Hello Thank you for joining me for this
webinar, where we will take a deeper look
at the Canada Pension Plan CPP and Employment
Insurance EI . This is the first in
a series of three webinars offering an in-depth
look into employers' deduction requirements. My name is
Hanna and I will be your presenter today.
Last year, we presented an overview of payroll.
Now that you have worked on payroll for
a year,
we'll take a deeper look at CPP and
EI. This webinar is aimed at individuals who
already have a foundation in payroll and are
looking to know more about CPP contributions and
EI premiums. For employers, the beginning of a
new year means updates of the rates for
CPP contributions and EI premiums, as well as
the rates for income tax. Why not take
the opportunity to learn more about
the subject and start the year on the
right foot? With this in mind, here are
the topics on today's agenda A quick reminder
of how the CPP works in broad terms
the rates and maximums for CPP contributions a
look at the most common special situations CPP
overpayments and recovering CPP. Also on today's agenda
How EI works the rates
and maximums for EI premiums reducing the employer's
premium rate EI overpayments and recovering EI premiums.
Let's start by talking about CPP. The principle
of CPP withholdings is simple every employer who
pays an employee has to deduct CPP contributions.
In addition to an employee share, the employer
also has to pay an employer share. The
employer
share is equal to the amount deducted from
employee earnings. Now we'll look at how the
required contributions are calculated. The employer has to
deduct CPP contributions based on the rates that
apply to the year the earnings are paid.
The rates are set every year, and they're
adjusted in line with Canadian economic indicators. We
put them on our website around December for
the following year.
Here are the rates for 2017 Maximum pensionable
earnings $55,300 annual basic exemption $3,500 - remains
unchanged maximum contributory earnings $51,800 rate for calculating
contributions 4.95% maximum annual contributions $2,564.10.
It is very important to correctly calculate CPP
contributions. This is because an error may affect
the CPP benefits an employee will receive when
he or she retires. For employees who work
in Quebec, employers have to deduct contributions for
the Quebec Pension Plan QPP instead of the
CPP. The rate for QPP contributions differs from
the rate for CPP contributions. But the
principles are the same?that is, the pensionable earnings
and the annual basic exemption amounts are the
same for both plans. You can find more
information about the QPP on the Revenu Québec
website. The CPP is a mandatory pension plan
and, as a rule, employees are in pensionable
employment. An employer has to deduct CPP contributions
from an employee's pensionable earnings if the
employee meets all of these conditions The employee
is in pensionable employment during the year the
employee is not considered to be disabled under
the CPP or the QPP the employee is
18 to 70 years old, even if he
or she is receiving a CPP or QPP
retirement pension employees under 18 or older than
70 do not contribute to the CPP .
There is an exception when the employee is
65 to 70 years old. We will look
at this situation in more detail later. An
individual's pensionable earnings for the CPP are generally
made up of his or her income earned
from an office or employment which is salary,
wages, or any other remuneration he or she
received in the year . Pensionable earnings also
include commission income, the value of taxable
benefits or allowances, and honorariums that are related
to the office or employment. All of these
amounts are subject to CPP contributions. Certain amounts,
benefits, employment, and payments are not subject to
CPP contributions. They are not included in pensionable
earnings and the employer must not deduct CPP
contributions from them. Among the payments that are
not subject to CPP are pension
payments, lump-sum pension payments, death benefits, and advances
or loans made before or after a Workers'
Compensation Board decision. If you are not certain
whether a payment is subject to CPP contributions,
please see Guide T4001 or the CRA website.
The employer has to deduct CPP contributions for
each pay period from his employees' pensionable earnings
until the maximum pensionable earnings or the maximum
employee contributions for the year have been reached.
No CPP contribution deductions can be made from
the annual basic exemption of $3,500. The exemption
has to be split between the pay periods
in the year. The rate to use to
calculate CPP contributions is the one that applies
to the year during which the payment was
made. For example,
if you pay an amount to a former
employee and you have to deduct CPP, you
have to use the contribution rate in effect
when you make the payment. It is important
to point out that if an employee has
several employers, the year's maximum pensionable earnings apply
to each employment he or she holds, even
if the employee reaches the maximum for the
year at one of his or her jobs.
