means that although insurable earnings of each employment are capped at the MIE, the combined total insurable earnings can exceed the MIE. The adjustment to insurable earnings and the earnings base to reflect multiple employments is captured in the employee premium refund section.

The 2017 distributions of the total number of earners and total employment income as a percentage of average employment income are used to calculate the insurable earnings for the years 2018 to 2026. From these distributions, the total employment income capped at the MIE is derived. The resulting capped employment income is adjusted for consistency with total insurable earnings which take into account multiple employments as well as excluded employments. For 2018, the adjustment is assumed to be 96.5% and it decreases to 96.1% for the remainder of the projection period, which is the three-year average ratio of insurable earnings to capped employment income for 2015 to 2017. Table 33 shows details of the calculation of the projected total insurable earnings for years 2018 to 2026, as well as the actual data for 2012 to 2017. For 2018, the resulting insurable earnings reflect the year-to-date assessed premiums and related total expected assessed premiums for 2018.

Table 33 Projected Total Insurable Earnings
Year MIE ($) Total Employment Income for Earners Below MIE ($ thousands) Number of Earners Above MIE (thousands) Total Employment Income for Earners Above MIE, Capped at MIE ($ thousands) Total Employment Income, Capped at MIE ($ thousands) Total Insurable Earnings ($ thousands) Increase in Total Insurable Earnings
2012 45,900 229,466,429 6,622 303,971,463 533,437,892 513,327,874  
2013 47,400 240,789,645 6,621 313,835,684 554,625,329 533,682,404 3.97%
2014 48,600 250,470,009 6,683 324,804,152 575,274,161 553,811,508 3.77%
2015 49,500 259,085,340 6,683 330,817,311 589,902,651 566,606,136 2.31%
2016 50,800 271,084,982 6,547 332,577,288 603,662,269 579,630,252 2.30%
2017 51,300 275,896,902 6,794 348,518,759 624,415,661 601,064,944 3.70%
2018 51,700 281,141,449 7,185 371,472,016 652,613,465 629,771,994 4.78%
2019 53,100 292,352,614 7,162 380,296,974 672,649,588 646,416,254 2.64%
2020 54,200 298,339,001 7,254 393,190,827 691,529,828 664,560,164 2.81%
2021 55,600 306,844,239 7,303 406,061,965 712,906,203 685,102,861 3.09%
2022 57,200 316,009,648 7,331 419,338,425 735,348,074 706,669,499 3.15%
2023 59,000 326,209,823 7,350 433,651,726 759,861,549 730,226,948 3.33%
2024 60,800 335,458,333 7,371 448,179,993 783,638,326 753,076,432 3.13%
2025 62,800 348,392,997 7,387 463,885,919 812,278,916 780,600,039 3.65%
2026 64,900 361,464,047 7,399 480,223,392 841,687,440 808,861,629 3.62%

D.2.4 Split of Total Insurable Earnings Due to Provincial Plan

On 1 March 2005, an agreement was reached between the Government of Canada and the Government of Québec, which gave the Government of Québec the means to set up, starting 1 January 2006, the Québec Parental Insurance Plan (QPIP). Under the QPIP, Québec is responsible for MPA benefits claimed by residents of Québec. The final agreement between the Governments of Canada and Québec includes a financial mechanism whereby the Government of Canada reduces EI premiums paid by Québec residents and their employers so that the Government of Québec can collect premiums for its own program. The premium reduction reflects the savings to the EI Account realized as a result of Québec's program, including MP benefits that are no longer paid under EI and administrative savings.

Given that eligibility for the QPIP is based on the province of residence, for the purposes of calculating the QPIP reduction, insurable earnings must be split between Québec and all other provinces based on the province of residence. The information regarding historical insurable earnings provided by CRA (T4 basis) is based on the province of employment. Therefore, an adjustment is required to transfer insurable earnings from Québec to out-of-Québec and vice-versa to reflect the province of residence.

Split Based on Province of Employment (T4)

Premiums are remitted by employers and employees based on province of employment, or on a T4 basis. The information regarding historical insurable earnings provided by CRA is also on a T4 basis, and is therefore based on the province of employment. The historical distribution of insurable earnings on a T4 basis shows that the proportion of insurable earnings that relates to employment in Québec has generally been decreasing. However, a slight increase was observed between 2016 and 2018. Based on the historical pattern, the proportion of insurable earnings that relates to employment in Québec is expected to decrease from 22.0% in 2018 to 21.9% in 2019. It reaches 21.6% in 2026. This is highlighted in Table 34.

Table 34 Split of Insurable Earnings Between Québec and Out-of-Québec, Based on Province of Employment (T4 data)
Year Proportion of Insurable Earnings for Employment in Québec Proportion of Insurable Earnings for Employment Out-of-Québec
2012 22.21% 77.79%
2013 22.02% 77.98%
2014 21.79% 78.21%
2015 21.64% 78.36%
2016 21.84% 78.16%
2017 21.91% 78.09%
2018 21.97% 78.03%
2019 21.91% 78.09%
2020 21.86% 78.14%
2021 21.81% 78.19%
2022 21.76% 78.24%
2023 21.71% 78.29%
2024 21.66% 78.34%
2025 21.61% 78.39%
2026 21.55% 78.45%

The proportions shown in the table above are used to split the insurable earnings between Québec and out-of-Québec based on province of employment. Adjustments to these proportions are required to reflect the province of residence.

Split Based on Province of Residence (T1)

The premiums are remitted based on the province of employment, in accordance with the Canada-Québec Agreement and for the purpose of facilitating inter-provincial mobility. Despite this, when a worker’s premium, as well as the related employer’s premium has been collected under either the EI MP or the QPIP, and if the person for whom the premium has been collected is not covered by the regime to which they have contributed because of their province of residence, adjustment payments between the Government of Canada and the Government of Québec will be made as long as this person is covered under the other regime. These adjustment payments are based on information included in individual tax returns and reflect the province of residence as of 31 December.

The information on historical assessed premiums provided by CRA includes the annual adjustment payments between the Government of Canada and the Government of Québec. A split between the employee adjustment payments and the employer adjustment payments, and a split between the transfer from the Government of Canada to the Government of Québec and vice-versa is provided. Table 35 shows the detailed adjustment payments between both parties for the calendar years 2012 to 2017. The adjustment payments for calendar years 2016 and 2017 are preliminary.

Table 35 Historical Adjustment Payments Between the Government of Canada and the Government of Québec to Reflect Province of Residence
($ thousands)
  2012 2013 2014 2015 2016 2017
Adjustment Payments from Government of Canada to Government of Québec (i.e. for Québec residents working outside of Québec):
Employee Portion 11,773 12,060 12,155 12,241 13,145 13,145
Employer Portion 15,197 15,738 15,894 15,920 17,283 17,452
Total 26,970 27,799 28,049 28,161 30,428 30,597
Adjustment Payments from Government of Québec to Government of Canada (for non-Québec residents working in Québec):
Employee Portion 11,412 11,607 12,451 13,285 13,562 14,250
Employer Portion 7,456 7,744 8,234 8,581 9,528 9,829
Total 18,868 19,351 20,685 21,866 23,090 24,079
Net Adjustment Payment from Government of Canada to Government of Québec:
Employee Portion 361 454 (296) (1,044) (417) (1,105)
Employer Portion 7,742 7,994 7,660 7,339 7,755 7,623
Total 8,103 8,448 7,364 6,295 7,338 6,518

The rules on how these adjustment payments are calculated are established in Division 4 of the Employment Insurance Regulations and Division 5 of An Act Respecting Parental Insurance (QPIP). Under these rules, the employer adjustment payment for each T4 slip of a given employee is generally equal to that employee’s insurable earnings times the QPIP reduction times the employer’s multiplier. Therefore, by using the aggregate employer adjustment payments provided by CRA and an average employer multiplier, it is possible to calculate the insurable earnings of Québec residents working outside of Québec and vice-versa. Given that a similar exercise is not possible using the employee adjustment payments due to different rules that apply to various individual situations, the employer adjustment payments are used to calculate the transfer of insurable earnings on a province of employment basis from Québec to out‑of‑Québec and vice-versa to reflect the province of residence.

Based on information provided by CRA, insurable earnings for employees who reside in Québec and work outside of Québec correspond to 0.63% of total insurable earnings on average for the last five years of available data, 2013 to 2017. Insurable earnings for employees who reside outside of Québec and work in Québec correspond to 0.34% of total insurable earnings for the same period. The resulting net effect is that, from the split based on province of employment, an average net transfer of 0.29% of total insurable earnings from out-of-Québec to Québec occurs to reflect the province of residence. This is outlined in Table 36.

