Employment Insurance - Is it really insurance?
Webster’s Dictionary defines insurance as “the practice by which an individual secures financial compensation for a specified loss with damage resulting from risk of any sort, by contract with a company to which he pays regular premiums.”
No one should be silly enough, however, to think that Employment Insurance is insurance.
First of all, we don’t purchase anything. If we collect a wage in this country, the employer is required to deduct the premiums and we have no choice about it. The word “purchase” means that there is a choice.
Let’s imagine Mark, the carpenter, the Canadian counterpart of Joe the plumber. Mark is 48 years old and has worked constantly since he was 18. Presently, you pay EI premiums of 1.73% on all earnings to a maximum of $42,300.00 per year, exactly what Mark makes, so he pays $731.00 a year in EI premiums. His employer has had to match more than that, 2.42%, a further $1,024.00 per year.
I think it is safe to assume that if neither Mark or his employer had to pay those premiums, all $1755 per year would have ended up in Mark’s pocket. When employers look at their labour costs, they look at the total cost including benefits, deductions, everything. It is that total number that determines whether the employer is profitable or not, not who the money is paid to.
Let’s assume that that is exactly the amount that has been sent over the last 30 years. Of course, Mark did not pay this much when he was 18 but then again the government has been holding on to his money for 30 years interest free without him ever collecting Employment Insurance. Call it a draw. Over 30 years, Mark and his employer have sent $52,650.00 to the government for Mark’s “Employment Insurance”.
As a result of the slow down in the economy, after 30 years Mark’s employment is terminated. With his last pay cheque he gets $1,600.00 in unpaid overtime that he accumulated and $1,627.00 (two weeks) vacation pay that he had earned.
Now you can’t collect Employment Insurance until you’ve experienced two weeks of no income.
If we pretend that Mark gets no termination pay for the moment, the way your Member of Parliament has tolerated the Employment Insurance Act
to be written for many years requires that Mark uses up his vacation pay, notionally, but not his overtime pay. Mark won’t be eligible for his first EI cheque until four weeks after her last day of work…two weeks vacation and two weeks waiting period.
Both the overtime and the vacation pay were earned wages. Every time Mark worked an hour he earned 4% of that hourly wage as vacation pay. Every time he worked overtime, he earned that wage too.
If not for the termination, he would have taken the overtime as lieu time in the winter. If not for the termination, he would have taken his vacation pay when he went on holidays in the summer. One delays his eligibility for Employment Insurance. The other does not. It makes absolutely no sense to anyone but your Member of Parliament.
This may seem like a small injustice but Mark has two kids in college and a mortgage to pay and every dollar counts.
Mark’s employer initially does not offer Mark any severance and hopes that Mark is dumb enough not to notice. Mark hires a lawyer and negotiations begin. Mark finally starts receiving Employment Insurance (you can be sure that no matter how early Mark applied that the Employment Insurance cheque did not actually arrive in time to buy the groceries in week number five). Mark is entitled to 55% of his gross earnings or $435.00 a week, as a maximum for 38 weeks. So, he can collect a total of $16,530.00 over a period in which he would normally earn $30,911.00.
Mark’s employer turns out to be Neanderthal and Mark’s lawyer had to sue just to get a reasonable severance package. Ten months after Mark was terminated, he found a new job paying about the same and the lawsuit was settled for ten months unpaid wages.
Ten months lost wages was $35,250.00. Mark’s lawyer told him he could keep fighting to get most of his legal costs covered but Mark just wanted to get the thing over with. His legal bill was $6,000.00 Mark was left with $29,250.00 out of the settlement, the equivalent of 36 weeks unpaid wages.
The Employment Insurance Act
says that both the employer and employee are responsible for making sure that EI gets some of this money. If you receive a settlement or award for lost wages for a period for which you collected EI, EI has to be paid back. Over 36 weeks, Mark received $15,660.00 from EI. There was $13,590.00, before taxes, actually left for Mark after the lawyer had been paid and EI got their money back.
The funny thing is, and you might be shocked to hear it, EI was not interested in contributing to Mark’s legal fees. Mark’s family was stressed out and he started a lawsuit and ran all those risks for almost a year and took personal responsibility for the legal fees to get appropriate compensation for his years of service. In doing so he also to collected over $13,000.00 for the Federal government. So your Member of Parliament thinks that the government should get the rewards of the settlement without running any of the risks. They graciously allow you to deduct the legal fees before calculating the overpayment.
So, at the end of this story, Mark paid over $52,000.00 into EI in his 30 years of work and the government never had to pay out a dime because instead of just walking away Mark made the employer pay an appropriate severance package.
By the way, all these rules can change whenever your MP decides to change them. In a contract of insurance it’s all written down and you get what you pay for. There is no clause saying that the insurer can change all the rules on a whim like your Member of Parliament can.
Don’t get me wrong, having an Employment Insurance plan is certainly better than none and it does supply some important security to families and individuals, especially in these precarious times. It’s insulting, however, that our Members of Parliament have decided that we are all dim enough to actually believe that by calling it insurance we will think that it is.
As published in the Hamilton Spectator, January 24, 2009