At the start of each calendar year, employers approved for an Employment Insurance (EI)premium reduction should review their payroll setup to ensure the correct reductioncategory is applied.
Who This Applies To
This process is mandatory for employers who:
Have received formal CRA approval for an EI premium reduction.
Offer a qualifying short-term disability (STD) plan to their employees.
Note:
If no reduction category is assigned in the system, EI will be calculated at the standard employer rate ($1.4 x times the employee contribution) by default.
EI Premium Reduction Categories (12-Month)
The CRA assigns a specific category based on the type of short-term disability plan your organization provides. The following multipliers are used to calculate the employer’s portion of the premium:
| EI Category | Multiplier |
|---|---|
| Category 1 | $1.274 |
| Category 2 | $1.167 |
| Category 3 | $1.167 |
| Category 4 | $1.143 |
Source: CRA 2026 Rates and Multiples
How to Review Your EI Reduction Category
Follow these steps to verify if a reduction is currently active in your payroll setup:
Navigate to Payroll.
Select Canada.
Select Setup: CRA Payroll Account.
Locate the Reduced Rate Category field.
Category assigned: EI will calculate using the reduced employer rate.
No category assigned: EI will calculate at the full standard rate.
How to Update the EI Reduction Category
If your CRA approval has changed or if you need to apply a new category for the upcoming year:
Open the specific CRA Payroll Account record.
Select Edit.
Update the Reduced Rate Category dropdown to the correct assigned category.
-
Select Save.
WARNING: Only update the reduction category if you have received valid, written approval from the CRA.
Validating Your Setup
To ensure accuracy before your first live pay run of the year, we recommend performing a test calculation:
Select a Sample Employee: Choose an employee assigned to the specific CRA account you updated.
Run a Preview: Generate a test or preview payroll calculation.
Confirm Multiplier: Verify that the employer EI contribution matches the expected multiplier for your category.
Organizations with Multiple CRA Accounts
If your organization operates under multiple RP (CRA) Payroll Accounts, you must complete this review and validation for each account individually. Reduction categories do not automatically synchronize across different accounts.
Best Practice
Perform this review before processing the first payroll of the new year. This proactive step avoids the need for complex retroactive adjustments or manual corrections later in the year.
Additional Resources
📅 Annual Reminder: Mark Your Calendar!
Set a recurring reminder so you don't miss this mandatory compliance task:
⏰ When: Every December (before processing your first January payroll).
📝 Action: Review and update your Employer EI Premium Reduction Category for the new tax year.
⚠️ Why: CRA reduction categories and multipliers can change or require re-validation annually. Using an incorrect category will lead to inaccurate payroll calculations, non-compliance with CRA sharing requirements, and the need for difficult retroactive corrections.