The Canadian labour market is experiencing a big transition phase. As a result, many are finding themselves looking to government programs, like Employment Insurance (EI), for help. Our reader, Sadie, is one of these people. She’s been given the choice between two options and is looking for help deciding which one to choose. Financial expert Colin goes over all the points to consider when deciding between EI now or later.
The question
Got the news that after 11 years, I’m being laid off. I’ve been given a choice between two options, and I’m struggling to decide which one is the best way to go.
Sadie, A
The first is to be temporarily laid off. This would be for a max of 26 weeks. I would start EI right away. After the 26 weeks, I would get 6 weeks of termination pay.
The second option is a permanent layoff with 6 weeks’ notice. I would work through the 6 weeks and then collect EI after that.
What should I be considering here?
Is there an option that stands out better than the other?
Thanks,
The answer
Hey Sadie,
I’m sorry to hear about your layoff. After 11 years, this type of news can certainly seem like a shock. The good news is that you have some options, and you’re doing the right thing by carefully considering which is the best one for you.
There are pros and cons to both of the situations you’ve outlined, and the best choice for you will depend on your current circumstances, like your financial situation, job search plans, and your risk tolerance.
I’ll break down each option in more detail to help you arrive at the best decision.
Option 1: Temporary Layoff and EI Right Away
To restate, if you choose the first option, you’ll begin collecting Employment Insurance (EI) immediately after accepting a “temporary” layoff. This period can last up to 26 weeks. If you aren’t called back to work during this time, then you will receive six weeks of termination pay, or severance.
Pros
Immediate EI support
One of the biggest advantages of choosing this option is that you would begin receiving EI benefits right away, without any waiting period. One of the risks with the standard EI application process is that if you wait more than four weeks after you stop working to apply, you could lose benefits. This option provides you with an immediate (and likely smoother) transition onto EI.
More time for your job search
By going onto EI right away, you aren’t working, which means you can spend more time looking for a new job. Whether it’s putting your resume together, applying for jobs, or going to interviews, job hunting can be very time-intensive. If you’re still working 40 hours a week while looking for a job, it can be both physically and mentally draining.
Deferred severance
Let’s assume you stay on EI for the whole 26 weeks. With EI benefits being less than your full income, the six weeks of termination pay will likely be a welcome relief and provide you with some additional financial cushion, especially if you’re still between jobs.
Cons
Immediate income hit
By moving on to EI immediately and having your termination pay deferred, your income will decrease almost immediately. If you don’t have an available emergency fund or other resources, this could put some additional strain on your finances. If this is the case, I recommend that you carefully review your budget. Figure out if there are expenses you can temporarily cut back. If needed, consider reaching out to your creditors to see if they offer payment deferrals on a mortgage or a loan.
Your EI could run out sooner
By starting EI earlier and not having that six-week runway at work, your benefits will likely run out sooner, which could put additional pressure on you if you’re unable to find a new job quickly. Fortunately, you will still receive the termination pay after 26 weeks.
Option 2: Permanent layoff after six weeks’ notice
To restate this option, you would be permanently laid off but given six weeks’ notice, during which you would continue working. You would then go on EI, but there would be no termination pay offered once the EI runs out. This is an intriguing option, but it might not be the best one for you. Here’s what you’ll want to consider.
Pros
Keep your regular income for the next six weeks.
This is, to me, the biggest advantage of this option. By having a runway before you stop working, you will continue to receive your regular pay for an additional six weeks. If you’re concerned about your budget, this would give you some breathing room as you decide on your next move. It also gives you some time to make adjustments to your budget before your income is reduced.
EI benefits start later (which extends your timeline)
By working six more weeks, your EI claim starts later, meaning your benefits will last longer. This could be helpful if it takes you several months to find a new job. That said, this option doesn’t include the termination pay at the end.
Cons
Potential EI delay
There could be a delay before EI payments begin if you’re unable to apply for EI until after the notice period ends. If that’s the case, and you’re not prepared to handle a gap in your income, this is something to factor in to your decision. If you can apply right away, then this might not be as much of an issue.
You don’t receive termination pay in a lump sum
By accepting six weeks’ notice and continuing to work, I assume you are forfeiting the lump sum termination pay from Option 1. This might be the biggest drawback of this option. Your employer is making you work for your termination pay. Continuing to work means less time to spend looking for your next job.
So, which is the better option?
There isn’t a definitive answer here, as it really depends on your situation and priorities. If your main priority is to maintain your regular income for as long as possible, Option 2 offers more income stability, at least for the first six weeks. However, having to continue working while trying to find a new job may prove challenging. You also don’t have the benefit of a lump sum payment down the road.
On the other hand, if your top priority is finding a new job and you can adjust your budget to accommodate the lower EI income, then taking the immediate layoff (Option 1) should give you the time you need for your job search. You would also have the benefit of knowing there’s a lump sum when the EI runs out.
Regardless of the path you choose, I recommend taking time to assess your finances and how you will go about your job search. This preparation can help you get ahead of potential financial problems and make the transition that much easier. All the best, Sadie!
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