Table 36 Adjustment to Insurable Earnings Split to Reflect Province of Residence
($ thousands)
  2012 2013 2014 2015 2016 2017
Total Insurable Earnings ($) 513,327,874 533,682,404 553,811,508 566,606,136 579,630,252 601,064,944
QPIP Reduction 0.36% 0.36% 0.35% 0.34% 0.36% 0.36%
Average Employer Multiplier:            

Out-of-Québec Employers

1.29 1.30 1.31 1.32 1.32 1.30

Québec Employers

1.28 1.29 1.31 1.31 1.31 1.29
Employer Adjustment Payments:            

From Government of Canada to Government of Québec

15,197 15,738 15,894 15,920 17,283 17,452

From Government of Québec to Government of Canada

7,456 7,744 8,234 8,581 9,528 9,829
Estimated Transfer of Insurable Earnings to Reflect Province of Residence
(Employer Adjustment Payments / (QPIP reduction x Average Employer Multiplier))

From Government of Canada to Government of Québec ($)

3,278,659 3,365,149 3,460,215 3,550,507 3,644,693 3,729,952

From Government of Québec to Government of Canada ($)

1,616,684 1,663,509 1,802,579 1,928,919 2,025,281 2,115,051

Net Transfer (from Canada to Québec) ($)

1,661,975 1,701,640 1,657,636 1,621,588 1,619,412 1,614,901
Estimated Transfer of Insurable Earnings to Reflect Province of Residence as a % of Total Insurable Earnings

From Government of Canada to Government of Québec

0.64% 0.63% 0.62% 0.63% 0.63% 0.62%

From Government of Québec to Government of Canada

0.31% 0.31% 0.33% 0.34% 0.35% 0.35%

Net From Government of Canada to Government of Québec

0.32% 0.32% 0.30% 0.29% 0.28% 0.27%

The information included in the administrative files that are exchanged between CRA and Revenu Québec was used to validate the methodology developed to estimate the transfer of insurable earnings using aggregate data. This file includes information on all taxfilers who are Québec residents and work outside of Québec and vice-versa. The actual insurable earnings of Québec residents working outside of Québec (roughly 127,000 people in 2017) and of non-Québec residents working in Québec (roughly 88,000 people in 2017) were close to the ones calculated on an aggregate basis.

It is assumed that the net transfer of insurable earnings on a T4 basis to reflect actual province of residence for the years 2018 to 2026 will be equal to the average transfer for the years 2013 to 2017, that is 0.29%. The resulting insurable earnings on a province of residence basis are outlined in Table 37.

Table 37 Split of Salaried Insurable Earnings Based on Province of Residence
Year Proportion of Insurable Earnings - Province of Work (T4 Basis) Net Transfer to Québec Proportion of Insurable Earnings - Province of Residence Total Insurable Earnings - Province of Residence ($ thousands)
Out-of-Québec Québec Out-of-Québec Québec Canada Out-of-Québec Québec
2017 78.09% 21.91% 0.27% 77.82% 22.18% 601,064,944 467,756,714 133,308,230
2018 78.03% 21.97% 0.29% 77.74% 22.26% 629,771,994 489,581,704 140,190,289
2019 78.09% 21.91% 0.29% 77.80% 22.20% 646,416,254 502,908,721 143,507,533
2020 78.14% 21.86% 0.29% 77.85% 22.15% 664,560,164 517,356,876 147,203,288
2021 78.19% 21.81% 0.29% 77.90% 22.10% 685,102,861 533,691,818 151,411,044
2022 78.24% 21.76% 0.29% 77.95% 22.05% 706,669,499 550,845,459 155,824,040
2023 78.29% 21.71% 0.29% 78.00% 22.00% 730,226,948 569,573,491 160,653,458
2024 78.34% 21.66% 0.29% 78.05% 21.95% 753,076,432 587,772,515 165,303,916
2025 78.39% 21.61% 0.29% 78.10% 21.90% 780,600,039 609,644,858 170,955,181
2026 78.45% 21.55% 0.29% 78.16% 21.84% 808,861,629 632,202,340 176,659,289

D.2.5 Employee Premium Refunds

In general, salaried employees contribute EI premiums on their total insurable earnings in a given tax year up to the annual MIE limit. However, when filing their tax returns, employees will receive a refund if they have exceeded the maximum contribution due to multiple employments in the same year or if their insurable earnings were below $2,000. The insurable earnings that are subject to any subsequent premium refund must be excluded from the earnings base. The data from T4 slips that are used for projection purposes include insurable earnings for which premiums may later be refunded. Therefore, an adjustment must be made to reduce the earnings base. In addition, since the employer does not receive a refund, only the employee’s portion of the total earnings base is adjusted.

The annual employee refunds provided by CRA reflect the net impact of total EI premiums paid and the employee adjustment payments between the Government of Canada and the Government of Québec to account for employees who reside in Québec and work outside of Québec and vice-versa.

For example, the information provided for a resident outside of Québec who is working in Québec for the same employer throughout the year will include a refund equal to the difference between the premium paid to the QPIP and the premium owed for EI MP coverage. However, the total insurable earnings should not be adjusted to reflect this refund.

Another example is the case of a Québec resident who is working outside of Québec and who has exceeded the maximum EI contribution due to multiple employments in the year. In this case, the refund provided by CRA is net of the QPIP premium payable. The insurable earnings base should be adjusted for the refund related to the EI premium overpayment rather than the EI premium overpayment minus the QPIP premium payable.

The refunds provided by CRA must therefore be adjusted to reflect only refunds that relate to multiple employment and insurable earnings below $2,000. They should be decreased by any refund that relates to QPIP premiums paid by out‑of‑Québec residents who worked in Québec, and increased by any QPIP premiums payable by Québec residents who had multiple employments and worked outside of Québec. Given that the latter is not as common, the adjusted premium refunds will be lower than the refunds provided by CRA.

The adjusted premium refunds are estimated such that the net assessed premiums shown in Table 32 remain unchanged after taking into account the split of insurable earnings based on province of residence. In the reconciliation of the net assessed premiums using the province of residence (Table 38), the net adjustment payments (QPIP) shown in Table 32 are re-allocated between two items: the gross premium revenues and the premium refunds. Consequently, Table 38 shows net adjustment payments (QPIP) of $0.

The portion of the net adjustment payments that is re-allocated to the gross premium revenues is calculated by taking the difference between the gross premiums calculated using the weighted-average premium rate on a province of residence basis and the gross premiums calculated using the weighted-average premium rate on a province of employment basis. Given that the proportion of Québec insurable earnings is higher under the province of residence basis and that Québec residents have a lower premium rate, the gross premium revenues on a province of residence basis are lower than those on a province of employment basis.

The portion of the net adjustment payments that has not been allocated to the change in gross premium revenues to reflect the province of residence is allocated to the premium refunds. The resulting adjusted premium refunds relate only to multiple employment and insurable earnings below $2,000 and do not reflect any other adjustments due to the province of employment being different than the province of residence.

Table 38 shows the reconciliation of the net premiums and the inherent calculation of the adjusted premium refunds for the years 2012 to 2017. By comparing this table to Table 32 for the year 2017, it can be seen that the adjustment payments of $6.5 million are reflected in Table 38 through gross premiums that are $14.0 million lower ($22,375.8 – $22,361.8) and in Table 39 through premium refunds that are $7.5 million lower ($237.9 – $230.4), with no resulting effect on the total net premium.

Table 38 Calculation of the Adjusted Premium Refunds
($ millions)
  2012 2013 2014 2015 2016 2017
Total Insurable Earnings 513,328 533,682 553,812 566,606 579,630 601,065
Split of Insurable Earnings (Province of Residence) :
Outside Québec 77.5% 77.7% 77.9% 78.1% 77.9% 77.8%
Québec 22.5% 22.3% 22.1% 21.9% 22.1% 22.2%
EI Premium Rate:            
Outside Québec 1.83% 1.88% 1.88% 1.88% 1.88% 1.63%
Québec 1.47% 1.52% 1.53% 1.54% 1.52% 1.27%
Weighted Average Premium Rate 1.75% 1.80% 1.80% 1.81% 1.80% 1.55%
Gross Premium Revenues 21,546.1 23,049.6 23,960.3 24,551.3 25,045.1 22,361.8
Adjusted Premium Refunds 237.5 247.5 259.4 246.9 234.4 230.4
Overage 3.1 3.1 3.0 3.1 2.7 3.2
Wage-Loss Premium Reduction 920.0 909.0 854.0 837.4 871.2 922.3
Net Adjustment Payments (QPIP)
Other Accounting Adjustments 6.1 8.8 5.7 5.0 21.7 7.3
Net Premium Assessed 20,379.4 21,881.2 22,838.3 23,459.0 23,915.1 21,198.6

The adjusted premium refunds divided by the average premium rate are used to estimate the total insurable earnings subject to a subsequent employee refund. The calculations are based on historical data provided by CRA. Table 39 shows that the total insurable earnings subject to a subsequent employee refund as a percentage of total insurable earnings averages 2.46% from 2013 to 2017. It is assumed to remain constant at 2.46% until 2026.

