As an employer in Canada, you are responsible for deducting and remitting Canada Pension Plan (CPP) and Employment Insurance (EI) contributions from your employees’ wages. Failing to do so correctly can result in penalties and compliance issues with the Canada Revenue Agency (CRA). This guide explains everything you need to know about CPP and EI contributions to ensure compliance and smooth payroll processing.
Understanding CPP Contributions
CPP provides retirement, disability, and survivor benefits to eligible workers. As an employer, you are required to deduct CPP contributions from employee wages and match their contributions.
Who Must Contribute to CPP?
- Employees aged 18 to 69 who earn more than the basic exemption amount ($3,500 per year) must contribute.
- Employers must match the employee’s CPP contributions dollar for dollar.
- Self-employed individuals pay both the employee and employer portions.
How to Calculate CPP Contributions
- The contribution rate is set by the CRA annually.
- CPP is calculated as a percentage of an employee’s earnings above the basic exemption and up to the year’s maximum pensionable earnings (YMPE).
- Use the CRA’s Payroll Deductions Online Calculator to ensure accurate deductions.
Understanding EI Contributions
Employment Insurance (EI) provides temporary financial support to employees who lose their jobs through no fault of their own. Employers deduct EI premiums from employees’ wages and contribute 1.4 times the employee’s contribution.
Who Must Contribute to EI?
- All employees working in insurable employment must contribute.
- Self-employed individuals are generally exempt unless they opt into the EI program for special benefits.
How to Calculate EI Contributions
- The EI premium rate and annual maximum contribution are updated by the CRA each year.
- Employers contribute 1.4 times the employee’s deducted amount.
- EI deductions apply to earnings up to the yearly maximum insurable earnings (YMIE).
Remitting CPP and EI to the CRA
Employers must remit both employee deductions and employer contributions to the CRA by the due date:
- New Employers typically remit on a monthly basis.
- More frequent remittance schedules apply to larger businesses with higher payroll amounts.
Key Points:
- Be aware of remittance thresholds. For instance, if your total annual payroll deductions are below a certain amount, you may qualify for quarterly remittance.
- Ensure timely submission. Late payments can result in penalties and interest.
- Keep proof of remittance in case of CRA inquiries.
Record-Keeping and Compliance
To stay compliant, employers must:
- Keep detailed payroll records of all CPP and EI deductions.
- Provide employees with pay stubs that clearly show deductions.
- File T4 slips annually, summarizing each employee’s earnings and deductions.
Final Thoughts
Understanding and managing CPP and EI deductions correctly is essential for payroll compliance in Canada. By using payroll software, consulting CRA resources, and keeping accurate records, you can ensure that your business meets its employer obligations while supporting employees with important benefits.