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Appendix VIII - Historical Review of Financing Arrangements under the EI / UI Program

I. Current Arrangement

The Employment Insurance Program is currently entirely financed through employer and employee premiums, in a 7/12 to 5/12 sharing ratio. The costs charged include all benefits, administrative costs and the costs of the Employment Benefits and Support Measures provided under Part II of the EI Act. Surpluses or deficits recorded in the Account are credited with notional interest.

Payments or receipts are actually made through the Consolidated Revenue Fund, as is the case for all other expenditures and revenues of the federal government.

II. Historical Review

The UI Account was established on June 27, 1971 in replacement of the UI Fund that had existed since 1940.

A. Prior to the 1971 UI Act

Employers and their employees paid equal shares into the UI Fund, with the federal government adding 20% of the combined employee/employer contributions in addition to the total cost of administration.

B. Under the 1971 UI Act

Effective January, 1972, the private sector became responsible for the cost of initial regular benefits up to a 4% threshold rate of unemployment, the cost of special benefits (sickness, pregnancy and age 65 benefits), the costs of administration and interest charges or credits. The employer's premium was set at 1.4 times the premiums paid by employees, thus producing a sharing ratio of 7/12 for employers and 5/12 for employees.

The 1.4 multiple assigned to employers was based on econometric simulations of the effects of a proposed experience-rating system. It was expected that such a multiple would be the average for all employers combined. The system, proposed to start in 1974, was delayed and finally the enabling provisions of the Act were repealed on August 15, 1977.

The only exception to the standard employer premium concerns employers with registered wage-loss replacement plans in case of sickness. These employers pay a lower multiple than 1.4 to compensate them for the savings that their plans generate in terms of UI sickness benefits. At least 5/12 of the premium reduction must be passed on to their employees in cash or additional fringe benefits.

The federal government, on the other hand, became responsible in 1972 for: the costs of initial regular benefits attributable to a national unemployment rate over 4%; the total cost of extended benefits due to labour force attachment or to high national or regional unemployment; benefits after completing a course of training under the Adult Occupational Training Act; and benefits to self-employed fishers.

C. Impact of Bill C-69

Effective January, 1976, the fixed threshold rate of 4% used to allocate the cost of initial regular benefits between the private sector and the federal government was replaced by a variable threshold, equal to the eight-year average of monthly rates of unemployment (up to June of the year before the one of calculation).

D. Impact of Bill C-27

Effective September 11, 1977, claimants referred to training courses were granted UI benefits (rather than allowances under the Training Act). These benefits were to be financed in accordance with the same rules as used for regular benefits.

If regular UI entitlement was exhausted, benefits were extended to the end of the training course and up to 6 weeks thereafter (up to 3 weeks after March 31, 1985). The federal government assumed, the cost of additional benefits paid as a result of such extensions.

Job creation and work sharing benefits were also instituted on September 11, 1977 (although no significant amounts were spent in this respect until 1982). The cost of benefits under job creation projects was financed in the same way as regular UI benefits: threshold formula for initial benefits; government financing of extended benefits; special extensions similar to training extensions were also financed by the government. The cost of benefits under work sharing projects was financed by the private sector.

E. Impact of Bill C-14

Effective January, 1979, benefits paid during the labour force extended phase were financed on the basis of the threshold formula (in the same way as regular benefits paid during the initial phase), instead of being charged entirely to the government. Also, work sharing benefits were to be financed on the basis of the threshold formula, instead of being charged just to the private sector.

F. Amendments to Part VII of the Unemployment Insurance Regulations (cost of administration)

Since April 1, 1980, the cost of administration to be financed by the private sector has included the administrative costs of the National Employment Service.

G. Impact of Bill C-3

Effective July 1, 1980, benefits that had been financed jointly by the government and the private sector on the basis of the threshold formula (namely, initial, labour force extended and work sharing benefits) were to be charged entirely to the private sector.

H. Impact of Bill C-21

Effective October 23, 1990, total program costs are met from employer/employee premiums. The government provides temporary refundable advances as needed, or may temporarily use available surpluses, all with interest.

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Date Modified:

2011-09-30