CRA implemented what I interpret as punitive regulations to suck what little profit a Barber or Hairdresser can earn. Jump in the discussion if I am misunderstanding any specific point. Questions are underlined.
The examples below are for a typical relationship where a Salon Operator provides a “Chair Rental” agreement to a self-employed barber or hairdresser. Refer to CRA link: https://www.canada.ca/en/revenue-agency/services/tax/canada-pension-plan-cpp-employment-insurance-ei...
Assumption: CRA wanted a greater EI participation rate from Barbers and Hairdressers, therefore implemented mandatory participation for “self-employed” workers under the Insurable Earnings and Collection of Premiums Regulations (IECPR).
1. 140% EI Premium Increase:
a. Previously the self-employed barber or hairdresser could VOLUNTARILY participate in the EI for Self-Employed People program where they would pay the Employee EI Premium (1.66% of Insurable Earning in 2024).
b. Under IECPR – Special EI Regulation for Barbers and Hairdressers, the Salon Operator must pay BOTH the Employee EI Premium (1.66% of Insurable Earning in 2024), AND the Employer EI Premium (1.4 x the Employee EI Premium).
c. Understandably the Salon Operator must generate the necessary revenue to pay these premiums, which will be directly built into the Chair Rental fee. This means that the self-employed barber or hairdresser will be paying (in the form of increased chair rental fee) for the Combined EI Premiums (both Employee and Employer Premiums) which is 1.4 time (or 140%) the rate of the voluntary EI for Self-Employed People program.
2. Complicated Insurable Earnings Calculation:
a. CRA identifies two (and a half) methods for a Salon Operator to calculate the Insurable Earnings.
i. Method 1: Pay combined EI Premium based on the weekly Total Net Revenue of the barber or hairstylist. This method is not realistic as most self-employed people can only accurately calculate their Net Revenue at the end of the fiscal year.
ii. Method 2: Pay combined EI Premium based on the LESSER of:
“the number of days worked in that week multiplied by 1/390 of the maximum of the yearly insurable earnings (MYIE)”, example 5 days x $63,200 [2024 MYIE] / 390 = $810.26, OR
“1/78 of the maximum yearly insurable earnings”, example $63,200 / 78 = $810.26
*Note Method 2.1 above would be the LESSER if working less than 5 days.
b. The Salon Operator is tasked and responsible for paying EI Premiums based on information and a variable reporting structure they have no control or authority of. How can any Salon Operator budget the required EI Premiums?
i. Method 1: The barber or hairdresser would report Net Revenue to Salon Operator, what if an error was made (over or under-stated Net Revenue), will an EI Premium correction be made?
ii. Method 2:
.1 Define a “day”? I assume 8 hours (based on Provincial Employment Standards). Therefore, is part-time working of example: 3 hours, then 2 hours, then 2 hours totaling 8 hours in a given week but on 3 separate days considered “1 Day” (8 hours), or is it considered 3 days.
.2 The barber or hairdresser would report the number of “Days” to the Salon Operator. Who is responsible for the accuracy of this? A barber or hairdresser can work 1 hour each day for 5 days, and inform the Salon Operator they worked “5 days” requiring paying maximum EI Premiums?
iii. A Salon Operator could budget worst case scenario, Method 1 at maximum annual insurable earnings of $63,200 = Total Combined EI Premium of $1,679, or Method 2.2 $63,000 / 78 x EI Premiums = Total Combined EI Premium of $1,679.
If the chair rental is $600 per month, the above example of EI Premium equals 2.8 months of rent! Or an additional $140 per month ($1,679 / 12)
c. In addition to the EI Premiums, the Salon Operator must also budget administration and accounting costs to:
i. Collect insurable earning information (weekly).
ii. Calculate and remit payment of employer and employee EI premiums (monthly).
iii. Generate T4 Statements for each Chair Renter (annually).
iv. Generate RoE for each Chair Renter when the lease ends OR they request it having intention to submit EI Benefit claim.
d. For the purpose of this exercise, I believe it’s reasonable to budget additional EI Premium administration & accounting costs of $30 per month per Chair Renter. Therefore, the Salon Operator should budget a Total Additional $170 per month per Chair Renter ($140 + $30), equal to additional 3.08 months of rent annually.
3. 28% Increase in Salon Chair Rental Fee: The Salon Operator must increase the Chair Rental fee by 28% to generate the required revenue to pay combined EI Premiums for Special EI Regulation for Barbers and Hairdressers.
a. Calculation: In the example where Chair Rental is $600 per month, and an increase of $170 per month is required for EI Premium / administration & account, the total Chair Rental cost must increase to $770 per month, or a 28.33% increase.
4. EI Benefit:
a. What advantage does a Barber or Hairdresser have if the need to submit a EI Benefit claim occurs (I assume as Regular EI Benefit), over the EI for Self-Employed People program? *Note their Chair Rental must provide the revenue to pay the additional EI Premium and admin costs versus EI for Self-Employed People, plus admin costs.
b. Why didn’t CRA make it MANDATORY for Barbers and Hairdressers to participate in the EI for Self-Employed People instead of creating this complicated Special EI Regulation?
c. If EI program participation for self-employed people is determined MANDATORY, why implement this requirement to a limited profession and not require all self-employed people to participate?
Cheers!
