Alex McKillop Tax Blog

On Sept 11, 2014 Joe Oliver announced changes to the EI program next year. They amount to similar savings under the EI new hires program but access to the new rates are limited to employers with less than $15,000/year in EI deductions (employers of less than 15-20 employees). The proposed changes take effect on January 1, 2015. Beneath all the rhetoric you may have read in the news, perhaps you’ve wondered what this means to you directly. Here’s what the numbers boil down to in terms of dollars saved:

The proposed savings amount to a 0.392% reduction in payroll costs. Consequently, I cannot recommend hiring any new staff, as our beloved government is suggesting you do, and spending $20-40,000/year because you will save $98-157 on their EI premiums.

I applaud any reduction in tax. But I cannot use these numbers to justify making a poor business decision.

The headline should be that you will save about $100 per year per employee that pays EI premiums (i.e. not the owners, who are EI exempt). So the small business they are targeting will save between $100-$1,500 in 2015, depending on number of employees. Will we take that? Absolutely. Should that make you go out and hire a new employee? Absolutely not.

The only reason you should hire more staff is because you recognize an increase in the demand for your product or service in the marketplace. This is economics 101. If you are able to manage servicing your existing clientele plus projected growth over the next 3 months with your existing staff, why would you hire additional staff? If there is a shortfall between the time it takes to deliver your product or service and the expectation of your customer or your growth expectations are such that your current staff will be overwhelmed by the increase in demand, then consider hiring additional staff.

To quote a line from a famous 90’s movie – show me the money! If the demand or growth is there, add employees. If not, don’t look to a 0.392% reduction in payroll costs to justify a new hire.