PCL Chap 3 en Ca
PCL Chap 3 en Ca
PCL Chap 3 en Ca
Learning Objectives:
Communication Objectives:
Upon completion of this chapter, you should be able to explain:
Chapter Contents
Introduction
This chapter focuses on the government pension and insurance programs.
The Canada Pension Plan (CPP) is a social insurance program, legislated under the federal
Canada Pension Plan Act. The purpose of the act is to provide protection to contributors and
their families against the loss of income due to retirement, disability and death. The program
is funded by employees through payroll deductions and by employers who match their
employees’ deductions dollar for dollar. Since this is a pension plan, employee deductions
for the plan are called Canada Pension Plan contributions.
Employers may also provide non-government sponsored pension plans for their employees
that may require withholding contributions from the employee’s pay. The payroll
withholding requirements for these pension plans will be covered in the course Payroll
Fundamentals 1. At this point, you should be aware that the Canada Pension Plan is not the
only pension plan in many organizations.
Employment Insurance (EI) is a social insurance program legislated under the federal
Employment Insurance Act. The program provides temporary income support to unemployed
workers while they look for employment or to upgrade their skills. The EI program also
provides special benefits to workers who take time off work due to specific life events
(illness; pregnancy; caring for a newborn or newly adopted child, a critically ill or injured
person, or a family member who is seriously ill with a significant risk of death). Employment
Insurance is funded by employees through payroll deductions and by their employers who
pay a premium based on their employees’ deductions. Since this is an insurance program,
employee deductions for the plan are termed Employment Insurance premiums.
Employment Insurance may not be the only insurance program within an organization. Many
organizations have life and disability insurance plans that are funded by employers and/or
employees. These non-government or private insurance programs will be discussed in the
course Payroll Fundamentals 1. This chapter focuses on the government legislated
Employment Insurance program.
Membership or participation in the Canada Pension Plan (CPP) and Employment Insurance
Plan (EI) is compulsory for certain types of employment. As a payroll practitioner, you will
need to know which employees must participate in these plans, what amounts to withhold
from employees and how much the employer will have to remit or send to the Canada
Revenue Agency (CRA).
Note:
Employers are responsible for deducting Québec Pension Plan (QPP) contributions, instead
of CPP contributions, from their Québec employees and remitting those contributions to
Revenu Québec (RQ). This will be discussed later in the course.
The Record of Employment (ROE) is the form used by Service Canada to determine an
individual’s qualification to collect Employment Insurance benefits when their employment
is interrupted, how much the benefit will be and how long they will collect it. As payroll is
responsible for completing the ROE, the form will be illustrated in this chapter, along with an
explanation of what payroll information must be tracked for ROE reporting purposes.
Payroll is responsible for the collection of CPP contributions and EI premiums and for
remitting these deductions, along with the employer’s portion, to the Canada Revenue
Agency. In this chapter, you will learn the criteria that determine pensionable and insurable
earnings, how to calculate the deductions required on these earnings for regular pay periods
and non-regular payments and how to calculate the employer’s portion of the remittances.
Under federal legislation, the Canada Pension Plan contribution is the first deduction to be
taken from employment income and the Employment Insurance premium is the second
deduction. Since these deductions are required under government legislation, or statutes, they
are referred to as statutory deductions.
retirement pension
disability benefits (for contributors with a disability and their dependent children)
survivor benefits (including the death benefit, the survivor's pension and the children's
benefit)
The CPP operates throughout Canada while the province of Québec administers its own
program for workers in Québec called the Québec Pension Plan (QPP). The two plans work
together to ensure that all contributors are protected, no matter where the individual lives.
Québec Pension Plan requirements will be covered later in this course.
1. CPP contributions must be withheld from employees who have reached the age of 18 but
are under the age of 70.
Example:
Janice Blair has a summer job at a fast-food restaurant from May 1 through August 31.
Janice will turn 18 in October. For her employment this summer, as she has not reached
age 18, no CPP contributions will be withheld from her earnings.
Janice’s friend Harry, who is 22 years old, has a summer job at the same restaurant.
Since Harry is at least 18 years of age, his employer must deduct CPP contributions.