This means that each employer has to deduct
CPP contributions without taking into account contributions made
by other employers. There may be special situations
during the year that require the employer to
start or stop deducting CPP for an employee.
Let's look at the ones employers face most
often. We'll use this simple example.
John's income for the pay period is $500,
and it is all pensionable income. He is
entitled to the basic annual exemption of $3,500.
Since John gets paid every week, we divide
the annual exemption by the number of pay
periods 52 to get a weekly exemption of
$67.31. We subtract the basic exemption from the
pensionable earnings to find
John's contributory earnings. We arrive at $432.69. Then
we multiply the contributory earnings by the CPP
rate of 4.95% and we get John's CPP
contribution of $21.42. Sometimes people ask if they
can just not withhold CPP from the first
$3,500 and then start withholding
4.95% after that. The answer is no. The
basic exemption is prorated, or calculated proportionally, throughout
the year, so you have to use the
math approach we just talked about. Special situations
can arise when an employee reaches the age
of 18 or 70 gives his or her
employer a Form CPT30
is considered to be disabled under the CPP,
or dies during the year. In these special
situations, the employer has to either start or
stop CPP deductions at a specific time during
the year for the employee to make sure
he doesn't deduct too much or too little.
It is important that employers start or stop
deductions at the right time. Once they know
the right time, they will have to
prorate, or calculate proportionally, the CPP contributions to
figure out the most the employee can contribute
for the year. This amount does not represent
the contributions actually made for the year. For
employers who have to deduct QPP, the requirements
may be different. To find out more, we
encourage you to communicate with Revenu Québec. Now,
let's look at how to prorate,
or calculate proportionally. We already know that the
maximum pensionable earnings of $55,300 and the basic
exemption $3,500 are annual amounts. This gives annual
maximum contributory earnings of $51,800 for 12 months
see Slide 6 . To prorate, or calculate
proportionally, we multiply
the annual maximum contributory earnings by the number
of pensionable months in the year, that is,
the number of months during which CPP contributions
have to be deducted for this employee. Then,
we divide the result by 12. We then
multiply this result by the CPP contribution rate
for the year. This will give us the
maximum CPP contributions for the employee based on
the number of
pensionable months. When the employee has worked the
entire year, that is, for 12 months of
the year, and his or her pensionable earnings
reached the year's maximum during the year, there
is no need to prorate, or calculate proportionally.
In this situation, the employer stopped CPP deductions
because the annual maximum was reached for this
employee. We will apply this proportional calculation to
various
special situations that may occur during the year.
No CPP contributions are required from an employee
under the age of 18. When the employee
turns 18 during the year, the employer has
to start deducting CPP contributions from the first
pay of the month after the month in
which the employee turned 18. To clarify, let's
look at an example.
Charles works for the XYZ Company and he
turned 18 on June 15, 2016. He earns
$1,500 every two weeks. His annual salary is
$39,000. The first pay period in July is
July 8 for the period June 27 to
July 8, 2016. We will start with the
proportional calculation to determine
the maximum CPP contributions that apply to the
six-month period in which the employer has to
deduct CPP from Charles's pay. We will use
the 2016 rates because the event his birthday
occurred in 2016. To determine the number of
contributory months for this employee for the purpose
of prorating, or calculating proportionally, the employer has
to count the number of months, starting with
the one after the month
in which the employee turned 18. We will
look at each step of the proportional calculation.
Step 1 Subtract the annual basic exemption from
the maximum pensionable earnings for 2016 $54,900 minus
$3,500 . This gives us maximum annual contributory
earnings of $51,400.
Step 2 We multiply the result by the
number of pensionable months, that is, the number
of months during which CPP contributions were deducted
for this employee, and we divide by 12.
In our example, the employer started deducting CPP
contributions in July, which gives us six pensionable
months $51,400 times 6 divided by 12 equals
$25,700 .