Table 39 Total Insurable Earnings Subject to a Subsequent Premium Refund
($ millions)
  2012 2013 2014 2015 2016 2017
Total Insurable Earnings (TIE) 513,328 533,682 553,812 566,606 579,630 601,065
Adjusted Premium Refunds 237 248 259 247 234 230
Average Premium Rate 1.75% 1.80% 1.80% 1.81% 1.80% 1.55%
TIE Subject to Refund 13,577 13,754 14,388 13,674 13,022 14,863
TIE Subject to Refund (% of TIE) 2.64% 2.58% 2.60% 2.41% 2.25% 2.47%

D.2.6 Self-Employed Earnings

Pursuant to the Fairness for the Self-Employed Act, starting 31 January 2010, self-employed persons can enter into a voluntary agreement with the Canada Employment Insurance Commission (Commission) through Service Canada to participate in the EI program, contribute EI premiums at the employee rate and have access to special benefits. Self-employed residents of Québec will continue to receive MPA benefits through the QPIP, however they are able to access sickness, compassionate care and Family Caregiver Benefits through the EI program. As such, the earnings base used in calculating the 7-year forecast break-even rate must take into account the covered earnings of self-employed individuals who opt into the EI program.

Participants in the self-employed EI program contribute premiums on their covered earnings, (i.e. their self-employed earnings up to the annual MIE), at the employee rate which corresponds to their province of residence, and there are no employer premium contributions. Therefore, as with the insurable earnings of salaried employees, self-employed covered earnings must be split between the covered earnings of residents of Québec and the covered earnings of residents out-of-Québec.

The expected increase in self-employed covered earnings reflects the expected increase in the number of participants, and the expected increase in average earnings of self-employed individuals.

Projected Number of Participants

ESDC tracks the number of weekly self-employed enrolments for the EI program by province and provided the available enrolment data for each week up to mid‑July 2019. The enrolment data also includes adjustments for individuals who have opted out of the program in each week. Table 40 shows the evolution of the number of participants starting with the cumulative number as at 31 December 2010, with a split between Québec and out-of-Québec residents.

The projection of enrolments from 2020 to 2026 is based on the average weekly enrolments over the last 3 years (2016-2018), while the assumption to complete year 2019 is based on the 3-year average of weekly enrolments during the last 6 months of the year. The number of enrolments is projected independently for Québec and out-of-Québec residents and reflects the slower pace of enrolment of Québec residents.

Using the cumulative enrolments as of the end of June 2019 and the projected enrolments, Table 40 shows the historical and projected number of self-employed participants from 2010 to 2026.

The formula for calculating the 7-year forecast break-even rate is developed as follows

Table 40 Projected Self-Employed EI Participants
Cumulative Participants
as of the last week of:
Out-of-Québec
Residents
Québec
Residents
Total
2010 4,443 1,367 5,810
2011 7,114 2,482 9,596
2012 9,059 3,092 12,151
2013 10,574 3,358 13,932
2014 11,893 3,482 15,375
2015 13,422 3,656 17,078
2016 14,997 3,824 18,821
2017 16,708 3,978 20,686
2018 18,483 4,198 22,681
2019 20,318 4,416 24,735
2020 22,005 4,597 26,602
2021 23,692 4,778 28,470
2022 25,412 4,962 30,374
2023 27,099 5,142 32,241
2024 28,786 5,323 34,109
2025 30,473 5,504 35,977
2026 32,160 5,684 37,844

Increase in Average Earnings

Historical data on the evolution of average earnings of self-employed individuals who opted into the EI program as compared to average earnings of all self‑employed individuals or of salaried employees are either not available or incomplete. As such, it is assumed that the average earnings of self-employed individuals who have opted into the EI program will increase at the same pace as the average earnings of salaried employees from 2019 to 2026.

The most recent year for which complete data is available with regards to self‑employed EI premiums and inherent covered earnings is the tax year 2017. The projected increase in average employment earnings, combined with the increase in the number of self-employed participants are used to determine the self-employed covered earnings for the years 2019 to 2026. It is important to note that regardless of the timing of enrolment during the year, premiums are paid on the total covered earnings in that year. Table 41 shows the projected self‑employed covered earnings for Québec residents and out‑of‑Québec residents for the years 2018 to 2026.

Table 41 Projected Covered Earnings for Self-Employed EI Participants
($ thousands)
Year Out-of-Québec Residents Québec Residents Canada
Increase in Average Earnings Increase in Number of Participants Increase in Covered Earnings Total Covered Earning Increase in Average Earnings Increase in Number of Participants Increase in Covered Earnings Total Covered Earnings Total Covered Earnings
2018 175,659 18,652 194,311
2019 1.85% 9.9% 12.0% 196,674 1.85% 5.2% 7.1% 19,985 216,659
2020 2.79% 8.3% 11.3% 218,947 2.79% 4.1% 7.0% 21,383 240,329
2021 2.81% 7.7% 10.7% 242,356 2.81% 3.9% 6.9% 22,847 265,203
2022 3.03% 7.3% 10.5% 267,821 3.03% 3.9% 7.0% 24,447 292,268
2023 3.25% 6.6% 10.1% 294,874 3.25% 3.6% 7.0% 26,160 321,034
2024 3.33% 6.2% 9.8% 323,661 3.33% 3.5% 7.0% 27,981 351,642
2025 3.10% 5.9% 9.1% 353,251 3.10% 3.4% 6.6% 29,827 383,078
2026 3.22% 5.5% 8.9% 384,812 3.22% 3.3% 6.6% 31,798 416,610

D.3 Expenditures

EI expenditures include Part I and Part II (Employment Benefits and Support Measures) benefit payments, administration costs and doubtful debts. EI benefits also include temporary spending initiatives, such as pilot projects or special measures announced by the Government of Canada.

EI benefits paid under Part I of the EI Act include:

  • Regular benefits, which provide temporary income support for unemployed persons;
  • Fishing benefits, for self-employed fishers;
  • Work-Sharing benefits, for workers willing to work a temporarily reduced work week to avoid lay-offs;
  • Special benefits, for those who are sick (sickness benefits), pregnant or caring for a newborn or adopted child (maternity and parental benefits), for those caring for a seriously ill family member at end-of-life (compassionate care benefits), or for those providing care or support to a critically ill or injured family member (Family Caregiver benefits); and
  • Training Support Benefit (proposed in Budget 2019 and expected to be launched in late 2020).

To project EI expenditures, in addition to demographic and economic forecasts, a number of assumptions are required, namely average weekly benefits, number of potential claimants and recipiency rate. Those three assumptions are discussed below, as well as additional information on pilot projects, special measures and new program changes. Formulas for the projection of regular, fishing, Work-Sharing and special benefits are then presented. Details on benefit repayments, Part II benefits, administration costs, bad debt expenses, penalties and interest on overdue accounts receivable are also included in this section.

D.3.1 Average Weekly Benefits

The average weekly benefits (AWB) are equal to benefit payments divided by the number of benefit weeks paid for Part I benefits.

Weekly benefits are generally equal to 55% of the claimant’s variable best weeks over the qualifying period (generally 52 weeks). The number of best weeks taken into account is determined by the regional unemployment rate and varies between 14 and 22 insurable earnings weeks.

The maximum amount payable is determined by the MIE. For 2020, the maximum weekly benefit is 55% of the $54,200 annual MIE divided by 52, or $573.

The AWB are determined by the sum of the change in the MIE and the average weekly earnings, weighted by the proportion of benefit weeks for claimants with insurable earnings above and below the annual MIE and the prior year AWB for claimants with insurable earnings above and below the annual MIE.

Formula for determining AWB

[text version]

Where:    AWB  =  average weekly benefits;

AWBabove =  AWB for claimants with insurable earnings above the MIE;

AWBbelow =  AWB for claimants with insurable earnings below the MIE;

MIE =  maximum insurable earnings;

AWE =  average weekly earnings;

%above =  percentage of benefit weeks for claimants with earnings above the MIE; and

%below = percentage of benefit weeks for claimants with earnings below the MIE.

The percentage of benefit weeks for claimants with insurable earnings above the annual MIE is based on an analysis of administrative data provided by ESDC.

The proportion of benefit weeks for claimants with insurable earnings above the MIE increased in 2014 and 2015 following the introduction of the variable best weeks, that is, a change in the benefit rate calculation. A further increase was observed in 2016 and is attributable in part to the temporary extension of EI regular benefits in regions affected by commodities downturn since some regions with higher earnings than the average normal EI claimants were selected.

The proportion of benefit weeks for claimants with earnings above the MIE decreased to 46.5% in 2017 before increasing again to 47.0% in 2018. Based on partial data, this proportion will be 47.6% in 2019. It is set at 47.3% the following year and remains constant thereafter.

Table 42 Percentage of Benefit Weeks for Claimants with IE above the MIE
Year % Above MIE
2013 41.9%
2014 44.6%
2015 47.1%
2016 48.0%
2017 46.5%
2018 47.0%
2019 47.6%
2020-2026 47.3%

The 2018 AWB for claimants with insurable earnings above and below the MIE was $547 and $375 respectively.

