Should You Opt Into CPP or EI as an Owner-Operator?

As a self-employed professional or small business owner in Canada, you make countless financial and operational decisions every day. One important and often overlooked choice is whether to participate in programs that are automatic for employees namely, the Canada Pension Plan (CPP) and Employment Insurance (EI).

For owner-operators, freelancers, and incorporated business owners, these programs are not always mandatory. But your decision to opt in or out can affect your retirement income, family protection, and long-term tax planning. Here’s a breakdown of how CPP and EI work for self-employed/owner-operator Canadians and how to decide what’s right for you.

Understanding the Canada Pension Plan (CPP)

Do Self-Employed Individuals Have to Pay Into CPP?

Whether you must contribute to CPP depends on your business structure and how you pay yourself:

• Sole proprietors and partnerships: If you’re over 18 and earn more than $3,500 per year, you’re required to contribute to CPP, paying both the employer and employee portions.

• Incorporated business owners: If you pay yourself a salary, you must contribute to CPP like any other employee. However, if you pay yourself dividends instead of salary, you’re not required to contribute to CPP.

This distinction between CPP vs dividends is a key tax-planning consideration for many incorporated business owners.

Pros of Paying Into CPP

• Guaranteed retirement income: CPP provides a steady, inflation-indexed stream of income for life.

• Access to additional benefits: Contributions also give you eligibility for disability and survivor benefits.

• Government-backed stability: CPP is secure and not tied to market performance, which can balance riskier investments.

Cons of Paying Into CPP

• Higher contributions: In 2025, self-employed individuals can pay up to roughly $8,068 in combined annual CPP contributions.

• Potentially lower returns: If you’re disciplined and invest privately, your retirement savings could outperform CPP.

• Limited flexibility: Once you contribute, you can’t opt out unless you change how you compensate yourself (for instance, switching from salary to dividends).

Employment Insurance (EI) for Self-Employed Canadians

Do You Have to Pay Into EI?

No, employment Insurance is voluntary for self-employed individuals in Canada. However, by opting in, you gain access to special EI benefits not available to those who don’t participate.

These EI special benefits for self-employed individuals include:

• Maternity and parental benefits

• Sickness benefits

• Compassionate care benefits

• Caregiving benefits for critically ill children or adults

Key Rules for EI Opt-In

• You must be registered in the program for at least 12 months before claiming benefits.

• Once you’ve received any benefit, you’re permanently enrolled. You must continue paying EI premiums every year.

• You can opt out within 60 days of registering if you haven’t yet made a claim.

• Only self-employment income counts toward eligibility, dividend income doesn’t qualify.

Pros of Opting Into EI

• Access to parental and caregiving benefits: Invaluable for entrepreneurs planning a family.

• Income protection during illness or emergencies.

• Peace of mind: Especially if you’re the sole earner or running a single-person business.

Cons of Opting Into EI

• Limited flexibility: Once you claim a benefit, you’re locked into the program for good.

• Possible low usage: You might pay premiums for years and never claim.

• Eligibility limits: Only self-employment income (not dividends) qualifies.

CPP vs EI: What’s Best for Self-Employed Canadians?

• CPP is generally mandatory for sole proprietors and optional for incorporated business owners who pay themselves dividends. It’s reliable but costly, and the return depends on your financial goals and investment discipline.

• EI is fully optional, offering targeted benefits like parental or sickness leave. However, it’s a one-way decision, once you’ve claimed, you’re in for life.

Final Thoughts: Making the Right Choice

If you value stability and predictable income, CPP participation may make sense. If you’re building long-term wealth through private investments, dividends, and other savings, opting out could be more efficient. EI, meanwhile, is worth considering if family or health-related benefits are important to you.

Every business owner’s situation is unique. Before you decide, consult a financial advisor to assess what’s best for your structure and goals.

If you would like to know a bit more, we help small business owners choose and implement the right structure from day one, or when it’s time to level up.  If you already own a business and need help creating systems, customized reporting and deeper knowledge over your financials and taxes, please send us a message. We’re here to help.

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