An employer will have maximum contributory earnings of
$25,700 with which to calculate the maximum CPP
contributions to deduct. Step 3 Multiply the maximum
contributory earnings by the CPP contribution rate for
2016, which is 4.95%. This gives us an
amount of
$1,272.15. This amount represents the maximum CPP contributions
that Charles's employer can deduct for 2016. But
it does not represent the amount that is
actually deducted over the course of 2016. Now
we'll go through the steps that Charles's employer
has to go through to calculate the amount
of CPP contributions he or she has to
deduct
during each of Charles's pay periods. Step 1
Charles's employer has to figure out the pensionable
earnings for this pay period. In our example,
the amount is $1,500 for two weeks. Step
2 Charles's employer then has to split the
annual basic exemption of $3,500 between the pay
periods in the year. Because Charles is paid
every two weeks,
there are 26 pay periods in the year.
Therefore, $3,500 divided by 26 pay periods gives
$134.61 per pay period. Please note that in
Appendix 2 of Guide T4001, you will find
the basic exemption amounts for several pay periods.
Step 3 The contributory pensionable earnings are
$1,365.39, that is, $1,500 in pensionable earnings minus
the basic exemption of $134.61. Steps 4 Charles's
employer then multiplies the $1,365.39 in contributory earnings
by the rate that applied at the time
of payment, that is, 4.95%.
The result is $67.59. Charles's employer has to
deduct $67.59 in CPP contributions from the pay
Charles receives on July 8. If Charles's pay
stays at $1,500 every two weeks until the
end of 2016, his actual CPP contribution for
the year will be $878.67,
or $67.59 times 13 remaining pay periods. When
an employer is paying an employee who will
turn 70 during the year, he has to
deduct CPP contributions up to the last pay
period of the month in which the employee
turns 70. No CPP contributions should be deducted
for the pay periods after that.
The employer has to do the same proportional
calculation we saw earlier to figure out the
maximum contributory earnings. Then he'll use that figure
to calculate the maximum CPP contributions to deduct.
So, an employee who turned 70 on February
12, 2016, should have contributed up to the
last pay period in February. The proportional calculation
would be as follows.
Let's start by taking the annual maximum contributory
earnings in 2016 of $51,400 times 2 months
divided by 12 months, giving us proportionate maximum
contributory earnings of $8,566.67. Then we multiply the
result by the annual contribution rate in effect
4.95% ,
which gives us $424.05. In this case, the
employee's CPP contributions should not be more than
$424.05 for the year. If the employer deducted
more than $424.05 in CPP contributions in the
first two months of the year this would
be the case if the employee is making
more than the maximum pensionable earnings of $54,900
,
the employer has to repay the difference to
the employee. Later we will see how to
reimburse CPP overdeductions. We have seen that an
employer has to deduct CPP contributions up to
the last pay period of the month in
which the employee turns 70. However, individuals aged
65 to 70 years old in pensionable
employment are allowed to stop making CPP contributions,
even if they receive a CPP or QPP
retirement pension. To elect to stop contributing, the
employee has to fill in parts A, B,
and C of Form CPT30 and give it
to his or her employer. The election to
stop making CPP contributions does not affect the
salary or wages of an employee working in
Quebec or an employee considered disabled under the
CPP or the QPP. It also does not
affect the salary or wages of an employee
who has reached the age of 70. Do
not deduct CPP contributions from the salary or
wages of these employees. When the employee gives
Form CPT30 to his or her employer, the
employer will stop deducting CPP contributions on the
first day of the month after the date
he received the form. So, the employer will
continue to deduct CPP contributions up to the
last pay period of the month in which
the employee gives him Form CPT30. For the
proportional calculation, the employer has to use the
number of months before the election takes effect.