Based on the growth in average weekly earnings and the MIE, and on the proportion of benefit weeks for claimants with earnings above the MIE, the annual average weekly benefits growth rates are forecasted at 2.8% and 2.2% for 2019 and 2020 respectively. The average annual increase for years 2021 to 2026 is 3.1%. These AWB growth rates generally apply to all benefit types for 2020 and onwards.

Table 43 Average Weekly Benefits Growth Factors
Actual Forecast
2018 2019 2020 2021 2022 2023 2024 2025 2026
Average Weekly Earnings ($) 1,001 1,024 1,052 1,084 1,118 1,154 1,192 1,230 1,270
% Change 2.60% 2.29% 2.73% 3.04% 3.14% 3.22% 3.29% 3.19% 3.25%
MIE ($) 51,700 53,100 54,200 55,600 57,200 59,000 60,800 62,800 64,900
% Change 0.8% 2.7% 2.1% 2.6% 2.9% 3.1% 3.1% 3.3% 3.3%
Proportion Above MIE 47.0% 47.6% 47.3% 47.3% 47.3% 47.3% 47.3% 47.3% 47.3%
Proportion Below MIE 53.0% 52.4% 52.7% 52.7% 52.7% 52.7% 52.7% 52.7% 52.7%
AWB Growth 1.2% 2.8% 2.2% 2.8% 3.0% 3.2% 3.2% 3.2% 3.3%

D.3.2 Potential Claimants

The EI Program is designed to provide temporary income support to eligible insured persons who have lost their jobs through no fault of their own, such as due to a shortage of work, or as a result of seasonal or mass lay-offs, and are available for work.

Hence, to receive EI regular benefits, an individual needs to:

  • be insured, that is, have paid EI premiums in the qualifying period, usually the 52 weeks preceding the claim for benefits;
  • have lost their employment;
  • have had a valid job separation; and
  • be available for work.

The number of potential claimants is therefore estimatedFootnote 6as the sum of:

  • The number of unemployed individuals provided by the Minister of Finance from which is subtracted:
    • The number of unemployed individuals without insurable earnings (IE) in the last 52 weeks, that is, self-employed, unpaid family workers and individuals who have not worked in the last 52 weeks;
    • The number of unemployed individuals with an invalid job separationFootnote 7; and
  • The average number of EI regular beneficiaries currently employed, that is, individuals receiving regular benefits, but excluded from the unemployed statistics (beneficiaries Working While on Claim). These individuals need to be added since they are not accounted for in the definition of the unemployed.

The following table shows the development of the historical number of potential claimants.

Table 44 Historical Number of Potential Claimants
(thousands)
Calendar Year Number of Unemployed (U) No Insurable Earnings in Last 52 Weeks Invalid Job SeparationFootnote * Working Beneficiaries Potential Claimants
Number As a % of U Number As a % of U Number As a % of U Number As a % of U
2008 1,112 336 30.2% 198 17.8% 68 6.1% 646 58.0%
2009 1,523 440 28.9% 190 12.5% 102 6.7% 995 65.3%
2010 1,486 532 35.8% 175 11.8% 110 7.4% 888 59.8%
2011 1,399 546 39.0% 178 12.7% 96 6.9% 771 55.1%
2012 1,372 535 39.0% 188 13.7% 92 6.7% 740 54.0%
2013 1,347 516 38.3% 201 14.9% 85 6.3% 715 53.1%
2014 1,322 508 38.4% 197 14.9% 83 6.3% 701 53.0%
2015 1,331 492 36.9% 165 12.4% 86 6.5% 761 57.2%
2016 1,361 507 37.3% 162 11.9% 88 6.5% 779 57.3%
2017 1,247 502 40.3% 149 12.0% 88 7.1% 683 54.8%
2018 1,155 461 39.9% 162 14.0% 79 6.9% 611 52.9%

Table 44 Footnote

Table 44 - Footnote *

The invalid job separation statistic for calendar year 2018 is estimated.

Return to footnote *

The number of unemployed individuals is provided by the Minister of Finance. Assumptions for the evolution of the number of unemployed individuals without insurable earnings in the last 52 weeks, the number of unemployed individuals with an invalid job separation and the number of working beneficiaries as a percentage of the number of unemployed are made as follows:

  • The percentage of unemployed without insurable earnings in the last 52 weeks has increased following the economic downturn of 2008-2009. It reached 39.0% in 2011 and 2012 before decreasing in the next three years to 36.9% in 2015. The percentage then increased to reach 40.3% in 2017. In 2018, it was 39.9%. The number of individuals without insurable earnings in the last 52 weeks also decreased between 2017 and 2018, from 502,000 to 461,000. Based on the experience observed for the first six months of 2019, the proportion of individuals with no insurable earnings in the last 52 weeks is expected to decrease to 38.0% in 2019. It is subsequently assumed to decrease for two additional years to reach an ultimate value of 37.0% of unemployed in 2021.
  • The percentage of unemployed individuals with an invalid job separation is highly behaviour driven and fluctuates with the economic situation. The proportion of 12.0% observed in 2017 is similar to the 11.9% observed in 2016. It is however expected to increase to 14.0% for the following two years before decreasing to an ultimate value of 13.0% in 2021.
  • The ratio of working beneficiaries to unemployed is projected based on the last 3-year average, corresponding to 6.8% from 2019.

The resulting projected proportion and number of potential claimants are presented in Table 45 . The number of potential claimants as a percentage of unemployed is expected to increase from 54.8% in 2019 to 56.8% in 2021.

Table 45 Projected Number of Potential Claimants
Calendar
Year
Number of
Unemployed (U)
(thousands)
No Insurable
Earnings in
Last 52 Weeks
Invalid Job
Separation
Working
Beneficiaries
Potential Claimants
As a % of U As a % of U As a % of U As a % of U Number
(thousands)
2019 1,145 38.0% 14.0% 6.8% 54.8% 627
2020 1,162 37.5% 13.5% 6.8% 55.8% 648
2021 1,174 37.0% 13.0% 6.8% 56.8% 667
2022 1,189 37.0% 13.0% 6.8% 56.8% 676
2023 1,191 37.0% 13.0% 6.8% 56.8% 677
2024 1,204 37.0% 13.0% 6.8% 56.8% 684
2025 1,202 37.0% 13.0% 6.8% 56.8% 682
2026 1,206 37.0% 13.0% 6.8% 56.8% 685

D.3.3 Recipiency Rate (Share of potential claimants receiving benefits)

Beneficiaries, as reported by Statistics Canada, refers to the number of active regular claimants in a given month who received EI regular benefits during the reference week of the labour force survey, usually the week containing the 15th day of the month. The recipiency rate represents the proportion of potential claimants in a given period who are receiving EI regular benefits and ignores individuals outside the target population of the EI program, such as the long-term unemployed and those who did not contribute to the program in the previous year. The recipiency rate is thus directly linked to the target population of the EI program (i.e. potential claimants).

The recipiency rate is lower than 100% for multiple reasons including:

  • Some potential claimants have not accumulated the required number of insurable hours, which varies between 420 and 700 hours depending on the economic region in which they reside;
  • Some potential claimants do not apply for benefits; and
  • Some potential claimants are waiting to receive their benefits, or have received benefits in the past but have exhausted the number of weeks they were entitled to receive regular benefits and remain unemployed.

For the purposes of forecasting regular benefit payments, historical recipiency rates shown in the following table are calculated based on the number of beneficiaries as reported by Statistics Canada and the number of potential claimants as discussed in the previous section.

Table 46 Historical Recipiency Rate
Calendar Year Number of Potential Claimants
(thousands)
Regular Beneficiaries
(thousands)
Recipiency
Rate
2008 646 511 79.2%
2009 995 770 77.4%
2010 888 718 80.9%
2011 771 608 78.8%
2012 740 555 75.0%
2013 715 523 73.2%
2014 701 508 72.5%
2015 761 535 70.2%
2016 779 564 72.3%
2017 683 533 78.0%
2018 611 464 75.9%

The recipiency rate decreased from 80.9% in 2010 to 70.2% in 2015; however, it increased to 72.3% in 2016 and 78.0% in 2017 due to the temporary and permanent measures (extension of number of weeks of benefits in selected regions affected by commodities downturn, elimination of the category of claimants who are new entrants and re-entrants and the change in the waiting period from two to one week in 2017). The rate remained high (75.9%) in 2018 due to the continuation of the extension of number of weeks of benefits in selected regions affected by commodities downturn. The preliminary estimate for 2019 is 70.0% and it is assumed to increase over the following two years to attain an ultimate value of 75.0% in 2021.

D.3.4 Number of Weeks

EI expenditures are reported in the EI Operating Account on an accrual basis, that is, they are recorded in the period for which they should have been paid, without regards to the delay in processing the payment. For example, if a claimant is eligible to receive benefits starting the first week of December 2018, but receives his first benefit payment only in February 2019, the portion of the benefits that relates to December will be recorded in the EI Operating Account for the year 2018.

