My husband and I started our company eight years ago, and amid the hustle, excitement and hard work, parental leave was not exactly top of mind.
But while pregnant with our first daughter in 2021, I learned firsthand how hard it is on your finances to take parental leave as an entrepreneur or self-employed worker. If you want to do so, you need to be prepared and aware of how it works.
New moms and dads can get parental leave benefits through the federal Employment Insurance (EI) program. Employees and employers pay continuing EI premiums, and if workers have put in the required hours in the prior year, upon approval they would receive weekly payments of up to 55 per cent of their salary, to a maximum payment of $695 a week.
If you’re self-employed, pay yourself a salary, and have been paying EI premiums and accumulated the minimum number of hours required to make a claim, you can claim standard EI benefits while on parental leave.
But not all self-employed people opt to contribute to EI, even if they are a salaried employee, since EI is typically claimed in the event of a layoff, which is not as likely when you’re your own boss. For example, despite being a salaried employee of our company in addition to an owner, my husband was ineligible to receive parental leave benefits with our first daughter because we hadn’t been paying into EI for him – something we rectified when we had our second daughter.
Other self-employed individuals may not pay themselves a typical salary – they may, for example, take dividends instead. And self-employed people can only receive traditional employee EI benefits if they own less than 40 per cent of the voting shares of their company.
In those cases, there is an alternative program for business owners who own more than 40 per cent or who are not paying themselves a typical salary and contributing EI premiums. Those special EI benefits for self-employed people require a minimum amount of self-employment income claimed in the prior tax year, which would automatically eliminate anyone who didn’t pay themselves in the prior year, or who had recently started their business.
That EI program for self-employed individuals requires registration 12 months in advance of making a claim, which means that if you sign up on the first day of your pregnancy, you would not qualify. That’s why it’s so important to prepare well in advance – the onus is on self-employed individuals to pay into EI or register for the self-employed program.
EI benefits are based either on your salary or on the prior year’s self-employment income, which can be very limiting for entrepreneurs and self-employed individuals, especially those launching new businesses with no history of self-employment income, or those who choose to pay themselves below market rate compensation in order to reinvest profits in their company’s growth.
And for many new parents, EI benefits alone are not enough to sustain them while on leave. A 2021 survey of Canadian employers found 58 per cent provide some form of salary top-up for maternity leave, but self-employed people may not be able to top themselves up or they may need to use that money to hire someone to help while they’re off caring for their newborn.
And even if you are eligible for EI benefits, like I was in 2021, the government can restrict benefits if they believe you are still involved with the business, despite the EI website stating that business owners only need to reduce their involvement in the business by 40 per cent to be eligible for EI payments.
Marie Chevrier Schwartz, the founder of brands promotion company Sampler, made headlines after she shared her story of having her EI benefit clawed back because the CRA did not believe she was not working. Without any income, she was forced to end her leave one month after giving birth.
We need to provide better support for self-employed new parents, especially women who represent 28 per cent of entrepreneurs in Canada. We should revisit when entrepreneurs have to sign up for government support programs, how much they can earn while on leave, how it’s calculated, and how they can stay involved in their business in a limited way while on leave.
Small businesses are the lifeblood of our economy, and people shouldn’t have to pick between starting a business and starting a family.
Erin Bury is the co-founder and chief executive officer of online estate planning platform Willful.co. She lives in rural Ontario with her husband and two young children.
