In Canada we are pretty darn lucky to have a great maternity (and paternity) leave system, although surviving on 55% of your income for much of the year can be pretty daunting. Some of my friends in the United States are not so lucky and have 12 weeks of leave after giving birth and then have to go back to work.
Maternity and Parental Leave in Canada
Generally, to qualify to receive money during your leave, you have to be employed and have worked for at least 15 weeks full-time before applying for the benefits, or if you are a self employed individual, you have to pay into the benefits and make a long term commitment to continue paying into the benefits (e.g. you cannot opt out once you opt in).
According to Service Canada, to calculate your weekly rate while on leave, you just multiple your current earnings by 55%, and you can receive up to a maximum of $51,300 as of January 1 2017. This means that you can receive a maximum Employment Insurance amount of $543 per week. This value is updated and evaluated every year.
This income is taxed (of course!).
You have to have a one week waiting period (they recently reduced this from a two week waiting period) and then maternity leave starts for 17 weeks, and this starts after the baby is born.
Afterwards, it can be switched to parental leave (35 weeks) which adds up to a full 52 weeks, or a full calendar year.
Many employers offer a top up to the benefits and can be anywhere from 75% to 90% of your previous earnings (which definitely helps a lot!).
Nonetheless, it is definitely reduced and many new parents may not be used to this reduction in income, hence there may be thoughts about making some money on the side.
Before you do that, make sure to think carefully about those side gigs!
Earning Money While on Maternity or Parental Leave
Any extra money earned while on the 15-17 weeks of maternity leave will be deducted dollar for dollar (meaning for an extra dollar you earn, a dollar will be taken away from your benefits payment), which makes earning extra money on the side extremely non-satisfactory.
So earn any side money while on maternity leave!
For the remaining 35 week parental leave portion, there are two options with recent changes.
- You can earn $50 per week or 25% your weekly benefit, whichever is higher… anything more than that will be taken away dollar for dollar
- With the 2016 Budget, there is a new program that is in effect until August 11 2018 called the Working While on Claim program (link is to a Youtube video from Service Canada). With this pilot project, if you work while on parental leave, you get the luxury of keeping 50 cents of their benefits for every dollar earned while on claim, up to the 90% of your weekly benefits, then anything more than this is taken away dollar for dollar. This is called the “optional rule”
Default Rule: Let's say you get $500 per week for parental leave, and you earn $300 one week in side money. With this rule, you 25% of weekly benefit is $125. So $175 ($300-125) will be subtracted from the $500 for that week. So total for that week is $300 (earned money) and $325 (benefits)= $625.
Optional Rule: Let's say you get $500 per week in benefits, and you earned $300 in side money again (it is less than 90% of weekly benefits). So you get to keep $150 with the optional rule (you keep 50 cents for every dollar you earn while on claim). Total for that week is $150 (earned) + $500 (benefits)= $650.
The caveat is that you have to calculate your earnings/ work time on a weekly basis and not lump it together. You also have to report your income while working on parental leave regularly.
Check out the Service Canada website for more information about how much the taxman will take away when you earn money while on maternity or parental leave. The Service Canada customer service agents will even listen to your story and potential situation and tell you which option is best (the conventional or default way or the Working While on Claim way) for you if you plan on earning any income while on parental leave.
Potential Work Arounds and Other Income
If you are a freelancer, potential work arounds to this include not getting paid while you are on parental leave portion of the year and invoicing later or earlier/ before your parental leave starts. This would avoid the clawback.
Or you can just start selling things for cash and have a big garage sale and not report this income!
The other thing to know is that non-earned income e.g. rental income and dividend income or passive income and capital gains are excluded from this and should not be taken away dollar for dollar from your weekly parental leave benefits (phew!).
Readers, have you earned money while on parental leave? Did the math come out right for calculating the Default and Optional choices?