Canada’s paid parental leave system has high uptake and places us solidly in the middle of the pack of OECD countries in terms of how much paid time parents have away from work. But it has certain design features that can hurt parents’ — especially women’s — labour force participation. This is something the federal government can fix.
Canadians access paid parental leave through employment insurance (EI). New parents can receive special benefits through EI to help replace some of their income while they are caring for their new children in the first 18 months of their lives.
For many new parents, however, the design of paid parental leave simply doesn’t work. Some are ineligible; for others, benefits are inadequate and inflexible. It’s an inequitable system.
Weak parental leave policies weaken our labour force, reducing gender equity. Inflexible and inadequate benefits can push parents (usually women) out of the labour force for longer than they expect, with long-term impact on their earnings. Women with access to better paid leave (those with employer top-ups) are twice as likely to return to their employer as those without any paid leave (96 versus 46 percent).
Others have written on the need to raise rates, or to make it easier for precarious workers to claim benefits, and these are important ideas. There are also other simple changes to our paid parental leave system that wouldn’t cost much and could make a significant difference for parents.
Here are three such changes to improve EI parental leave.
Make it easier for people to combine work and parental leave
For most parents, parental leave means taking a serious financial hit. EI provides a maximum of $31,683 for both parents combined, assuming an 18-month leave along with the new Parental Sharing Benefit. At best, EI replaces 55 percent of your income — a huge drop for new parents with new baby costs that sometimes come on top of time-of-life pressures like mortgage payments, helping aging parents and paying off student debt. Many parents want or need extra earnings during this time.
Our current system technically allows parents to earn some money while on paid leave through the Working While on Claim program. In practice, this is not viable for most families. Between a 50 percent clawback of earnings from EI, income tax and clawback of other benefits like the Canada Child Benefit, a parent with modest income can easily face a marginal effective tax rate above 75 percent. And that’s before considering the administrative hurdles and paperwork required to report on earnings, something few new parents have the bandwidth to manage.
Allowing more flexibility isn’t just about money, it’s about letting people and their employers find arrangements that work for them to balance work and parenting — a balance that can carry over after parental leave is done. It’s also about allowing parents, especially women, to keep connections to the workforce to maintain their human capital.
One solution is to let parents keep what they earn by exempting employment earnings from EI clawbacks. The rationale for clawbacks in the context of regular EI benefits — to encourage people to find full-time work — doesn’t apply to parental leave.
The risk of abuse could be mitigated by limiting the exemption to a maximum amount of earnings, allowing it for only one parent at a time, or restricting it to leaves of a minimum length.
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Offer more flexibility in how people use their EI leave
Let parents concentrate their benefits over a shorter period of time. Recent changes to allow parents to spread their benefits over a longer period of time have proven popular, with 15 percent of parents choosing this option. Parents should also have the flexibility to choose a shorter option with a higher weekly rate if that works best for them, as is the case in the Quebec system.
Allow parents to start and stop benefits so they can return to work for short-term projects or contracts.
Make it much simpler for self-employed people to access EI
Self-employed people make up approximately 15 percent of the workforce. Currently, self-employed people can opt in to EI to collect parental leave benefits. Take-up is very low: fewer than 600 self-employed parents claimed EI maternity/parental benefits in 2016-17. Opting in to EI benefits is a bad deal and is complicated to access. Many self-employed workers end up with no support.
Self-employed workers outside Quebec have to start paying premiums 12 months before making a claim — yes, three months before a child is even conceived. (This plan is also unfavourable to parents who are adopting children, who are also unlikely to have 12 months’ notice that they will become parents to a new child.) Self-employed workers also have to continue paying in to the program for the rest of their self-employed lives. The 12-month pay-in requirement could be easily removed in favour of some minimum threshold of previous self-employment income to qualify, since the claiming parent would still be required to pay in for the rest of their career, whether they remain self-employed or move to standard employment.
Paying into self-employed EI currently remains a bad deal. Self-employed workers pay only the employee half of EI premiums, but they get a lot less bang for their buck than standard workers because they can’t claim regular unemployment benefits (since you can’t “fire” yourself). In Quebec, self-employed participants in the Québec Parental Insurance Plan (QPIP) pay a premium rate of 0.973 percent for a more generous income replacement rate on leave, whereas self-employed people in the rest of Canada pay 1.62 percent. That means a self-employed worker earning $50,000 in most of Canada is paying $810 in annual premiums compared with $486 in Quebec — a 66 percent difference. The federal government should lower the premiums for self-employed workers.
These three ideas don’t address all of the challenges with parental leave. We need to think about how to encourage more employer top-ups and how to improve access for people in part-time and contract work who don’t qualify for EI parental leave or who qualify only for minimal benefits. But these changes could make a big difference right away in making parental leave fairer and more effective, and they could help improve gender equity in the workforce.
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