Have you heard about the latest changes to the Canada Pension Plan (CPP) payroll deductions for 2024? In September 2023, the Canadian government announced the CPP and EI (Employment Insurance) tax rates for both employees and employers for 2024. This is part of Canada’s broader CPP enhancement plan, which began in 2019 with the goal of incrementally increasing the maximum CPP contributions each year over the next seven years. And that’s not all. As the CPP rates increase, EI rates are also trending upwards, with contributions gradually increasing each year.
For employers, what does this mean, and how will it affect your business’s bottom line?
In this article, we will cover everything you need to know about the CPP and EI rates in Canada for 2024, including the CPP contribution rates, maximum limits, and exemptions. We’ll also discuss how the government’s CPP enhancement plan will affect employer contributions in the coming years.
What is the Canada Pension Plan (CPP)?
Let’s start with the basics. The Canada Pension Plan (CPP) is a mandatory, government-operated retirement pension program in Canada that provides essential financial support to retirees, disabled individuals, or the family of deceased workers. It’s a taxable benefit paid monthly to partially replace income in retirement, funded through contributions by employers, employees, and the self-employed.
The CPP benefits are overseen by the federal government of Canada and are available to all eligible Canadian residents. Eligibility is determined by factors such as age, work history, and contributions to the plan. Individuals who have contributed to the CPP for at least one year are entitled to a retirement pension once they reach the age of 65.
The amount of benefits a worker is entitled to depends on their average earnings and the length of their contributions to the plan. In addition to retirement benefits, the CPP also extends survivor and disability benefits to eligible recipients.
Survivor benefits are allocated to the surviving spouse or common-law partner of a deceased contributor, while disability pensions are provided to contributors who are unable to work due to severe and prolonged disabilities.
What are the required employer contributions?
The Canadian government sets minimum and maximum CPP contributions, as well as contribution rates. These figures change annually and determine the contributions made by employees and employers. The CRA recently determined the maximum CPP contribution for 2024 – continue reading for more details on the CPP and EI rates for 2024.
Under CPP regulations, when an employee engages in pensionable employment, both the employer and the employee must contribute to the CPP. Employers are responsible for making CPP contributions for every individual they employ. These contributions must be submitted regularly to the Canada Revenue Agency (CRA). Employer and employee contributions to the CPP are equal, meaning both the employer and employee will submit the same amount at specified intervals.
How to Determine CPP Contributions
As an employer, you are responsible for deducting CPP contributions from your employees’ pensionable earnings. CPP contributions are typically due monthly.
Employers must contribute an amount equal to the CPP deduction from an employee’s earnings and submit the total of both contributions. This practice will be maintained annually according to the Canadian government’s CPP enhancement plan.
The Canadian government sets the maximum pensionable earnings, the basic exemption amount for the year, and the applicable tax rate used by employers when calculating CPP deductions from employee wages.
For example, if we add the CPP contribution you, as an employer, are responsible for deducting from an employee’s monthly wage ($240.40) to your portion in the CPP contribution ($240.40), the total amount is the total amount you remit for CPP contributions in that specific month ($480.80).
When to Deduct CPP
Employers must withhold CPP contributions from an employee’s pensionable earnings if:
The employee engages in pensionable employment throughout the year.
The employee does not experience a disability according to the CPP or Quebec Pension Plan (QPP).
The employee is between the ages of 18 and 69, regardless of whether they are already receiving CPP or QPP retirement pensions (unless the employer receives a completed CPT30 form).
For businesses in Quebec, employers must deduct contributions to the Quebec Pension Plan (QPP) instead of the CPP. QPP’s maximum contribution rates are typically higher than those for the CPP. For more detailed information, refer to the Employer Guide: Source Deductions and Contributions.
What is Pensionable Earnings?
Pensionable earnings are the compensation an employee earns from a position or job eligible for pension benefits, with some exceptions.
Typically, employers need to deduct CPP contributions from:
Salaries, wages, or other forms of compensation
Commissions
Bonuses
Most taxable benefits
Fees
Some tips and gratuities
When to Stop Deducting CPP Contributions
As an employer, once an employee’s annual employment income reaches the maximum pensionable earnings for the year or the maximum employee contribution, you should stop deducting CPP contributions. The exact numbers for the maximum payment amount, wage deductions, and maximum contribution amounts can be found on the Canadian government’s website and are updated annually.
The concept of maximum annual pensionable earnings applies to each position an employee holds with different employers (each employer has a different business number). If an employee transitions from one employer to another within the same year, the new employer must deduct CPP contributions, regardless of whether the previous employer made contributions. This applies even if the employee has already reached their maximum contribution limit with their previous employer.
