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Federal Finance Minister Joe Oliver arrives for an announcement in Toronto on July 11, 2014.Chris Young

The Conservative government is offering a substantial tax credit for small businesses to offset Employment Insurance premiums, a move Finance Minister Joe Oliver hopes will boost hiring after months of weak job growth.

The "Small Business Job Credit" will begin on Jan. 1, 2015. It will be administered as an automatic credit through the Canada Revenue Agency, effectively dropping the E.I. premium rate for employers from $1.88 per $100 of insurable earnings to $1.60.

The government says almost 90 per cent of all E.I. premium-paying businesses in Canada will receive the credit. But larger firms will continue paying premiums based on the $1.88 rate.

How it works

E.I. premiums are paid by individual workers and their employers.

In both cases the amount paid is calculated using a rate set by Ottawa. For individuals in 2014 it's $1.88 per $100 of earnings. Employers pay the individual rate multiplied by 1.4.

The amount of the premium is capped by applying the premium to a maximum of $48,600 in earnings. In 2014 the cap works out to $913.68 for individuals and $1,279.15 for employers.

The change introduced today will give employers a tax credit that offsets the cost of their contribution, making their net payout equivalent to a rate of $1.60 instead of $1.88 per $100.

Because employers pay 1.4 times the legislated rate, the government says that 28-cent reduction is equivalent to a reduction of 39 cents per $100 of insurable earnings.

The credit will apply to any firm that pays employer E.I. premiums totalling $15,000 or less in 2015 and 2016.

The decision to administer the change as a credit means it will not apply to the premiums paid by workers – nor will it apply to employers with more than a dozen or so workers.

'Not a sign of worry'

Mr. Oliver made the announcement Thursday at a hardwood flooring business in Toronto.

Mr. Oliver rejected the suggesting that the government's actions are a sign of concern about the state of the Canadian labour market.

"It's not a sign of worry," he said. "It's a sign of confidence that we're continuing on the right path."

The government's news release suggests the two-year credit is a temporary measure to bridge the gap until a new E.I. rate-setting process kicks in in 2017 that will aim to ensure all E.I. revenue and expenses balance over a seven-year cycle.

"All employers and employees will benefit from a substantial reduction in the EI premium rate in 2017 when the new seven-year break-even rate-setting mechanism takes effect," states a Department of Finance news release.

The government estimates the credit will save small businesses more than $550-million over the next two years.

With files from Tavia Grant