EI for self-employed. At first blush this sounds pretty good. But how good is it really?

Starting in January 2011, self-employed Canadians will be able to collect Employment Insurance (EI) special benefits which include:

• maternity benefits;
• parental benefits;
• sickness benefits; and
• compassionate care benefits.

How it works
The program is voluntary for self-employed Canadians and you register online through My Service Canada. If you register after April 1, 2010, you must pay in for a full year before you are entitled to benefits.  In 2010, if self-employed earning are $43,200 and over, you pay the maximum annual EI premium rate of $747.36.

You can cancel your participation anytime unless you have collected EI benefits. Once you collect, you have to pay in as long as you are self-employed.

What you get
If you are eligible to collect, the weekly benefit is 55% of the average weekly earnings from the calendar year before the year you submit an EI claim.  Maximum weekly benefit is $457 subject to a maximum depending on the type of special benefit.  (6 weeks for compassionate care, 15 weeks for sickness and maternity, 35 weeks for parental leave).

While some of these benefits might provide much needed relief to those who truly need them, proceed with caution. If you work part time or your business generates income while claiming sickness or maternity benefits, your earnings will be deducted from the EI benefit dollar for dollar. You can earn up to a maximum 25% of your weekly benefit if you are claiming parental or compassionate care benefits without affecting your benefit.  Anything earned above that amount will be subtracted from the EI benefit you receive.

The Reality
Certainly there are circumstances where a person’s ability to generate self-employed income would cease completely because of caring for aging parents or having a baby. But most self-employed people I know would do just about anything to keep their business going through thick and thin using technology, creativity and just plain stubbornness. It wouldn’t take long to see the EI advantage disappear completely.

Some skeptical observers see this new initiative as just another way to top up the much depleted EI fund (expected to peak at $10.74 billion next year). Perhaps not coincidently, the announcement comes along with news that EI premiums are about to rise sharply for both employees and employers to pay down the deficit and set aside a $2-billion cushion.

While the new EI program might work for some, be sure to crunch the numbers before committing to it. I know I’m not rushing out to sign up. – Karin Mizgala

For more: Check out Service Canada’s FAQ’s.

Karin Mizgala is a Vancouver-based fee-only financial planner with an MBA and a degree in psychology. She’s the President of LifeDesign Financial and co-founder of the Women’s Financial Learning Centre.