Regarding retirement, as of 2023, the standard retirement age in Canada is 65. This means that many employees may choose to start receiving government retirement benefits around this age. However, employees can begin receiving pension-related benefits as early as age 60 or as late as age 70. If you receive a CPT30 form completed by an employee aged between 60 and 70, you should stop deducting CPP contributions for that employee.
CPP Maximum Pensionable Earnings for 2024
The maximum pensionable earnings or Year’s Maximum Pensionable Earnings (YMPE) for 2024 will be $68,500, up from $66,600 in 2023. The basic exemption amount will remain at $3,500.
Starting in 2024, a higher second earnings ceiling of $73,200 will be implemented as part of the CPP enhancement plan, known as the Year’s Additional Maximum Pensionable Earnings (YAMPE), which will be used to determine the second additional CPP contribution (CPP2). This means that pensionable earnings between $68,500 and $73,200 will require a second-tier CPP2 contribution.
These amounts are calculated based on CPP legislation and take into account the growth in average weekly wages and salaries in Canada.
The employer and employee CPP contribution rate for 2024 will remain at 5.95%, with a maximum contribution amount of $3,867.50, up from $3,754.45 in 2023. The self-employed CPP contribution rate will also remain at 11.90%, with the maximum contribution amount increasing from $7,508.90 in 2023 to $7,735.00.
The employee and employer CPP2 contribution rate for 2024 is 4.00%, with a maximum contribution amount of $188.00 per person. The self-employed CPP2 contribution rate is 8.00%, with a maximum self-employed contribution of $376.00.
Contributors are not required or allowed to contribute to any pensionable earnings exceeding $73,200.
So how will this work? By 2024, if an employee’s income is below $68,500, they will not be affected by the second earnings ceiling. Therefore, they will not make a second CPP contribution and will only make the basic and first CPP contributions. The employee’s total annual contribution will be their annual salary multiplied by 5.95%. This means that, as an employer, you will be responsible for contributing the same amount.
However, if an employee’s wages exceed the first earnings ceiling, they will make the basic and first CPP contributions at a rate of 5.95%, as well as the second CPP contribution (starting at 4% for any income over $68,500 in 2024). This means your total contribution as an employer will equal the total amount of the first and second contributions.
To fully understand the maximum contribution rates for CPP in 2024, you must also understand how the CPP expansion plan will be implemented in the coming years.
Canada Pension Plan (CPP) and CPP Enhancement
Now that we’ve covered the basics of the Canada Pension Plan and the figures for 2024, let’s discuss the government’s CPP enhancement plan and how it will affect employer contributions, not just in 2024 but in the coming years as well.
What is the CPP Enhancement Plan?
The Canada Pension Plan (CPP) enhancement, effective January 1, 2019, is a government-supported plan aimed at increasing the retirement income for working Canadians and their families.
The CPP consists of:
The base (or original CPP).
The first part, implemented in phases between 2019 and 2023.
The second part, to be phased in between 2024 and 2025.
With full implementation, this enhancement is expected to increase the maximum CPP retirement pension by approximately 50%. The CPP enhancement plan aims to reduce the number of Canadian households at risk of not having enough savings for retirement, especially for those without access to workplace pension plans.
How Will It Be Implemented?
In 2019, the government announced that CPP contribution rates would begin to gradually increase over five years, reaching a total increase of 1% for employees and employers by January 1, 2023. For self-employed individuals, the total increase in the CPP contribution rate as of January 1, 2023, is 2%.
Before January 1, 2019, the basic contribution made by employees and employers to the CPP was equivalent to 4.95% of the employee’s maximum annual pensionable earnings. This was the basic contribution.
During the first phase of the CPP enhancement plan from 2019 to 2023, the employee contribution rate gradually increased from 4.95% to 5.95% over five years. This represented the combined initial basic contribution (4.95%) and the first additional CPP contribution (1%), representing the increase in the Year’s Maximum Pensionable Earnings (YMPE), also known as the first ceiling.
Starting January 1, 2024, a new second tier of the Year’s Maximum Pensionable Earnings will be introduced. This will allow employers and employees to invest an additional portion of their income into the CPP. This new limit is known as the Year’s Additional Maximum Pensionable Earnings (YAMPE) or the second earnings ceiling. It does not replace the first earnings ceiling but subjects a worker’s income to two earnings limits.
CPP Enhancement Features for 2024
In 2024, the second earnings ceiling, known as the Year’s Additional Maximum Pensionable Earnings (YAMPE), will be introduced. The amount of the second ceiling is determined by the amount of the first earnings ceiling.
