Federal budget proposes changes affecting EI and stock option benefits

The federal government is proposing changes to employment insurance (EI) and stock option benefits that may affect some payroll professionals.

The budget, which Finance Minister Bill Morneau tabled on March 19, included figures projecting that the employee EI premium rate would decrease from $1.62 per $100 of insurable earnings to $1.61 for 2020.

The budget also included a proposal to provide an EI premium rebate to small businesses that pay up to $20,000 a year in employer EI premiums, beginning in 2020.

The rebate is intended to “offset the upward pressure on EI premiums resulting from the introduction of a new EI Training Support Benefit,” budget documents said.

The EI benefit, also proposed in the budget, would be part of a new Canada Training Benefit to help workers upgrade and develop new skills.

Besides the EI support, the training benefit would include a non-taxable training credit and job-protected time off work.

The training credit would allow eligible workers between the ages of 25 and 64 years to accumulate $250 a year in tax credits, to a lifetime maximum of $5,000, which they could use to help pay for up to half of the cost of fees for training at a university, college, or another eligible institution, beginning in 2020. They would claim the credit when they filed their income tax returns.

“With this credit, a Canadian worker would accumulate $1,000 every four years to be used for training fees,” said the budget.

To be eligible, workers would need to have at least $10,000 in earnings from work (including maternity and parental leave benefits), as well as an annual income under approximately $150,000. They would also have to file an income tax return.

The proposed EI benefit, which the government proposes to launch in late 2020, would provide income support for eligible workers who took time off work for training. It would pay up to four weeks of benefits at 55 per cent of average weekly earnings, which workers could use within a four-year period.

To ensure that workers could take time off to pursue training, the budget proposed that training leave be added to labour standards laws. For federally regulated workers, the budget said the government would consult with employers and employees before amending the Canada Labour Code.

It would also consult with provincial and territorial governments about possible changes to their labour standards legislation.

Reaction from business and labour groups was mixed.

The Canadian Chamber of Commerce said while it supports initiatives to improve workers’ skills, it is not yet clear how the proposals might affect small businesses.

The chamber needs more information and wants to see a commitment to consult business prior to implementation, it said in a statement.

The Canadian Federation of Independent Business (CFIB) said it supports actions to deal with the country’s skills and labour shortage, but noted it has concerns with the proposals.

“Will small businesses be required to hold open a position if an employee has always wanted to take a paid leave from work in order to study Latin or interpretive dance?” said CFIB President Dan Kelly. 

However, the organization said it was happy with the announcement of an EI premium rebate, he said.

“CFIB is pleased government is planning an EI Small Business Premium Rebate to help cover some of the increased costs to fund the new program, but calls on the federal and provincial governments for significant consultation to ensure the needs of employers are considered before launching any EI benefits or job-protection requirements.”

Unifor, which represents private-sector workers, called the proposals a good first step.

“Funds to help pay for training and additional EI income support will provide a real benefit to workers over the course of their working lives as they can continue to develop relevant skill sets,” said Unifor national president Jerry Dias.

“This is a good move that needs to be strengthened with further programs to improve workers’ skills in an increasingly competitive global environment,” he said.

The Canadian Union of Public Employees called the measures disappointing, however.

“The Liberal government’s proposed Canada Training Benefit excludes the unemployed and the precariously employed workers who need support the most,” it said.

The Canadian Labour Congress (CLC) voiced concerns that the tax credit and EI benefit were not high enough to help lower-income workers.

It also criticized the budget for not proposing a comprehensive review of the EI program.

“A review is urgently needed, not just to address the crisis in access to EI regular benefits, but also weaknesses in the current EI rate-setting mechanism,” said the CLC.

“Since 2016, premiums are set in order to balance the EI account over a seven-year period, making it difficult to build up a funding cushion in good times in order to prepare for the next recession,” it said.

“Accordingly, Budget 2019 projects a one-cent drop in EI premiums, contradicting not just sound counter-cyclical management, but Budget 2019’s own expectation of ‘upward pressure on EI premiums resulting from the introduction of the new EI Training Support Benefit.’”

Another payroll-related measure announced in the budget would affect some businesses with employee stock option taxable benefits.

The budget proposes to place an annual cap of $200,000 on the amount of employee stock options that are eligible for a deduction under the federal Income Tax Act.

It said the move would align Canada’s tax rules with those in the United States.

The measure would apply only to stock options for employees who work for large, long-established companies. Stock option benefits would remain uncapped for employees of start-ups and rapidly growing Canadian businesses.

“The public policy rationale for preferential tax treatment of employee stock options is to support younger and growing Canadian businesses,” said the budget.

“The government does not believe that employee stock options should be used as a tax-preferred method of compensation for executives of large, mature companies.”

The proposals would apply on a go-forward basis, meaning that they would not affect employee stock options granted before the government announces legislative changes to implement them.

The government said it would provide further details on the proposal before the summer.

The budget also proposes additional funding to help the government deal with problems related to its troubled Phoenix pay system.

The money proposed would include $523.3 million over five years to help address payroll errors. Budget documents also reiterated an earlier government announcement that it plans to replace Phoenix with a new pay system.

The Public Service Alliance of Canada (PSAC), which represents federal public-sector workers, said while it welcomes new funding, the amount announced falls “significantly short” of what is needed.

“The over 200,000 workers that have been impacted by Phoenix need long-term funding dedicated to: eliminating the backlog of pay problems; stabilizing Phoenix; compensating workers for their many hardships; and providing enough resources to properly develop, test, and launch a new pay system,” said a PSAC statement.

“The amounts budgeted for the next four years will not be sufficient to meet those objectives, and over 70 per cent of that funding is earmarked for this fiscal year, leaving little for future needs,” it said.

“Budget 2019 also does not tie any funding to a timeline for the resolution of Phoenix problems, nor does it commit to a permanent increase in staffing required to stabilize the system for good. It also allocates nothing for the development and launch of a new pay system,” said the statement.

Other payroll-related items in the budget include funding to help Employment and Social Development Canada modernize the way it delivers services, and proposals to better protect workplace pensions if an employer goes bankrupt.

The budget is expected to be the government’s last before an election later this year.