Tax in the News: Restaurants Canada Urges Reduction in EI Premiums to Lift the Strain on Small Businesses

Small businesses are the backbone of our economy, yet they are being crushed under the weight of rising costs. Restaurants Canada, alongside other national business associations, is urging the federal government to act on a pivotal report titled “On the Precipice – Help is Needed,” authored by Ian Lee, PhD, Associate Professor at Carleton University. This report highlights the profound impacts of Employment Insurance (EI) premiums on small businesses, particularly in the restaurant industry, amidst the current affordability crisis.

The Current Crisis

The report underscores the challenges faced by small business owners, especially restaurant operators, who are grappling with higher EI premiums amidst unprecedented cost pressures. Bankruptcies among restaurants, accommodations, construction, and retail sectors have doubled from 2019 to 2024, underscoring the urgent need for intervention. The report calls on the federal government to lower the EI premium rate to 1.58% from the current rate of 1.66%.

“Restaurant operators, representing a $114 billion industry and the fourth largest private employer, are committed to reinvesting government-provided payroll tax relief into their businesses and workforce,” said Kelly Higginson, President and CEO of Restaurants Canada. “This reinvestment would take the form of improved wages, investments in training and development, or expanded hiring efforts.”

Impact on Family-Owned Enterprises

For families with family-owned enterprises, the implications of high EI premiums are significant. These businesses often operate on thin margins, and every additional cost can strain their finances. Lowering EI premiums would reduce operating costs, providing much-needed financial relief. This reduction in premiums could translate into higher disposable income for both business owners and their employees, fostering a more robust economic environment.

Historical Context and Recommendations

In 2020, the government froze EI premiums for two years to help businesses cope with the financial strain of the pandemic. Now, Restaurants Canada is advocating for a similar measure to address ongoing economic challenges. The proposed reduction in EI premiums would provide immediate relief to small businesses, allowing them to allocate more funds towards employee wages and business growth.

Ian Lee, the report’s author, emphasized the importance of lower EI premiums: “Lower EI premiums will channel more funds into the hands of young workers, particularly in accommodation and food service roles, who rely on this income to fund their education.”

Broad Support for EI Premium Reduction

The call for reducing EI premiums is backed by multiple stakeholders who recognize the broader economic benefits. Corinne Pohlmann, Executive Vice-President, Advocacy for the Canadian Federation of Independent Business, stated, “Payroll taxes like EI have a significant impact on small business hiring decisions and their ability to grow. Reducing EI premiums would help many small businesses invest more in their businesses and employees.”

Beth Potter, CEO of the Tourism Industry Association of Canada, added, “Such financial burdens should not fall upon the shoulders of small businesses and fledgling employees. They are essential to the nation’s tourism industry and contribute significantly to its competitiveness as an international destination.”

Tax Consequences and Strategic Considerations

For family-owned enterprises, tax planning is crucial. The reduction in EI premiums could have several positive tax consequences:

• Increased Cash Flow: Lower EI premiums mean reduced payroll taxes, leading to improved cash flow, which can be reinvested in the business.
• Employee Retention and Expansion: With more funds available, businesses can offer better wages or benefits, helping to retain and attract employees.
• Capital Investment: Savings from reduced premiums can be redirected towards capital investments, enhancing business operations and potential tax deductions.

Conclusion

Lowering EI premiums is a critical step towards alleviating the financial strain on small businesses, particularly in the restaurant industry. This move would not only provide immediate relief but also bolster consumer confidence and support economic growth. As we navigate these challenging times, it is imperative that the federal government takes decisive action to support the small business community.

For more details, download the full report here.

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