What to expect when you're expecting: Managing money on parental leave

If you’re planning on welcoming a new child into your family, you’re likely already aware of many of the financial considerations involved — but have you taken parental leave into account?

At the same time that you’re building a diaper budget and planning how to put away money for their daycare and future schooling, you’ll also want to get ready to take some time off with the newest family member.

In Canada, workers are entitled to time off when they have a child. But depending on your employer, your leave might be without pay. The federal government offers paid maternal and parental leave through the Employment Insurance (EI) program, but there are eligibility rules and limits.

As you’re getting ready for your new arrival, it helps to do a little financial planning now. Read on to learn all about how to get your finances in order for when you have a new baby in the home.

Between diapers, daycare, and adorable outfits that they’ll outgrow in weeks, the cost of having a baby can really add up. Chances are, you’ve started to budget for these expenses, but have you thought about how leave will affect your income? 

If your employer offers paid leave, you’ll usually receive a percentage of your salary vs. your full salary.

Federal parental leave through the EI program varies, offering 55% of your salary, or only 33% if you opt for extended leave.

Once your child is born or adopted, you may also receive income from the Canada Child Benefit (CBB), a monthly, tax-free payment to help Canadians with the cost of child-rearing. The amount (if any) you'll be eligible for depends on your income, how many kids you have and their ages. You can calculate your CBB on the Canada.com website.

Make sure you adjust the income in your budget to reflect these changes.

When you think about the costs of having a new baby, expect the unexpected — especially if you’re a first-time parent. Friends who are already parents are a really helpful source of information. Ask them for feedback about their experience, and don’t forget to put away some discretionary funds. Your future self will thank you for your foresight.

Here are some line items to get you started:

• Baby essentials, like diapers, baby food and wipes
• Childcare
• Insurance, including life, house, and disability
• Education fund like a registered education savings plan (RESP)
• Emergency fund

A new baby brings new expenses, but you might be able to cut spending elsewhere. For instance, if your job requires a daily commute to an office, you can take a second look at spending for clothing, transportation and eating out.

You can also look for unused services like subscriptions you never use (or forgot about) and pause any work-related memberships. Consider joining online and in-person groups for parents to swap clothes and toys, or even share childcare duties.

Take a deep dive into your expenses by using the Scotia Smart Money by Advice+ tool. Tap on Advice+ on the Scotiabank app to find this budgeting tool that tracks your spending and lets you know how you’re doing on a monthly basis against the budget targets you’ve set up.*

Tip: You can deduct certain child care expenses on your tax return.

Parental leave is a temporary absence from paid work to be with a new baby. It’s designed to give new parents family bonding time during this important transition while protecting their employment.

There are two types of benefits for new parents in Canada: government and employer. You might be eligible for one or both, depending on your circumstances.

Government benefits are paid through employment insurance (EI), or the Quebec Parental Insurance Program (QPIP) if you live in Quebec.

You automatically contribute a portion of your paycheque or salary to these programs when you’re employed. When you’re temporarily unemployed, due to layoffs or other situations, including having a newborn or newly adopted child, you can claim this money back.

Maternity benefits are available to people who give birth, including surrogates. You can claim up to 15 weeks of EI maternity benefits, which can begin as early as 12 weeks before the expected due date and end as late as 17 weeks after the date of birth.

Maternity benefits pay out 55% of your employment earnings, up to a weekly maximum. The limits change annually, but for 2024, it’s $668 per week.

These benefits are for parents who aren't giving birth, but who will care for a newborn or newly adopted child. Someone who qualifies for maternity benefits can also apply for parental benefits, and they can apply for both at the same time.

Standard parental benefits are also 55% of your employment earnings, up to an annual maximum ($668 in 2024). Parents can claim up to 40 weeks in total, which can be shared, but neither parent can receive more than 35 weeks.

Extended parental benefits are for those who want to spend longer time on leave. Parents can claim up to 63 weeks with neither parent receiving more than 61 weeks, but the claim amount is reduced to 33% of their employment income. The weekly maximum in 2024 is $441.

For more details, visit the page on EI maternity and parental benefits.

Maternity and parental leave are federal benefits, but your province or territory of residence can also affect your plans. Conditions may differ by region, but these won't change the federal guidelines.

For example, if you live in Ontario, you're entitled to 17 weeks of maternity leave. However, if you're receiving federal maternity benefits, the max payout is 15 weeks. In this case, you could either return to work after 15 weeks or take the extra two weeks without pay. (Be sure to account for this in your leave budget.)

In order to be eligible to collect EI parental benefits, you must have worked at least 600 hours in insurable employment in the year before you claim parental leave. This means working in a job that’s covered by EI. Most jobs where you’re a full-time employee will be covered for EI (but potentially not if you are a casual employee).

Self-employed people can also apply for parental leave if they're registered with the EI program.

If you’re looking for ways to maximize your government benefits, here are some things to consider:

• Look at when you decide to start your leave. You can choose your start date as close as possible to the due date to spend more of your time off with the baby or give yourself a bit more time prior to their arrival to prepare.
• Decide between consecutive to overlapping leave. Maternity leave is only available to parents who give birth, including surrogates. Parental leave is for all parents, including those who give birth. If you are raising your child with a partner, think about whether you want to take leave at the same time or stagger your leave.
• Do the math. Extended parental leave is an option if you want more time at home with your new child. The trade-off is that your EI parental benefits will pay out less and have a lower weekly maximum.

Once you decide on how you want to structure your benefits, apply online as soon as possible. As these benefits are a part of the EI program, there are strict timelines. If you wait for more than four weeks from your last day of work to apply, you may lose some or all of your benefits.

Every worker in Canada is entitled to basic time off when they have a new child. But how long you can take, whether you get paid, and if so, how much, will depend on your employee benefits package.

In other words, employers must by law grant time off and protect your job while you're away — but they don't have to pay you.

Some employment packages do include parental leave-related benefits like paid leave. If you aren’t sure what benefits you’re entitled to, check your employment contract or collective agreement. If you have a human resources (HR) department at your job, they should also be able to answer your questions.

Welcoming a new baby into your home is an exciting time. Make time for what's most important for you by preparing a financial plan for your parental leave in advance.