Payroll software programs use the date of birth to determine if CPP contributions must be
withheld from an employee. On occasion, a payroll practitioner may make the mistake of
entering the date of hire in the field used for the employee’s birth date. The software
program assumes the employee is only days old (under 18 years), and does not deduct
CPP contributions. Part of your responsibility as a payroll practitioner is to check that the
information has been accurately entered and to verify the system is calculating the
contributions correctly.
Example:
Last year Lisa Melo, who is 40 years old, worked as a mechanical engineer for Ball
Elevators. Lisa was in pensionable employment and therefore her employer withheld the
appropriate CPP contributions from her salary.
3. CPP contributions must be withheld from employees in pensionable employment who are
not considered to be disabled by either Service Canada or Retraite Québec.
Example:
Charlene Joseph is 62 years of age and works part-time for a small company. She is
considered to be disabled by Service Canada due to an injury and is receiving disability
pension benefits from Service Canada. Charlene’s part-time employer is not required to
deduct CPP contributions for Charlene once presented with her disability award letter
from Service Canada.
4. CPP contributions must be withheld from employees who are 65 years of age but are
under the age of 70 and are in receipt of the Canada or Québec Pension Plan retirement
pension, but have not filed an election to stop paying CPP contributions.
Example:
Richard Doyle applied for and started receiving a CPP retirement pension when he turned
age 65 in March. He has not filed an election to stop paying CPP contributions so his
employer must continue to deduct CPP contributions from his salary until he files an
election or reaches age 70.
The following types of employment are excluded by legislation and therefore do not
constitute pensionable employment. Payments arising from such employment are not subject
to CPP contributions:
Note:
In a calendar year, when the employee reaches both minimums, $250.00 or more in
cash remuneration and works 25 days or more, the employment is pensionable
starting from the first day of work.
employment of a casual nature other than for the purpose of the employer’s usual
trade or business
employment of a person, other than as an entertainer, in connection with a circus, fair,
parade, carnival, exposition, exhibition, or other similar activity, if that person is:
o not regularly employed by that employer, and
o employed by that employer for less than seven days in a year
Note:
When the employee works seven days or more, the employment is pensionable from
the first day of work.
employment of a person by a government body as an election worker, if that person:
o is not a regular employee of the government body, and
o works for less than 35 hours in a calendar year
Note:
When the 35 hour limit is reached or exceeded, the entire employment is pensionable
from the first day the employee was engaged.
While general information is provided on each of these categories, payroll practitioners will
most often deal with the CPP contribution requirements on income from employment and
taxable benefits and allowances.
Note:
Payments under an Administrative Services Only (ASO) plan are generally considered
pensionable since the third party (insurance company) is acting as an agent of the
employer. Since there is no contract of insurance indemnifying the employer against risk,
the employer is still considered to be exercising a degree of control over the terms of the
plan.
Example:
Superior Foods, located in Alberta, provides its employees with group term life insurance
coverage of two times the employee’s annual salary.
For Louise Davis’ coverage of $75,000.00, Superior Foods pays an annual premium of
$780.00. As Louise is paid on a bi-weekly basis, the non-cash taxable benefit to be included
in her gross pensionable and taxable bi-weekly income is calculated as follows:
= $780.00
26
The group term life insurance non-cash taxable benefit will show on Louise’s pay statement
and be included in the calculation of her CPP contributions and income tax withholdings.
Death benefits
Pension benefits
A payment at the end of employment that is not considered employment income,
for example, severance payments or retiring allowances
Wage-loss replacement plan (WLRP) benefits paid under a contract of insurance
Workers compensation advances or loans
Payments linked to special conditions under the Income Tax Act
The payments and benefits that are not subject to CPP contributions are detailed as follows:
1. Death benefits
Example:
Marie Gelinas passed away in June, after a lengthy illness. Her employer provided her
husband with a $10,000.00 death benefit. This was a discretionary payment made in
recognition of Marie’s service to the organization. It did not include any outstanding
wages or vacation owing to the employee. There are no CPP contributions calculated on
the $10,000.00 payment.
