Archived - Backgrounder: The Small Business Job Credit

With today’s announcement, the Government is taking further steps to recognize the important contribution that small businesses across the country make to job creation and economic growth.

The Small Business Job Credit will apply to Employment Insurance (EI) premiums paid by small businesses in 2015 and 2016. The credit will be calculated as the difference between premiums paid at the legislated rate of $1.88 per $100 of insurable earnings and the reduced small business rate of $1.60 per $100 of insurable earnings in each of those years. Since employers pay 1.4 times the legislated rate, this 28-cent reduction in the legislated rate is equivalent to a reduction of 39 cents per $100 of insurable earnings in EI premiums paid by small employers. The 39-cent premium reduction will apply in addition to the premium reduction related to Quebec’s parental insurance plan, the Québec Parental Insurance Plan.

Any firm that pays employer EI premiums equal to or less than $15,000 in 2015 and/or 2016 will be eligible for the credit in those years.

As an example, a small business employing 14 employees, each earning $40,000, would ordinarily pay about $14,740 in EI premiums in 2015. However, since the total EI premiums paid by the employer are less than $15,000, it would be eligible under the Small Business Job Credit for a refund of about $2,200, which is the difference between employer premiums paid at the legislated rate versus the premiums calculated under the reduced small business rate ($12,540).

As another example, a small business employing 3 employees, each earning $25,000, would ordinarily pay about $1,975 in EI premiums in 2015. However, since the total EI premiums paid by the employer are less than $15,000, it would be eligible under the Small Business Job Credit for a refund of about $295, which is the difference between employer premiums paid at the legislated rate versus the premiums calculated under the reduced small business rate ($1,680).

Businesses will not have to apply. The Small Business Job Credit will be automatically administered by the Canada Revenue Agency, which will determine eligibility and calculate the amount of the credit. Once calculated, the credit will be applied against any outstanding debt and then the remaining amount, if any, will be refunded to the small business.

This measure is expected to save small employers more than $550 million over 2015 and 2016.

For more information, please refer to the Canada Revenue Agency website.

The new seven-year break-even rate-setting mechanism will take effect in 2017. As projected in Economic Action Plan 2014, the EI premium rate will fall from $1.88 in 2016 to an estimated $1.47 in 2017. All employers will continue to pay 1.4 times the EI premium rate. After the move to the seven-year break-even rate in 2017, annual adjustments to the rate will be limited to 5 cents.