Starting January 1, 2024, employees and employers will each be responsible for making an additional 4% contribution on any income above the first earnings ceiling (YMPE) up to the second earnings ceiling (YAMPE). This is their second CPP contribution.
The amount of the second earnings ceiling is:
7% higher than the first earnings ceiling in 2024
14% higher than the first earnings ceiling in 2025 and subsequent years
In 2024, the second CPP contribution rate for self-employed individuals will be 8% of their income earned between the first and second earnings ceilings.
How Will the CPP Enhancement Plan Affect Employers?
As mentioned earlier, before 2019, the annual contribution rate was 4.95%, with slight annual increases in the maximum pensionable earnings and the maximum contribution rate amount. However, since the implementation of the CPP enhancement plan, these rates have been growing at a faster pace and will continue to do so for the foreseeable future.
Starting in 2024, the second earnings ceiling will be set 7% higher than the first earnings ceiling. By 2025, it will be set at a level 14% higher than the first earnings ceiling. From 2026 onwards, the first and second earnings ceilings will gradually increase each year, while the contribution rates will remain unchanged indefinitely.
These changes may present some challenges and additional costs for employers. The ongoing increase in rates means employers will need to stay informed about the latest information on annual contribution rate changes released by the Canadian government to remain compliant with local regulations.
This is where an Employer of Record (EOR) could come in handy. An EOR is a third-party entity that employs individuals on behalf of companies outside of Canada. EORs take on another company’s employer-related responsibilities and ensure compliance with all contracts, insurance, banking, tax, and wage requirements. This allows you to employ and pay employees in Canada compliantly without establishing a new entity.
What Do Employers Need to Do?
Employers will be responsible for:
Withholding and remitting the second CPP contribution in the same manner as the basic CPP contribution.
Reporting employees’ basic and first enhanced CPP contributions in box 16 of the T4 slip. Starting with the 2024 tax year, employees’ second CPP contributions will also need to be reported in box 16A of the T4 slip.
All employer contributions to the CPP are considered eligible for tax relief.
What About Employment Insurance (EI)?
Employment Insurance (EI) is a federal program in Canada that provides temporary financial assistance to eligible individuals who are unemployed and actively looking for new work. The program is administered by the Canadian government.
Employment Insurance benefits are designed to assist individuals who are temporarily unemployed through no fault of their own (including layoffs, factory closures, or illness).
To qualify for EI benefits, individuals must have worked a certain number of insurable hours and be actively looking for work. Individuals need between 420 and 700 insurable hours of work during the qualifying period to be eligible for EI benefits.
Eligible individuals can receive EI benefits weekly for up to 26 weeks (longer in some cases). The amount they receive is based on their average insurable earnings over the past 52 weeks and is subject to a maximum limit.
Under CPP and EI regulations, when an employee engages in pensionable employment, both the employer and the employee are obligated to contribute to the CPP, and when an employee engages in insurable employment, both the employer and the employee are obligated to contribute to EI. While the employer and employee contributions to the CPP are equal, for EI premiums, the employer portion is typically 1.4 times the employee portion.
Employer Employment Insurance Contribution Rate for 2024
Each year, it is the task of the Canada Employment Insurance Commission to determine the premium rate for the year, which is determined by the seven-year break-even rate forecast provided by the EI Senior Actuary. The purpose of determining this rate is to generate sufficient premium revenue over the subsequent seven years to pay for EI expenditures, thereby balancing the accumulated surplus or deficit in the EI Operating Account. Any changes to the premium rate each year are subject to a statutory limit of 5 cents.
In September 2023, the Canadian government announced the Employment Insurance (EI) premium rate for 2024. For employers paying 1.4 times the employee rate, the rate will be set at $1.4 for every $100 of insurable earnings paid to employees, up 3 cents from the employer rate of $2.28 and employee rate of $1.63 in 2023.
The Commission also stated that the maximum insurable earnings for 2024 will increase from $61,500 in 2023 to $63,200. This threshold, at which workers and employers remit EI premiums, is adjusted annually to account for inflation. The maximum annual EI contribution for employers will increase by $65.34 to a total of $1,468.77 per employee. Workers will see an increase of $46.67 to a total of $1,049.12.
For employers, this means an additional contribution for each Canadian employee. If you have multiple employees in Canada, you will be responsible for making the correct contributions on behalf of each employee. You must stay informed about the annual changes in the maximum annual CPP and EI contribution rates, or you could face non-compliance fines and possible criminal charges.
By partnering with a global Employer of Record (EOR), you can avoid the risk of incorrect contributions. Your EOR will handle all payroll-related taxes and government contributions, allowing you to focus on what matters.