Furthermore, EI benefits are paid on a weekly basis, but only weekdays that belong to a particular period are reported in that period. For example, if December 31st is a Thursday then for every benefit week that should have been paid for the week of December 31st, four days will be reported in the current calendar year and one will be reported in the following calendar year.

The number of weeks affects Part I expenditures as benefits are payable for every weekday of the year, regardless of holidays. The number of workdays in a year ranges from 260 days to 262 days, resulting in a number of weeks ranging from 52.0 to 52.4 as shown in the following table.

Table 47 Number of Weeks
Calendar Year 2018 2019 2020 2021 2022 2023 2024 2025 2026
Number of Weeks 52.2 52.2 52.4 52.2 52.0 52.0 52.4 52.2 52.2

D.3.5 Regular Benefits

EI regular benefits provide temporary income support to eligible insured persons who have lost their jobs through no fault of their own, such as due to shortage of work, or seasonal or mass lay-offs, and are available to work.

Regular benefit payments are equal to the average weekly benefits multiplied by the number of weeks paid, as determined by the number of potential claimants multiplied by the recipiency rate and by the number of weeks in the year.

Formula for determining Regular Benefits

[text version]

Where:  PC =  number of potential claimants;

RR  =  recipiency rate;

W  =  number of weeks in the year; and

AWB  =  average weekly benefits.

For projection purposes, the above formula is modified such that the increase in each variable is applied to the previous year’s EI regular benefits paid. As the actual regular benefit expenditures in the base year include expenditures attributed to pilot projects and special measures, they are first subtracted before the growth factors are applied.

The base year on which the projected growth factors are applied is 2018, that is, the latest year of known actual regular EI income benefits. Regular benefits are therefore projected as follows, starting from the base year.

Formula for determining Regular Benefits

[text version]

Where:  PC  =  number of potential claimants;

W  =  number of weeks in a year;

AWB  =  average weekly benefits; and

RR  =  recipiency rate.

Pilot projects, special measures and the impact of new program changes to the EI program are then added to the regular benefits projection as shown in Table 48.

Table 48 Regular Benefits
($ millions)
Actual Forecast
2018 2019 2020 2021 2022 2023 2024 2025 2026
Regular Benefits (Base) 10,543 10,579 11,622 12,660 13,159 13,598 14,290 14,664 15,207
Pilot Project - Support for Workers
in Seasonal Industries
0 51 84 25 - - - - -
Measure - Affected regions extension 415 - - - - - - - -
Expanding existing flexibilities to encourage
lifelong learning among long-tenured workers
3 9 9 9 10 10 10 10 10
Total Regular Benefits 10,960 10,639 11,715 12,695 13,169 13,608 14,300 14,674 15,217

D.3.6 Fishing Benefits

As with regular benefits, fishing benefits are equal to the number of benefit weeks multiplied by the average weekly benefits. Fishing benefits can be projected from the base year using the expected change in the number of benefit weeks and average weekly benefits. However, as the number of fishing claimants and the average duration of fishing claims are relatively stable, only the expected change in average weekly benefits is used in forecasting fishing benefits.

After analysing claims data for the first six months of 2019, it is assumed that the number of weeks of fishing benefits is adjusted downward by 3% in 2019.

Formula for determining Fishing Benefits

[text version]

Where:  FB  =  fishing benefits;

W  =  number of weeks in the year; and

AWB  =  average weekly benefits.

 

The fishing benefits projection is shown in the following table.

Table 49 Fishing Benefits
($ millions)
Actual Forecast
2018 2019 2020 2021 2022 2023 2024 2025 2026
Fishing Benefits 335 334 343 351 360 372 386 397 410

D.3.7 Work-Sharing Benefits

To avoid temporary lay-offs due to a reduction in the normal level of business activity caused by factors that are beyond the control of the employer, employers and employees can enter into a Work-Sharing agreement with the Commission through Service Canada to provide EI income benefits to eligible workers willing to work a temporarily reduced work week. This enables employers to retain staff and adjust their work activity during temporary work shortages, as well as avoid the expenses of hiring and training new staff once business levels return to normal. Employees are able to retain their skills and jobs while receiving EI benefits for the days that they do not work.

Work-Sharing benefits are projected using the expected 2019 base Work-Sharing expenditures, multiplied by the expected change in the number of employees and the average weekly benefits rate. Projected Work-Sharing benefits due to the extension of the maximum duration for softwood lumber and steel and aluminium industries are provided by the Minister of ESD and added to the base Work-Sharing benefits.

Formula for determining Work-Sharing Benefits

[text version]

Where:    WSB  =  Work-Sharing benefits;

EE  =  employees;

W  =  number of weeks in a year; and

AWB  =  average weekly benefits.

Table 50 shows the actual 2018 Work-Sharing benefits as well as the projection until 2026.

Table 50 Work-Sharing Benefits
($ millions)
Actual Forecast
2018 2019 2020 2021 2022 2023 2024 2025 2026
Work-Sharing Benefits (Base) 5 7 8 8 8 8 9 9 9
Extending the Maximum Duration 0 11 12 3 - - - - -
Total Work-Sharing Benefits 6 18 19 11 8 8 9 9 9

D.3.8 Special Benefits

Special benefits include MP benefits, for those who are pregnant or caring for a newborn or adopted child, sickness benefits for those who are unable to work due to sickness, injury or quarantine, compassionate care benefits for those who take a temporary leave from work to give care or support to a family member who is gravely ill at risk of dying within 26 weeks, and benefits for those who take leave from work to provide care or support to a critically ill or injured family member (Family Caregiver benefits for children or adults).

Salaried

Each special benefit for salaried employees is forecasted using the expected change in the number of employees and in the average weekly benefits, applied to the base year 2018.

Formula for determining Special Benefits

[text version]

Where:  SB  =  special benefits;

EE  =  employees;

W  =  number of weeks in a year; and

AWB  =  average weekly benefits.

After analysing claims data for the first six months of 2019, it is assumed that the number of weeks of sickness benefits is adjusted upward by 1% in 2019. In addition, the number of weeks for MP benefits is adjusted downward by 4.5% in 2019 and upward by 7% in 2020. These adjustments in MP benefits reflect the variation experienced as a result of the recent implementation of the extended parental benefit.

For projection purposes, expenditures attributed to recent measures and changes to the program are excluded from the base year before the growth factors are applied. Expenditures attributed to recent changes to the program are subsequently added separately to obtain the total special benefits.

Self-employed

Starting 31 January 2010, self-employed persons can enter into a voluntary agreement with the Commission through Service Canada to participate in the EI program.

Self-employed benefits are forecasted to increase in line with covered earnings, that is, in line with the self-employed covered population and related insured earnings growth.

It is expected that in 2020, self-employed participants enrolling in the EI Program will receive $12.0 million in MP benefits, $0.5 million in sickness benefits, $33 thousand in compassionate care benefits and $34 thousand in Family Caregiver benefits for children.

Table 51 Special Benefits
Actual Forecast
2018 2019 2020 2021 2022 2023 2024 2025 2026
Salaried Employees ($ millions)
MP Benefits 3,995 4,009 4,421 4,546 4,674 4,829 5,018 5,185 5,375
Sickness Benefits 1,758 1,865 1,923 1,977 2,033 2,100 2,182 2,255 2,337
Compassionate Care Benefits 59 62 63 65 67 69 72 74 77
Family Caregiver Benefit for Children 34 36 37 38 39 40 42 43 45
Sub-total 5,845 5,972 6,444 6,626 6,812 7,039 7,314 7,558 7,834
Self-Employed ($ thousands)
MP Benefits 9,684 10,798 12,024 13,217 14,510 15,939 17,593 19,092 20,763
Sickness Benefits 431 481 535 589 646 710 783 850 925
Compassionate Care Benefits 27 30 33 37 40 44 49 53 58
Family Caregiver Benefit for Children 28 31 34 38 41 45 50 54 59
Sub-total 10,170 11,340 12,627 13,880 15,238 16,738 18,475 20,050 21,805
Recent Changes ($ millions)

Measure - Affected Regions Extension (Sickness)

1 - - - - - - - -
Parental Sharing Benefits - 223 277 289 301 313 326 339 353
Family Caregiver Benefit for Adults 44 50 53 55 58 61 64 64 64
Total ($ millions)
MP Benefits 4,005 4,243 4,710 4,848 4,989 5,158 5,361 5,543 5,749
Sickness Benefits 1,759 1,866 1,923 1,978 2,033 2,101 2,183 2,256 2,338
Compassionate Care Benefits 59 62 64 65 67 69 72 75 77
Family Caregiver Benefit for Children 34 36 37 38 39 40 42 43 45
Family Caregiver Benefit for Adults 44 50 53 55 58 61 64 64 64
Total Special Benefits 5,900 6,256 6,786 6,984 7,186 7,430 7,722 7,980 8,273

D.3.9 Benefit Repayments

If a claimant’s income for a tax year exceeds 1.25 times the annual MIE, the claimant may be required to repay a portion of EI regular or fishing benefits received. Benefit repayments, as reported in the EI Operating Account, include an estimate for the current tax year, based on regular and fishing benefit payments, and a reconciliation between actual and estimated benefit repayments for the previous tax year.

