A two-pronged solution could fit more workers under EI, address misclassification and extend emergency support to those who fall through the cracks.
by Gabrielle Feldmann. Originally published on Policy Options
December 24, 2023
(Version française disponible ici)
Canada’s primary social safety net, employment insurance (EI), is widely recognized to need significant reforms. It has remained largely unchanged through the labour market’s decades-long shift away from full-time permanent work. It covers a shrinking portion of the Canadian workforce and is virtually inaccessible to Canada’s most vulnerable workers.
The COVID-19 pandemic laid bare many of EI’s shortcomings and the federal government is looking to modernize the program and make it available to more people.
Updating labour laws to address worker misclassification would help fill gaps in EI by bringing more workers under the program, while a separate emergency support program could help those who still fall through the cracks.
One group left behind by EI who would be helped by this solution are low-income solo self-employed and gig workers. These workers are not eligible for regular EI benefits.
They are a growing subset of the labour market who experience significant precarious work – poorly paid, unstable and unprotected. Solo self-employed and gig workers make up 6.6 per cent of Canada’s total workforce and are growing as a proportion of the self-employed population. They now make up close to three-quarters of all self-employed workers.
As a group, these workers are exposed to similar precarity; however, their employment experiences are different.
Some have no obvious employer, while others work as dependent contractors and rely almost entirely on one or two paying companies.
Some may be misclassified, meaning their employer has hired them as a self-employed worker or a contractor to avoid labour standards. Uber and Amazon have been accused of misclassifying workers; however, this phenomenon exists across many industries.
Varied working relationships matter when considering who can receive income support. Those whose circumstances more closely reflect the employer-employee model may be more easily brought under EI, while those who are truly self-employed may require more creative solutions.
Workers with short-term piecemeal contracts typically have little certainty that their employment will continue, little control over their working conditions and wages, low pay and poor levels of protection (compared with employees who benefit from group insurance schemes, for example).
Many turn to self-employed or gig work to make ends meet because of barriers or challenges in the standard labour market, including insufficient income and job losses.
Others have caregiver responsibilities that preclude full-time work. Women, immigrants and those with lower levels of education are overrepresented in this group, which has some of the lowest incomes in Canada. The median annual income was $15,400 for solo self-employed workers in 2022.
Self-employed and gig workers experience fluctuating incomes because of short-term contracts, multiple income streams and constantly changing pay rates. While they have flexibility over when they work, they can experience “income shocks” beyond their control because of external events or changing economic conditions.
At the same time, already-low earnings make them less able to withstand sudden and further drops in their livelihoods. This volatility makes a social safety net crucial, yet EI doesn’t cover these workers in these circumstances.
Fitting self-employed and gig workers into the EI model
Debates on including self-employed workers under EI are long-standing. The program operates on an insurance-based model that relies on strict eligibility criteria and premiums from workers and employers. It is designed to cover job losses for standard employees; self-employed workers don’t fit into this framework.
A standard employee’s reason for making an EI claim can be verified by an employer, but no similar confirmation exists for self-employed workers. Including self-employed workers under EI could expose the program to the risk that some would wrongly claim benefits, which would jeopardize the safety net’s financial sustainability.
The administrative challenges of including non-standard workers under EI would be sizable. Calculating a normal flow of earnings – needed to determine benefit rates – would prove difficult for workers with volatile incomes. Determining triggers for coverage also would be challenging because workers could experience a significant income reduction, but not be laid off like a traditional employee.
Some self-employed workers – for example, fishers, hairdressers, barbers and taxi drivers – already receive special or regular benefits. But without a rethink of traditional EI, proposed solutions to fit all self-employed and gig workers are likely to be complex to administer and to fall short of income support needs.
Solutions in two steps
An overhaul of EI could consist of a twofold approach that would support workers who could reasonably be covered and extend alternate income support to those who couldn’t receive EI.
The first step would be to cover workers in employment-like relationships – for example, Uber drivers – by changing labour standards to address misclassification. Amending labour codes across Canada to include California’s ABC test would create a presumption that workers are employees by default. The onus would then be on an employer to prove that the worker was independent.
This would extend EI to many gig workers, particularly those employed through an agency or digital platform. Some program adjustments would be required, but those could be modelled on existing provisions for self-employed workers. This shift could be done without adding significant complexity to the program and could also include widely discussed reforms to reduce entry requirements.
A new voluntary EI program would bring more workers under safety net
The resulting employer-employee model would require more firms to pay EI premiums and other benefits. Shifting the costs of income support to companies reliant on gig work could help deter firms from business practices exploiting precarious work.
The second step would apply to all low-income workers who did not qualify for EI, including the truly self-employed.
A new residual income support program could offer a stopgap to those facing a substantial income drop due to natural disasters, pandemics or economic swings. Workers collecting the Canada workers benefit but who are not eligible for EI could receive stopgap support when they lose income in circumstances outside their control. This support would be time-limited and targeted to workers with low incomes.
The economic fallout from COVID-19 underscores the need for stabilizing support during a significant crisis. An income support program under EI would ensure that the most at-risk workers were helped. At the same time, it would avoid the challenges of offering EI on a wide scale to the self-employed.
Both measures would still provide imperfect coverage, especially when compared with EI support for traditional employees. Misclassified workers could still be vulnerable and loss-of-income support would help only those workers in specific circumstances.
There could also be unpredictable costs, especially during a large-scale economic upheaval. However, they could be contained by ensuring a balance between fiscal prudence and support for workers not covered by EI.
Nonetheless, a two-pronged reset of our social safety net would update EI for today’s workforce and support those who still fell through the cracks. Workers would receive widespread support without entrenching misclassification. Using employment standards to ensure more workers were covered would help moderate the costs of helping them without making it more difficult to administer EI.
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This article first appeared on Policy Options and is republished here under a Creative Commons license.