For example, if the employee gives Form CPT30
to his or her employer in May,
the employer will use five months for the
proportional calculation January to May and will stop
deducting contributions in June. Employees who elected to
stop contributing to the CPP in a previous
year can elect to start contributing to the
CPP again. The employee can revoke his or
her election to stop CPP contributions and start
contributing again by filling
in parts A, B, and D of Form
CPT30 and giving it to his or her
employer. But the employee cannot make this election
in the same year he or she stopped
contributions. An election can be revoked only in
a later year. Obviously, the employee has to
be making, or will be making, pensionable earnings.
When the employer receives Form CPT30,
he will start deducting CPP contributions again, starting
from the first pay period of the month
after the month in which he received the
form. For prorating, or calculating proportionally, the employer
will use the number of months including the
month in which the revocation came into effect.
For example, an employee who elected to stop
contributing to the CPP in 2013 can
restart his or her contributions in 2016. If
the employee gives his or her employer Form
CPT30 in July 2016, the employer will start
deducting CPP contributions again in the first pay
period of the month of August and will
use five months for the proportional calculation August
to December . Now let's take a look
at some of the parts of Form CPT30.
Parts A and B have to be filled
in for both situations, that is, when the
employee elects to stop CPP contributions and when
the employee revokes that election to restart CPP
contributions. In addition to parts A and B,
the employee has to fill in Part C
to stop CPP contributions. To revoke that election
and restart CPP contributions,
he or she has to fill in Part
D along with parts A and B. As
I already mentioned, the form electing to stop
CPP contributions must have been given to the
employer in a previous year for the election
to be revoked. An employee who is considered
disabled under the CPP does not have to
make CPP contributions. The employer has to deduct
CPP contributions up to the
last pay period of the month in which
the employee became disabled or was considered disabled
under the CPP. When the employee is no
longer considered disabled under the CPP, the employer
has to start deducting CPP contributions again in
the first pay period of the month after
the month in which the employee stopped being
considered disabled. The proportional calculation applies here too.
If an employee dies during the year, the
employer has to deduct CPP contributions up to
the last pay period of the month of
death on the amounts and benefits earned by
or due to the employee on the date
of his or her death. The number of
months to be used for the proportional calculation
includes the month the employee died. For example,
if the employee died in April, the employer
would use four months for the
proportional calculation. Now, let's talk about CPP over
contributions. An employer may find that he deducted
more CPP contributions from the employee's pensionable earnings
than he should have. If the employer finds
the mistake during the year, he has to
repay the employee for the overdeduction and change
his payroll. He can then reduce his next
payment to the CRA by the
amount of the overdeduction. This amount will be
equal to the employee share plus the employer
share. The employer must not include this amount
on the employee's T4 slip because he already
repaid it. If the employer did not repay
the overdeduction to the employee, or if the
error was not found during the year, the
employer can correct the error like this Make
no changes to the employee's T4 slip. Show
the actual amount of CPP contributions deducted, including
the overdeduction. Also show the exact amount of
pensionable earnings for the year. The employee will
get the overdeducted money back when he or
she files his or her income tax and
benefit return. If the employer included the overdeduction
on the employee's T4 slip, he
can ask for a refund of his share
of the overdeducted CPP contributions by filling out
Form PD24, Application for a Refund of Overdeducted
CPP Contributions or EI Premiums. The employer must
attach this form to the T4 information return
he files at the end of the year.
If he files electronically, he can mail the
form to his tax centre. The employer can
request a refund of his share
of the contributions up to four years from
the end of the year he made the
overpayment. If the employer notices that he did
not deduct enough CPP contributions from an employee's
earnings, or if the CRA sends a notice
of assessment telling him that he didn't deduct
enough, the employer is responsible for paying the
balance owing the employee and employer portions .
However, the employer can recover the employee's share
of the contributions by deducting them from his
or her next pay. But, he cannot recover
missing contributions that are over 12 months past
due. The amount that the employer can recover
for a pay period cannot be more than
the amount he should have deducted in the
first place. He also cannot deduct more income
tax to pay the CPP
deficit. If in one year an employer recovers
contributions that he should have deducted in a
previous year, he cannot report the amount recovered
on the current year's T4 slip. One option
is to change the previous year's T4 slip.