The current year forecast is projected from the prior year actual based on the expected increase/decrease in regular and fishing benefits. The estimate for the forecast 2019 prior year actual is based on the actual first 6 months of benefit repayments and the historical average completion ratio after 6 months.

Table 52 EI Benefit Repayments
($ millions)
Actual Forecast
2018 2019 2020 2021 2022 2023 2024 2025 2026
Current Year Forecast 336 299 328 355 368 381 400 410 426
Prior Year
Actual 300 308 299 328 355 368 381 400 410
Forecast (329) (336) (299) (328) (355) (368) (381) (400) (410)
Sub-Total (Adjustment for prior year) (29) (28) - - - - - - -
Refunds (8) (8) (8) (8) (8) (8) (8) (8) (8)
Total 299 263 320 347 360 373 392 402 417

D.3.10 EI Part II Benefits

The programs delivered under Part II of the EI Act are called Employment Benefits and Support Measures (EBSM). The expected annual estimates for EBSM are provided by ESDC on a fiscal year basis.

Amounts presented in Table 53 include the additional LMDA investment of $1.8 billion announced in Budget 2017 ($1.7 billion remaining for 2018-19 to 2022-23), Softwood Lumber Workforce Adjustment measures announced in June 2017 (revised cost of $24 million), LMDA funding to support workers in seasonal industries announced in Budget 2018 (revised cost of $37 million), and LMDA funding to support workers impacted by steel and aluminium tariffs announced in June 2018 (revised cost of $47 million).

Table 53 Employment Benefits and Support Measures
($ millions)
Actual Forecast
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27
EBSM (Fiscal Year) 2,308 2,464 2,424 2,499 2,499 2,074 2,074 2,074 2,074
Actual Forecast
2018 2019 2020 2021 2022 2023 2024 2025 2026
EBSM (Calendar Year) 2,267 2,907 2,424 2,499 2,499 2,074 2,074 2,074 2,074

D.3.11 Administration Costs

As with Part II benefits, the expected annual estimates for EI administration costs are provided by ESDC on a fiscal year basis. The calendar year costs shown in Table 54 are based on 25% of the current fiscal year and 75% of the next fiscal year.

Table 54 Administration Costs
($ millions)
Actual Forecast
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27
Administration Costs (Fiscal Year) 1,830 1,897 1,825 1,771 1,757 1,752 1,747 1,747 1,747
Actual Forecast
2018 2019 2020 2021 2022 2023 2024 2025 2026
Administration Costs (Calendar Year) 1,842 1,870 1,854 1,784 1,760 1,753 1,748 1,747 1,747

As mentioned previously, the calculation of the reduction related to the savings to the EI program due to the Québec Parental Insurance Plan includes the variable administration costs (VAC). The VAC represents the direct operating costs incurred by the EI program associated with the administration of MP benefits outside Québec.

These costs represent the savings to the EI program if it ceased to provide EI MP benefits. The responsibility of determining the VAC each year lies with ESDC. It should be noted that under the Canada-Québec Final Agreement, the Government of Canada provided assurance that the VAC multiplied by the ratio of the insurable earnings in Québec to the insurable earnings outside Québec would not be less than $5 million. The 2019 to 2026 VAC are projected from actual costs incurred in 2018 as a constant percentage of MP benefits. When applicable, VAC are increased to reflect the minimum under the Canada-Québec Final Agreement.

Table 55 Variable Administrative Costs
($ millions)
Actual Forecast
2018 2019 2020 2021 2022 2023 2024 2025 2026
Variable Administration Costs 17.5 17.5 17.6 17.6 17.7 17.7 17.8 17.8 17.9

D.3.12 Bad Debt

Bad debt expenses relate to overpayments and penalties owed and are equal to the amount written off during the year and the change in the annual allowance for doubtful debts. The allowance is calculated on the outstanding balance in the accounts at the end of the fiscal year and is based on the collection policy, the age of the accounts and the amounts written off.

The calendar year bad debt expense included in the closing balance of the EI Operating Account as of 31 December 2018 was equal to 25% of the 2017-2018 expense and 75% of the 2018-2019 expense.

Based on fiscal year 2018-2019, the allowance for doubtful debts is forecasted as 2.3% of total projected Part I benefits. The write-offs for 2019-2020 and following fiscal years are forecasted based on the proportion of the write-offs over the opening allowance for doubtful debts for 2018-2019 as well as the expected increase in benefit payments.

The bad debt expense for a given year corresponds to the difference between the allowance calculated for the year and the net allowance of the previous year (i.e. allowance at the end of the previous year reduced by the write-offs that occurred during the year).

Table 56 Bad Debt Expense
($ millions)
Actual Forecast
2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27

Allowance for Doubtful Accounts (Current Year)

400 431 464 480 496 519 533 553 572
Net Allowance (Prior Year)

Allowance for Doubtful Accounts (Prior Year)

337 400 431 464 480 496 519 533 553
Write-Offs (36) (44) (50) (52) (53) (55) (57) (58) (61)
Total 301 357 381 411 427 441 461 475 492
Bad Debt Expense (Fiscal Year) 99 75 82 68 69 77 72 78 80
Actual Forecast
2018 2019 2020 2021 2022 2023 2024 2025 2026
Bad Debt Expense (Calendar Year) 92 81 80 72 69 75 73 76 80

D.3.13 Penalties

The Commission may impose a penalty on a claimant, any person acting on behalf of a claimant or an employer under sections 38 and 39 of the EI Act should it become aware that they knowingly provided false or misleading information.

Penalties are correlated with benefit overpayments and are forecasted from the base year using the expected annual change in Part I benefits.

Table 57 Penalties
($ millions)
Actual Forecast
2018 2019 2020 2021 2022 2023 2024 2025 2026
Penalties 63 62 68 73 76 79 82 84 88

D.3.14 Interest

Interest is charged on outstanding EI debts caused through misrepresentation. This includes overpayments and penalties. As per the Interest and Administrative Charges Regulations, the rate of interest charged to EI claimants, employers or third parties on outstanding debts is equal to 3% above the average Bank of Canada discount rate (overnight rate plus 0.25%) from the previous monthFootnote 8.

After keeping the overnight rate at 1.00% since 8 September 2010, the Bank of Canada lowered the rate to 0.75% on 21 January 2015 and to 0.50% on 15 July 2015. The overnight rate was then increased to 0.75% on 12 July 2017, 1.00% on 6 September 2017, 1.25% on 17 January 2018, 1.50% on 11 July 2018 and 1.75% on 24 October 2018. The corresponding discount rate (Bank Rate) starting in October 2018 is 2.00% (1.75% + 0.25%). The overnight rate is projected for 2019 to 2023 based on the 3-month T‑Bill forecast from the February 2019 Department of Finance private sector survey. It is then expected to increase further in the following years to reach an ultimate value of 3.0% with a corresponding discount rate of 3.25% in 2026. The rate of interest charged on overdue accounts is thus projected at 6.25% (3.25% + 3.00%) starting in 2026.

As the interest earned is correlated with the amount of outstanding benefit overpayments, it is forecasted using the expected annual change in Part I benefits and the 12-month average of the interest rate. Expected interest for 2019 is based on interest in 2018, increased for changes in Part I benefits and average interest rate from 2018 to 2019.

Table 58 Interest on Overdue Accounts Receivable
($ millions)
Actual Forecast
2018 2019 2020 2021 2022 2023 2024 2025 2026
Average Interest Rate 4.59% 5.00% 5.30% 5.40% 5.50% 5.60% 5.75% 6.00% 6.25%
Interest 20 22 25 28 29 31 33 35 38

Appendix E – Reduction in Employer Premiums Due to Qualified Wage-Loss Plans

This appendix describes the data, methodology and assumptions that underlie the calculation of the 2020 reduction in employer premiums due to qualified wage‑loss plans included in this report. Data and assumptions were updated to reflect the most recent experience, but the methodology used is the same as in the previous actuarial report.

E.1 Background and Legislation on the Premium Reduction Program

Under subsection 69(1) of the Employment Insurance Act (“EI Act”), the Commission shall, with the approval of the Governor in Council, make regulations to provide a system for reducing employer premiums when employees are covered by a qualified wage-loss plan which reduces EI special benefits otherwise payable, provided that at least 5/12 of the reduction is passed on to employees.

Under subsection 69(3) of the EI Act, the Commission makes regulations for the operation of a premium reduction system, including the method for determining the amount of reduction, the use of actuarial calculations and estimates, and the specific details related to the administration of the program such as minimum qualification criteria and other registration conditions.

