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Canada Pension Plan (CPP) and Employment Insurance (EI) -> Don't pay unnecessary employment (EI) insurance premiums

Employment insurance (EI) premiums are not payable on some wages

a.    You may not have to pay EI premiums for employed family members.

Employment Insurance Act s. 5(2)(i), s. 5(3)

The Employment Insurance Act S. 5(2)(i) states that employment is not insurable if the employer and employee are not dealing with each other at arm's length (determined in accordance with the Income Tax Act).  However, the  employment will be deemed to be insurable "if the Minister of National Revenue is satisfied that, having regard to all the circumstances of the employment, including the remuneration paid, the terms and conditions, the duration and the nature and importance of the work performed, it is reasonable to conclude that they would have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length."

Tax Court cases:

The Judge in the McDonnell Consulting case wrote "This is certainly not a case of employment of convenience being created for the benefit of members of the family so that they could take unfair advantage of the employment insurance system. Nevertheless, the terms of the Act are reasonably clear, and when related parties enter into employment contracts they must be scrupulous to see that the terms do not differ from those on which the employer employs other workers, or on which the workers could find work with other employers, if they wish the employment to be insurable under the Act."

b.    Shareholder's wages may not be insurable.

Employment Insurance Act s. 5(2)(b)

S. 5(2)(b) of the Employment Insurance Act states that "the employment of a person by a corporation if the person controls more than 40% of the voting shares of the corporation" is not insurable employment.

Tax tip:    Don't pay unnecessary employment insurance premiums, but review circumstances carefully.

If you have been paying EI premiums on the above types of non-insurable employment, you may be able to recover some or all of the premiums paid.  See our articles:

See the CRA web page Employment not subject to EI premiums for more information.

If you are not sure if the employment is insurable, you can request a ruling from the CRA.  See their web page How CPP/EI rulings work.

Revised: November 04, 2009