See Guide RC4120 for information on how to
do this. Let's look at an example. In
the previous
year, the employer should have deducted the following
CPP contributions from his employee's pay $25.30 for
September and $25.65 for October. The employer has
to pay the CRA the amount owing of
$101.90, representing the employer and employee portions. For
our example, let's assume that the employee is
paid monthly.
The employer can recover the missing $50.95 like
this. $25.30 from the March pay. $25.65 from
the April pay. The employer could not recover
more than $25.65 in one month because the
amount he recovers cannot be more than the
amount he should have deducted in the first
place. The current monthly CPP contribution deduction is
$26.60. Now let's look at Employment Insurance EI
. Let's start with an overview of how
EI premiums work. In a way, EI is
similar to CPP. Employment income in Canada is
insurable and EI premiums must be deducted from
employees' earnings. The employer also has to pay
a share of EI premiums. The employer's share
is 1.4 times the amount deducted from the
employee's earnings. This means an employer that deducted
$1,000 from his employee's earnings for a given
pay period has to pay $1,400 in EI
premiums. Just like for CPP, there are new
premium rates and a new maximum for EI
every year. For 2017,
here are the numbers - maximum insurable earnings
for the year $51,300 premium calculation rate 1.63%,
the lowest in 10 years maximum annual premium
for the employee $836.19 maximum annual premium for
the employer $1,170.67,
which is 1.4 times the maximum employee premium
for the year. In Quebec, the rate is
different. It is set at 1.27% of the
employee's insurable earnings for the year. This difference
is due to the fact that in Quebec,
employees and employers have to pay Quebec parental
insurance plan QPIP premiums. For more information about
QPIP,
visit the Revenu Québec website. There is no
minimum or maximum age for EI premiums. Nor
is there a basic exemption on insurable earnings.
This means that employers have to deduct EI
premiums from the first dollar of insurable earnings
up to the annual maximum. As soon as
the maximum is reached, they have to stop.
Most jobs in Canada are
insurable. But there are some amounts and benefits
from which employers have to deduct EI premiums
and others from which they do not. The
following amounts are included in insurable earnings salary,
wages, and bonuses commissions and other remuneration most
taxable benefits and allowances paid in cash honorariums
from
employment or office gifts, awards, and rewards paid
in cash other payments and benefits. However, no
EI premiums have to be deducted from what
you pay for the following jobs where the
employer and employee do not deal with each
other at arm's length like family members employment,
by a corporation, of a person who controls
more than 40% of the corporation's
voting shares. These are the two situations that
employers run into most often. For the other
situations, see Guide T4001 or visit the CRA
website. If an employer is not sure about
the relevance of deducting EI premiums from someone
he has a non-arm's length relationship with, he
can get a ruling from the CRA. He
can do this by using the Request a
CPP/EI ruling option in My Business Account or
by filling out Form CPT1, Request for a
Ruling as to the Status of a Worker
under the Canada Pension Plan or Employment Insurance
Act, and sending it to the CPP/EI Rulings
Division of his local tax services office. After
the ruling is made that the employer should
not have deducted EI premiums, the employer can
ask to be repaid
any premiums he deducted before the ruling. In
addition, the employer does not deduct EI premiums
from non-cash taxable benefits unless there are exceptions
non-cash gifts, awards, and rewards earned income that
was not paid before an employee's death. I
mentioned earlier that employers have to pay the
employer share of EI premiums, which is 1.4
times the employee
share. Some employers who offer their employees a
short-term disability wage-loss indemnity plan can get a
reduced rate, allowing them to pay employer EI
premiums at a lower rate. The plan has
to meet the standards set out in the
Employment Insurance Regulations and employers have to register
under the Employment Insurance Premium Reduction Program. Employer
premiums will be
reduced only for employees covered by the authorized
plan. To register for the Employment Insurance Premium
Reduction Program, employers have to send an initial
request to Service Canada. To find out about
the request, see the EI Premium Reduction Guide.
Employers can get this guide at their regional
Service Canada Centre or by contacting Service Canada.
The contact information is in Guide T4001.