The Premium Reduction Program (PRP) was introduced in 1971 at the same time that sickness benefits were introduced to the Unemployment Insurance Program. At the time, many workers were already covered against loss of wages due to illness through employer sponsored plans. It was recognized that the introduction of EI sickness benefits could cause a duplication of costs to both employers and employees. As stated in the 1970 White Paper on Unemployment Insurance, cost concerns and a desire to recognize the role of existing wage-loss plans contributed to the decision to supplement rather than pre-empt those plans. With the exception of benefits paid from registered Supplemental Unemployment Benefit (SUBFootnote 9) plans, it was therefore decided that benefits payable from employer sponsored wage-loss plans would be deducted from EI sickness benefits. In other words, the EI program would adopt a second payer position relative to employer sponsored wage-loss plans that are not registered SUB plans. This implies that employees who become ill and who are not covered by a registered SUB plan first make use of their employer’s plan and only make use of EI sickness benefits if they have no employer plan, or if they have exhausted the benefits from their employer’s plan.

Employers who have a wage-loss plan that meets specific qualification requirements may apply for a reduction of EI premiums under the PRP. In addition to meeting the qualification requirements, participation in the PRP is conditional upon the employer passing on at least 5/12 of the premium reduction to the employees. For administrative simplicity, the full premium reduction is provided to the employer who is then responsible for returning the employees’ portion of the reduction to them through cash or fringe benefits.

In accordance with sections 63, 64, 65 and 66 of the Employment Insurance Regulations (“EI Regulations”), there are four categories of qualified wage-loss plans, which correspond to the main types of wage-loss plans offered to workers. A summary of each category is shown below:

Category 1: Cumulative paid sick leave plans that allow for a minimum monthly accumulation of at least one day and for a maximum accumulation of at least 75 days.
Category 2: Enhanced cumulative paid sick leave plans that allow for a minimum monthly accumulation of at least one day and two thirds and for a maximum accumulation of at least 125 days.
Category 3: Weekly indemnity plans with a maximum benefit period of at least 15 weeks.
Category 4: Special weekly indemnity plans provided by certain public and parapublic employers of a province with a maximum benefit period of at least 52 weeks.

For each category, a rate of reduction, expressed as a percentage of insurable earnings, is calculated annually. These rates of reduction are then converted into reduced employer multipliers for each category and applicable premium rate.

The principle in determining the rates of reduction is that the EI program is paying lower sickness benefits due to the presence of qualified wage-loss plans, and that these savings to the EI program should be passed on to the employers who sponsor these plans and their employees. As it would not be practical to do this on an individual employer basis nor even possible to make the calculation for new employers or small firms, the rates of reduction compensate employers (and their employees) for the average rate of EI benefit savings that are generated by qualified plans in each category. Given that EI sickness benefits paid to employees who are covered by a qualified wage-loss plan depend on the category, the savings generated, and therefore the rates of reduction, vary by category.

The methodology to calculate the rates of reduction is prescribed in section 62 of the EI Regulations. Pursuant to this section, the employer’s premium shall be reduced by the percentage by which the first payer cost ratio in respect of all insured persons exceeds the experience cost ratio in respect of insured persons covered by a qualified wage-loss plan of that employer’s category.

Both the first payer cost ratio and the experience cost ratio are based on averages from the three years ending with the second year preceding the year for which the calculation is made. Accordingly, for 2020, the years 2016, 2017 and 2018 are used to calculate the first payer cost ratio and the experience cost ratio. The detailed formula for calculating the rates of reduction is presented in Appendix B of this report.

More information on the first payer cost ratio and the experience cost ratio is presented in the following subsections, as well as the resulting rates of reduction, reduced employer multipliers and estimated amount of premium reduction for 2020.

E.2 First Payer Cost Ratio

The first payer cost ratio represents the average hypothetical job-attachedFootnote 10 EI sickness benefits that would have been paid if benefits payable under a group sickness or disability wage-loss indemnity plan or paid sick leave plan were disregarded for purposes of determining benefits otherwise payable to persons under the EI Act. It is expressed as a percentage of average insurable earnings for all insured persons. This produces a uniform first payer cost ratio reflecting the national average usage for all EI contributors and is consistent with the fact that EI contributors are charged a uniform premium rate in accordance with the pooling of risk principle.

For the purposes of calculating the 2020 rates of reduction, the first payer cost ratio is equal to the average of the first payer cost for the years 2016 to 2018, divided by the average insurable earnings of all insured persons for the years 2016 to 2018.

The first payer cost for each year is determined by multiplying the hypothetical number of first payer job-attached EI sickness benefit weeks (namely, those that would have been paid if benefits under a group sickness or disability wage-loss indemnity plan or paid sick leave plan were disregarded for EI benefit purposes) by the average weekly sickness benefits that would apply in such circumstances.

The first payer cost was not revised for previously calculated years (i.e. 2016 and 2017). More information on the 2016 and 2017 first payer cost can be found in the 2019 Actuarial Report.

E.2.1 First payer job-attached EI sickness benefit weeks

The hypothetical number of first payer job-attached EI sickness benefit weeks is equal to the product of the hypothetical number of first payer job-attached EI sickness claims and the average duration in weeks of these claims. The hypothetical number of first payer job-attached EI sickness claims is based on the number of individuals with insurable earnings and on an assumed job-attached EI sickness usage rate. This assumed job-attached EI sickness usage rate depends on a number of factors such as the probability of being sick for more than one week (EI sickness incidence rate), the probability of being eligible and applying for EI benefits and the probability of being job-attached at the time of illness.

Employer and employee-wide data on sickness incidences and their duration are not readily available. The most exhaustive and complete data that are available is through the combination of the EI administrative data file and the Canada Revenue Agency T4 data file. The EI sickness incidence rate is therefore estimated based on an analysis of administrative EI and T4 data. Given that the EI claims data are incomplete for employees covered by a qualified wage-loss plan (i.e. only residual claims are paid from the EI program), the EI sickness usage rate of individuals that are not covered by a qualified wage-loss plan was used as a basis for developing the overall EI sickness incidence rate of the entire insured population.

This overall EI sickness incidence rate is adjusted to reflect the estimated impact on incidence rates of different age, sector of employment and salary profiles between individuals with and without a qualified wage-loss plan. The job‑attached EI sickness usage rate differs by sector of employment and depending on whether or not an individual is covered by a qualified wage-loss plan due to different EI eligibility/benefit application rates and varying degrees of job attachment. Individuals who are covered by a qualified wage-loss plan have more stable full-time employment and are more likely to meet the EI eligibility requirements and be job-attached at the time of the illness. Furthermore, they are more likely to apply for EI benefits given that under the hypothetical first payer scenario, employers sponsoring a qualified wage-loss plan are assumed to adopt a second payer position rather than eliminating sickness coverage altogether.

Based on quantitative and qualitative analysis, assumptions were developed to estimate the job-attached EI sickness usage rate of all insured persons under a hypothetical first payer scenario and the resulting hypothetical number of first payer EI sickness claims. The hypothetical number of first payer job-attached EI sickness benefit weeks is calculated by multiplying the hypothetical number of first payer EI sickness claims by the estimated average duration in weeks. To obtain the average duration of claims, the wage-loss status of individuals was taken into account. This is because employees with a wage-loss plan tend to have stronger labour force attachment and that individuals with strong labour force attachment have slightly longer claim durations based on administrative claims data.

Consequently, the 2018 hypothetical number of first payer job-attached EI sickness claims is 671,381 and the assumed average duration of these claims is 8.9 weeks. The resulting hypothetical number of first payer job-attached EI sickness benefit weeks for 2018 is 5,990,174.

The hypothetical number of first payer job-attached EI sickness benefit weeks for 2016 and 2017 is 5,395,202 and 5,591,763 respectively. More information is provided in the 2019 Actuarial Report.

E.2.2 Average Weekly Sickness Benefits

The average weekly benefits can be calculated by multiplying the following elements:

  • Benefit rate (i.e. 55%);
  • Weekly insurable earnings of all EI contributors; and
  • Ratio of insurable earnings used to calculate the benefits of claimants to the insurable earnings of all EI contributors (“Ratio”). This Ratio captures the effect of the formula used to determine EI weekly benefits and any structural differences between insurable earnings of contributors and claimants.

The average weekly sickness benefits of individuals that are not covered by a qualified wage-loss plan were analysed and broken down into these separate elements. It was observed that the Ratio for individuals with a strong labour force attachment is significantly lower than the Ratio for all individuals. In addition, the Ratio for individuals with insurable earnings at the maximum insurable earnings is close to 1. Based on this analysis, an assumption was developed for the Ratio that would be applicable under a hypothetical first payer scenario. This Ratio was then applied to the benefit rate and weekly insurable earnings to derive the average weekly sickness benefits under a hypothetical first payer scenario.

