Applying for an EI Refund

I have seen advertisements for companies that want to help you get an EI refund for family members employed in your business. The commercials claim that you can get a refund of premiums if you employ related people. They claim that family members are not eligible for EI benefits, so you should be claiming the refund.

Sounds great, doesn’t it? Of course it does. Unfortunately, it is both inaccurate and incomplete information.

The Employment Insurance Act provides that people who do not deal with each other at arm’s length (as defined in the Canada Income Tax Act) are not eligible for EI benefits UNLESS “the Minister of National Revenue is satisfied that, having regard to all the circumstances of the employment, including the remuneration paid, the terms and conditions, the duration and the nature and importance of the work performed, it is reasonable to conclude that they would have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length.”

For most situations, related people are affected by this provision. The translation is that if you treat related people the same way that you have treated an unrelated person in the same position, they WILL be eligible for benefits. That makes sense.

If you go and apply for EI refunds for these people, then they won’t be eligible for benefits. That may not be good at all. If you employ a related person and treat them the same way as an unrelated employee, don’t you think that person will want EI for a pregnancy leave? What if your company does not provide short-term disability benefits and an employee needs sickness and accident EI benefits?

Here are the things to think about if this situation affects you:

1) If you employ people who are not at arm’s length and they are treated differently than employees who are at arm’s length, then you should consider getting a ruling that you don’t have to pay EI premiums (and try to get a refund);
2) If you employ people who are not at arm’s length and they are NOT treated differently than employees who are at arm’s length, AND there is no potential that these people may ever want to claim EI benefits, then you should consider getting a ruling that you don’t have to pay EI premiums (and try to get a refund);
3) If you employ people who are not at arm’s length and they are NOT treated differently than employees who are at arm’s length, AND there IS potential that these people may ever want to claim EI benefits, then you should probably NOT consider getting a ruling that you don’t have to pay EI premiums (and DON’T try to get a refund).

Like any advertising, you need to read the fine print and make sure that the “deal” (the EI refund program) is right for you.