Hiring in Canada can be intimidating for global businesses. It requires learning new employment standards and a new tax system including mandatory employment insurance and Canadian retirement payroll deductions. CPP Canada Pension Plan is a basic payroll contribution that all employers and employees make until age 60 where they can opt out, but that doesn’t mean that understanding it is basic. PEOs like Canadian Payroll Services bend the learning curve by taking on all your payroll obligations including deductions and remittances.
In this blog, we will explain how CPP works, how much employers and employees are obligated to contribute, and how working with a PEO can simplify things for you!
What Is the Canada Pension Plan?
Canada Pension Plan is a monthly retirement benefit designed to supplement personal retirement savings. After 60 years old, Canadians may choose to retire and begin receiving CPP so long as they have made one valid CPP contribution. Working Canadians begin contributing to CPP when they are 18 years old.
How Does Canada Pension Plan Work?
Contributions to CPP are mandatory and are deducted from employees’ paycheques every month. Self-employed Canadians remit their CPP contributions alongside their income taxes, usually on a quarterly basis. Employers are responsible for making these deductions and for making their own CPP contributions on the 15th of each month, after their employees were paid. To begin making employer contributions into CPP and EI, you must first register your business as a local subsidiary in Canada and set it up for processing payroll. This too is a confusing and costly process, but one that you can avoid by working with a PEO.
CPP and EI deductions for employers can be confusing for global employers. While CPP is similar to Social Security, rates, maximums, schedules and fines for noncompliance are different. Not to mention, if your employees work in the province of Quebec, employee and employer contributions have special rates!
Canada Pension Plan Contribution Rate
Like EI, CPP is composed of contribution rates for employees and employers and an earnings ceiling. Once the employee reaches the earnings ceiling, both they and you stop making contributions for the year. CPP also has a basic exemption, which in 2024 is the first $3500 that an employee earns.
Each year CPP and EI are reassessed, and the rates and maximums are adjusted. Unlike EI, the CPP employer contribution rate typically matches that of the employee. When it comes to EI, it is typically set higher. To learn more about Employment Insurance, Canada’s other major employer payroll contribution, read our blog on EI here.
| Employee | Self-Employed | Employer | |
|---|---|---|---|
| Contribution Rate | 5.95% | 11.9% | 5.95% |
| Max Pensionable Earnings | $68,500 | $68,500 | $65,000 |
| Maximum Contribution | $3,867.50 | $7,735.00 | $3,867.50 |
If your employees are operating out of the province of Quebec, special rates apply. Quebec requires additional contributions which go into their provincial social safety programs including QPIP and QPP.
| Employee | Self-Employed | Employer | |
|---|---|---|---|
| Contribution Rate | 6.4% | 12.8% | 6.4% |
| Max Pensionable Earnings | $68,500 | $68,500 | $68,500 |
| Maximum Contribution | $4,160.00 | $8,320.00 | $4,160.00 |
How Canadian Payroll Services Can Help
The retirement policy in Canada can be confusing for US businesses and other global companies. CPP, EI and payroll taxes are mandatory contributions for employees and employers and the rates change every year, with special rates for businesses operating in Quebec. By working with a PEO you can eliminate the stress of keeping up with employment laws and taxes in Canada.
PEOs like Canadian Payroll Service allow you to hire compliantly in Canada without opening a subsidiary, through a service called employee leasing. We hire and onboard your workers and take care of all employer payroll responsibilities including taxes and CPP and EI contributions. We keep a laser focus on changes to payroll taxes and employment laws to ensure you stay compliant and your team receives the best possible employee experience.
Ready to outsource your payroll and compliance to Canadian Payroll Services? Contact us today!
