There are over 1.2 million small businesses in Canada, and for many of these businesses it is a family affair.
Many small business owners are, unfortunately, unaware that if an employee on the payroll is related to the business owner, the employee may not necessarily qualify for Employment Insurance (EI) benefits. As such, it is possible that both the employee and the small business are paying EI premiums for a benefit to which the employee will never have entitlement.
There are numerous ways that an employee can be considered related to the employer:
- The employer and employee are married (or common-law),
- The employee is adopted, or
- If there is a blood relationship (parents, brother, sister, children).
There are no rules that prevent relatives from working together, but there are rules about the EI insurability that should be considered in order to ensure that the correct source deductions are being withheld from the employee’s pay cheque. If the CRA determines that the employment situation is not EI Insurable, payment of EI premiums is not necessary and the employee will not be eligible to collect Employment Insurance in the event of employment ending.
If you aren’t sure of your situation, either the employee or the employer can request a ruling from the CRA by sending a letter or a completed Form CPT1, Request for a Ruling as to the Status of a Worker under the Canada Pension Plan or Employment Insurance Act to your local CRA office.
If you would like to discuss EI eligibility for you or a family member or need further clarification on this article, contact us at Five Star Accounting. If you would like to know more about our accounting and bookkeeping services, click here.