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Hike in EI premiums is ‘an annoyance’ to small-business owners

TORONTO, ONTARIO: March 5, 2013 - Dan Kelly, seen here at his Toronto, Ontario offices Tuesday March 5, 2013, is the president and CEO of the Canadian Federation of Independent Business . (Tim Fraser for The Globe and Mail) (For Special Reports - Canada Competes story by n/a)

Tim Fraser/The Globe and Mail

Small businesses will face a rise in the amount they pay for employment insurance (EI) premiums next year as the temporary Small Business Job Credit introduced by the previous Conservative government expires. The hike isn't big – it amounts to just $20 a year for an employee making $50,000 – but it's an irritation to some business owners stressed about rising payroll costs.

In 2015 and 2016, companies paying EI of $15,000 or less were eligible for the credit as a rebate on tax returns. That amounted to about 15 per cent of premiums paid on payrolls subjected to EI under $570,000, according to the Canadian Federation of Independent Business (CFIB). The Liberal government is not planning to renew the credit.

Without the credit, the EI premiums paid by small businesses will be $2.28 per $100 in 2017, up from $2.24 in 2015 and 2016 when the small-business job credit was factored in. The government says a higher premium will allow it to strengthen EI and its related programs.

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While the increase doesn't sound like much, some small businesses are bothered by the trend in rising costs, alongside higher wages and the increase in Canada Pension Plan (CPP) contributions that start in 2019.

"When you look at [these increases] in their entirety, that's substantial to a small-business owner," said John DeHart, co-founder of home-care services company Nurse Next Door and Live Well exercise clinics and vice-chairman of the Canadian Franchise Association.

"We will have to make changes in other ways to deal with it."

Mr. DeHart said businesses will either have to increase prices, which isn't always possible, or decrease costs such as employee benefits or general spending. Some business owners may even consider hiring contractors instead of full-time employees.

He said EI changes won't deter him from hiring staff as needed, but he may have to rethink benefits and potential raises if revenues don't also increase.

"That is how the mind of a small-business owner has to work. Do I give raises this year? Do I take away some of the benefits?" Mr. DeHart said. "Those are some of the things we have to start looking at when these changes happen."

The CFIB has been lobbying the government to either extend the small-business job credit or a permanently lower EI premium rate for small businesses, which employ 90 per cent of the private sector work force and account for about 40 per cent of GDP.

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"Our concern is that, at a time when the government will be counting on small business to get back into the job creation game, and at a time when the Liberals are announcing seven straight years of CPP increases, they will be increasing payroll taxes on small employers," CFIB president Dan Kelly said.

"These aren't giant increases … but it isn't going to provide any relief either. It makes me wonder where governments are thinking small businesses are going to find all of the new dollars to pay into the system."

It's still possible the government could introduce a credit for 2017 in its next budget, Mr. Kelly said, given that it wouldn't have to be paid out until 2018.

"It's not impossible for the government to take a different position on this," Mr. Kelly said. "Unfortunately, at the moment, there appears to be no plan to do that."

The other option could be a job credit linked to youth training, which is an unfulfilled promise the Liberals made during the last election. The Liberals said they would offer a 12-month holiday on EI premiums to employers who give permanent jobs to people aged 18 to 24.

Ottawa says all employers, large and small, will pay premiums calculated on the same base rate in 2017.

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"Employers previously eligible for the small-business job credit will see their effective premium rate increase by about 4 cents in 2017. Setting the premium rate at this level will enable investments in the program to strengthen EI to meet the needs of workers and employers today and in the future," a spokesperson from Employment and Social Development Canada said in an e-mail response to questions.

"These investments include helping employers and employees avoid layoffs by temporarily extending the maximum duration of work-sharing agreements from 38 weeks to 76 weeks."

That extension of the program, which allows employees with reduced work hours to receive EI after a business slowdown, was announced in April. It's geared in large part to employees affected by the downturn in the commodities sector.

While the loss of the job credit is "an annoyance" it won't affect how Toronto-based Flip Accounting Inc. does business, or works with its clients, co-founder Matt Hicks said.

He described the impact as "fairly low."

"This isn't going to be a deal breaker for small businesses to hire an extra person," Mr. Hicks said. "You aren't going to be held back in expanding your business."

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About the Author

Brenda Bouw is a freelance writer and editor based in Vancouver. She has more than 20 years of experience as a business reporter, including at The Globe and Mail, The Canadian Press, the Financial Post and was executive producer at BNN (formerly ROBTv). Brenda was also part of the Globe and Mail reporting team that won the 2010 National Newspaper Award for business journalism. More


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