If eligible, the employer will get a rate
of less than 1.4 times the employee's premiums.
In this case, he has to open another
payroll program account with the same business number
to make a separate payment for his employees
not covered by the plan. The reduced rate
will be applied to the employer's existing RP
account. The employer has to prepare T4 slips
for each RP account.
For example, an employer that deducted $1,500 in
EI premiums from his employees' earnings and got
a reduced rate of 1.1 would have to
pay $1,650 in employer premiums which is $1,500
times 1.1 . If an employer notices that
during the year he overdeducted EI premiums from
an employee's earnings,
he would have to repay the employee the
overdeduction and change his payroll records. The employer
can then reduce, in the same calendar year,
his next payment to the CRA by the
amount of the overdeduction. This amount will be
equal to the employee share plus the employer
share. The employer must not include the amount
on the employee's T4 slip because he already
repaid it. If the
employer did not repay the overdeduction to the
employee, or if he did not notice the
error during the year, he can correct the
error like this. Make no changes to the
employee's T4 slip. Show the actual amount of
the EI premiums deducted, including the overdeduction. Also
show the exact amount of the insurable earnings
for the year. The employee will receive the
overdeducted money back when he or she files
his or her income tax
and benefit return. If the employer included the
overdeduction on the employee's T4 slip, he can
ask for a refund of his share of
the overdeducted EI premiums by filling out Form
PD24 that we talked about earlier. The employer
has to attach this form to the T4
information return he files at the end of
the year. If he files electronically, the employer
can mail the form to his tax
centre. The employer can ask for a refund
of his share of the premiums up to
three years from the end of the year
he made the overpayment. You recover EI premiums
the same way you recover CPP contributions. This
means that if the employer notices that he
did not deduct enough EI premiums from an
employee's earnings, or if the CRA sends a
notice of assessment saying he did not deduct
enough premiums, he is responsible for paying the
balance owing employee and employer shares . However,
the employer can recover the employee's share of
the premiums by deducting them from the employee's
next pay. But he cannot recover missing premiums
that are more than 12 months past due.
The amount he can recover during a pay
period cannot be more than the amount he
should have deducted in the first
place. And he cannot deduct more income tax
to pay the EI deficit. If in one
year, an employer recovers premiums that should have
been deducted in a previous year, he cannot
report the amount recovered on the current year's
T4 slip. One option is to change the
previous year's T4. See Guide RC4120 for information
on how to do this. Let's look at
an example.
In the previous year, the employer had to
deduct EI premiums from an employee's pay $77.00
for September and $75.00 for October. He has
to pay the CRA the amount owing of
$364.80, representing $152.00 for the employee share and
$212.80 for the employer share $152.00
times the 1.4 employer rate . For our
example, let's assume that the employee is paid
monthly. The employer can recover the missing $152.00
like this. $77.00 from the March pay. $75.00
from the April pay. The employer could not
recover more than $77.00 in one month because
the amount he can recover cannot be more
than the amount
he should have deducted in the first place.
The $79.00 for March and April is the
current EI premiums to deduct for the month.
For more information on any of the items
we talked about today, visit cra.gc.ca and go
to our webpages for businesses. If you have
not already done so, you can subscribe to
our payroll electronic
mailing list at cra.gc.ca/lists. You'll receive information about
our upcoming webinars. The CRA website also has
videos and recorded webinars for businesses at cra.gc.ca/gallery,
including a series that gives information on payroll
for new small businesses and a series with
information on payroll basics. You can
also follow us on Twitter at CanRevAgency. The
CRA has many tools to help you understand
your responsibilities for CPP contributions and EI premiums,
as well as other payroll obligations. You can
find them by going to the payroll deduction
pages on our website. Guide T4001, Employers' Guide
- Payroll Deductions and Remittances, may be
especially helpful. The CRA will soon present a
series of podcasts on taxable benefits. Stay tuned
That's all the time we have. Thank you
for joining me today. I hope this webinar
helped you better understand Canada Pension Plan contributions
and employment insurance premiums. Thank you.