EI premiums and your family: are you paying too much?

Have you or a family member ever tried to collect Employment Insurance after paying into it for years, only to be denied? If you own your business or have family members working for you, you may be paying too much in Employment Insurance (EI) premiums. Here’s how to figure out whether you’re eligible for a refund.

Business owners: Insurable or not?

If an employee or officer of a corporation controls more than 40% of the corporation’s voting shares, they are automatically deemed uninsurable and should request a refund for any premiums paid in the last three tax years. If you own less than 40% of the voting shares, we recommend you complete the ruling process.

If you are a sole proprietor, you are automatically deemed uninsurable (because you are not considered an employee) and do not need to pay EI premiums. You can also claim a refund of any premiums paid. Note that if you hire an employee, then you will need to deduct and remit EI for that employee. 

Family members: Insurable or not?

CRA can assess family members to be too close to the inner workings of the business. In other words, they are not dealing at arm’s length. By virtue of being related, family members may have more (or fewer) duties, responsibilities and privileges than a worker that is not related to you. For example, if you have a son who is a plumber at your business whose sole responsibility is plumbing, he might be considered arm’s length because he is doing the same job as a non-related plumber would. In that case, his employment would likely be insurable, you would not be eligible for an EI premium refund, but he would be eligible to claim EI benefits if it became necessary.

On the other hand, what if your son does the plumbing but also the accounting, sets his own schedule, and is the only employee with a company truck? The extra responsibility and benefits are because he is your son, and he would therefore likely not be considered to be operating at arm’s length to your business. If the CRA's ruling indicates as such, you can request a refund of the EI premiums paid in the previous 3 tax years.

How to get a ruling and a refund:

The Canada Revenue Agency (CRA) determines “arm’s length” by having you request an EI Ruling. If your family member is deemed insurable, your business and your relative continue paying into EI. If they are deemed uninsurable, you can request a refund of the premiums that both your business and your relative paid over the last three tax years - this could be thousands of dollars!.

Here are five steps to ensure a smooth Ruling and Refund process:

1. Read the helpful hints in EI & Family Members: Are you paying too much?
2. Complete and submit Request for an EI Ruling, CPT1 form (you can submit this through My Business Account).
3. Complete and submit Request for a Refund form (PD24).
4. An EI Ruling Officer will call and ask you and your relative questions to clarify if and how they are treated differently than a regular employee.
5. Keep paying EI premiums until you get a ruling decision.

CAUTION: There are companies out there that may contact you and offer to get you an EI refund, but there is a cost for these services and there is no need to pay for support. The process is simple and CFIB Business Advisors are here to help you each step of the way.