The resulting average weekly sickness benefits under a hypothetical first payer scenario is $443.12 for 2018. The average weekly sickness benefits under a hypothetical first payer scenario for 2016 and 2017 are $430.31 and $435.14 respectively, as calculated in the 2019 Actuarial Report.

E.2.3 Resulting First Payer Cost and First Payer Cost Ratio

Based on the foregoing, the first payer cost ratio used for the calculation of the 2020 rates of reduction is 0.4089%. Table 59 shows more details on how this first payer cost ratio is determined.

 

Table 59 First Payer Cost Ratio for Calculating 2020 Rates of Reduction
2016Footnote * 2017Footnote * 2018 Average for
2020 Rates
of Reduction
First Payer EI Sickness Benefit Weeks (A) 5,395,202 5,591,763 5,990,174 N/A
First Payer Average EI Sickness Benefits (B) ($) 430.31 435.14 443.12 N/A
First Payer Cost (A x B) ($) 2,321,584,000 2,433,215,000 2,654,347,000 2,469,715,333
Total Insurable Earnings (TIE) ($) 580,645,988,996 601,522,510,514 629,771,993,554 603,980,164,355
First Payer Cost Ratio (% of TIE) 0.3998% 0.4045% 0.4215% 0.4089%

Table 59 Footnote

Table 59 - Footnote *

More information on the 2016 and 2017 numbers can be found in the 2019 Actuarial Report.

Return to footnote *

E.3 Experience Cost Ratio

Under certain circumstances, EI sickness benefits are paid to individuals covered by a qualified wage-loss plan. The costs to the EI program of these benefits are deducted from the premium reduction granted through the experience cost ratio, which is subtracted from the first payer cost ratio for purposes of calculating the rates of reduction.

The experience cost ratio, which is different for each category, reflects the actual average job-attached EI sickness benefits paid for each category. It is expressed as a percentage of average insurable earnings for the insured persons in that category. In accordance with the EI Regulations, EI sickness benefits paid to individuals who were not job-attached at the time of the claim are not included in the experience cost ratio.

The allocations of annual job-attached EI sickness benefits paid and of insurable earnings among each category are based on an analysis of administrative data and reports provided by Service Canada and ESDC. For 2016, 2017 and 2018, the total cost of job-attached EI sickness benefits for each category is shown in Table 60, and the insurable earnings for each category are shown in Table 61 ; the amounts shown for 2018 are based on preliminary data.

Table 60 Job-Attached EI Sickness Benefits per Category of Wage-Loss Plan
($)
2016 2017 2018 Average for 2020
Rates of Reduction
Category 1 82,795,840 91,717,891 91,297,594 88,603,775
Category 2 9,119,038 10,471,109 11,262,658 10,284,268
Category 3 81,654,336 90,160,920 93,045,944 88,287,067
Category 4 2,487,689 2,562,627 2,769,051 2,606,456
Total 176,056,902 194,912,548 198,375,247 189,781,566
Table 61 Allocation of Insurable Earnings for Employers With a Qualified Wage-Loss Plan
($)
2016 2017 2018 Average for 2020
Rates of Reduction
Category 1 45,871,033,131 47,640,582,833 49,122,215,497 47,544,610,487
Category 2 23,690,356,351 23,699,986,914 24,057,290,154 23,815,877,806
Category 3 186,387,362,468 189,720,199,816 194,914,432,005 190,340,664,763
Category 4 20,961,320,203 22,075,876,136 22,797,746,167 21,944,980,835
Total 276,910,072,152 283,136,645,699 290,891,683,823 283,646,133,891

The experience cost ratio used in the calculation of the 2020 rates of reduction for each category is shown in Table 62.

Table 62 Experience Cost Ratio per Category
Average EI Sickness
Costs ($) (A)
Average Insurable
Earnings ($) (B)
Experience Cost Ratio
(A/B)
Category 1 88,603,775 47,544,610,487 0.1864%
Category 2 10,284,268 23,815,877,806 0.0432%
Category 3 88,287,067 190,340,664,763 0.0464%
Category 4 2,606,456 21,944,980,835 0.0119%

E.4 Rates of Reduction

Pursuant to section 62 of the EI Regulations and section 68 of the EI Act, the employer’s premium shall be reduced by the percentage by which the first payer cost ratio in respect of all insured persons exceeds the experience cost ratio in respect of insured persons covered by a qualified wage-loss plan of that employer’s category. The premium reduction is therefore granted by reducing the employer multiple below 1.4 to a value rounded to 3 decimals.

Table 63 shows the 2020 rates of reduction for each category of qualified wage-loss plan, along with the corresponding reduced employer multiplier for out-of-Québec and Québec employers. The employer multipliers presented in the table are calculated with the 7-year forecast break-even rate of 1.58% for residents of all provinces except Québec. The corresponding premium rate that applies to residents of Québec is 1.20%. Pursuant to section 62 of the EI Regulations and section 68 of the EI Act, the employer multiplier is calculated from the unrounded rates of reduction and the rounded rates of reduction are shown for illustration purposes only.

Table 63 2020 Rates of Reduction
First Payer
Cost Ratio
Experience
Cost Ratio
Unrounded Rate
of Reduction
Rounded Rate
of Reduction
Employer Multiplier
(Out-of-Québec)
Employer
Multiplier
(Québec)
Category 1 0.4089% 0.1864% 0.2225% 0.22% 1.259 1.215
Category 2 0.4089% 0.0432% 0.3657% 0.37% 1.169 1.095
Category 3 0.4089% 0.0464% 0.3625% 0.36% 1.171 1.098
Category 4 0.4089% 0.0119% 0.3970% 0.40% 1.149 1.069

The Commission will notify each registered employer of the applicable 2020 rate of reduction and employer multiplier. Pro-rated rates apply for plans that do not qualify for a reduction for the full twelve months in the calendar year. In addition, adjusted rates may apply for employers who deduct QPIP premiums for a portion but not all of their employees.

E.5 Amount of Premium Reduction

Table 64 shows the estimated amount of premium reduction to be granted in 2020. The estimates are based on the historical distribution of insurable earnings by category, which was derived from Canada Revenue Agency T4 data.

Table 64 2020 Estimated Amount of Premium Reduction
Estimated Number of
Qualified Employers
2020 Insurable Earnings
($ millions)
Rates of
Reduction
Premium Reduction
($ millions)
Category 1 2,500 51,836 0.2225% 115
Category 2 600 25,386 0.3657% 93
Category 3 26,000 205,681 0.3625% 746
Category 4 300 24,057 0.3970% 96
Total 29,400 306,960 N/A 1,049

Appendix F – Acknowledgements

We would like to thank the staff at Employment and Social Development Canada, Canada Revenue Agency, Finance Canada and Service Canada who provided the relevant data used in this report. Without their useful assistance, we would not have been able to produce this report.

The following people assisted in the preparation of this report:

  • Assia Billig, FCIA, FSA
  • Alice Chiu, ACIA, ASA
  • Pascale Jomphe
  • Maxime L. Delisle, FCIA, FSA, CERA
  • Kelly Moore

Footnotes

Footnote 1

The number of earners is derived from the T4 data provided by CRA.

Return to footnote 1

Footnote 2

The number of employees is based on the latest Statistics Canada Labour Force Survey.

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Footnote 3

A sickness claim is considered job-attached if the interruption of earnings with the employer was by reason of illness, injury or quarantine.

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Footnote 4

The AWE series has been revised by Statistics Canada since the 2019 Actuarial Report.

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Footnote 5

Footnote equation 

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Footnote 6

In theory, EI regular beneficiaries outside the labour force (inactive) should also be added to the number of potential claimants since they receive benefits but are not counted as unemployed in the Labour Force Survey. Due to the lack of availability of data, those EI regular beneficiaries are not included in the analysis, which results in an implicit assumption of constant proportion as a percentage of unemployed.

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Footnote 7

The number of unemployed individuals with an invalid job separation is obtained by multiplying the number of unemployed individuals by the percentage of unemployed with an invalid job separation. This percentage is determined using the EI Monitoring and Assessment report, which is based on Statistics Canada’s EI Coverage Survey. Invalid job separations include: voluntarily leaving employment without just cause or to go to school; being dismissed for misconduct; or being unemployed because of a direct participation in a labour dispute (https://www.canada.ca/en/employment-social-development/programs/ei/ei-list/reports/regular-benefits/apply.html).

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Footnote 8

Interest rates can be found at http://www.tpsgc-pwgsc.gc.ca/recgen/txt/tipp-ppir-eng.html

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Footnote 9

A SUB is a supplemental payment to an employee who is receiving EI benefits during a period of unemployment due to temporary stoppage of work, training, illness, injury or quarantine. These payments are made according to the terms of a SUB plan financed by the employer. Payments from a registered SUB plan that meets the requirements of section 37 of the Employment Insurance Regulations are not deducted from the employee’s EI benefits.

Return to footnote 9

Footnote 10

A sickness claim is considered job-attached if the interruption of earnings with the employer was by reason of illness, injury or quarantine.

Return to footnote 10