2. Pension benefits
a) pension payments
Example:
Len Bud retired from Tire Wares, at age 55, after 30 years of service and receives a
monthly pension of $1,500.00 from his employer’s registered pension plan. Tire Wares
asked Len to return to work as a guide for school tours of the plant. Len receives
$2,000.00 a month for this work. Tire Wares does not include Len’s pension income of
$1,500.00 when calculating Len’s CPP contributions.
Example:
Fred Way terminated his employment prior to becoming vested in the registered pension
plan. He is entitled to receive a lump-sum payout of his contributions. This payment
would not be subject to CPP contributions.
Example:
Lise Gordon, who is 36 years old, has been diagnosed with a terminal illness. Her
Deferred Profit Sharing Pension Plan allows for a lump-sum payment out of the plan due
to her shorter than normal life expectancy. The lump-sum payment in these
circumstances would be taxable, at the lump-sum tax rates, but not subject to CPP
contributions.
Example:
General Promotions provides a supplementary unemployment benefit plan (SUBP) to
employees who are receiving Employment Insurance sickness benefits. The benefits paid
by a trustee, when combined with the EI sickness benefits, equal 95% of the employee’s
regular weekly gross earnings. The amount paid by the trustee is not subject to CPP
contributions.
Example:
Marjory White’s employment was terminated and her final pay included a $5,000.00
severance payment. There were no CPP contributions withheld on this $5,000.00
payment.
Example:
Alice Chau is covered for long-term disability (LTD) benefits under the organization’s
WLRP. A contract of insurance exists and the insurance company maintains all control
and liability over the plan. There are no CPP contributions withheld from the benefit
payments paid by the insurance company.
Example:
When Seung Dang broke her arm in a work-related accident, her employer advanced her
$3,000.00 until she began receiving workers’ compensation payments. As Seung repaid
this advance to her employer, no CPP contributions were calculated on the advance
amount.
Example:
Reverend Foster’s parish pays the $1,000.00 monthly lease payment on his residence.
Reverend Foster deducts this amount on his personal income tax return as an allowable
deduction for clergy. The parish does not include this $1,000.00 when calculating
Reverend Foster’s CPP contributions.
Content Review
Canada Pension Plan contributions must be withheld from employees who:
o have reached the age of 18 but are under the age of 70
o are in pensionable employment
o are not considered to be disabled by either Service Canada or Retraite Québec
o are 65 years of age but are under the age of 70 and are in receipt of the Canada
or Québec Pension Plan retirement pension, but have not filed an election to
stop paying CPP contributions.
Payments and benefits subject to Canada Pension Plan contributions generally fall
into the following categories:
o income from employment
o taxable benefits and allowances
o certain fees and honorariums
o controlled tips
o paid leave
o benefits under certain wage-loss replacement plans
Some payments received by employees are not considered to be compensation for
work performed, because they are:
o death benefits
o pension benefits
o a payment at the end of employment that is not considered employment
income, for example, severance payments or retiring allowances
o wage-loss replacement plan (WLRP) benefits paid under a contract of
insurance
o workers’ compensation advances or loans
o payments linked to special conditions under the Income Tax Act
Review Questions
1. Canada Pension Plan contributions must be withheld from which of the following:
a. employees in pensionable employment who have reached the age of 18 but are under
the age of 70
b. all employees who are paid a salary
c. employees who are considered to be disabled by either Service Canada or Retraite
Québec
2. True or False. Canada Pension Plan contributions should be deducted from an employee
who is 65 years of age and is in receipt of the CPP retirement pension but has not filed an
election to stop paying CPP contributions.
4. Which of the following payments and benefits is subject to Canada Pension Plan
contributions?
a. Winona received a $100 gift certificate from her friends at work for her birthday
b. Stephan received a $100 tip at the restaurant where he is head waiter and the
restaurant determined the amount of the tip
c. Harold took a one-year unpaid leave from his job to travel
d. Betty received a payment of $75 from her employer as a reimbursement for office
supplies she had purchased from her own money
5. True or False. Canada Pension Plan contributions must be calculated on the severance
payments made to an employee when they leave an organization.
a yearly maximum amount of pensionable earnings ($61,600.00 for 2021) from which
employers deduct CPP contributions up to an annual maximum ($3,166.45 for 2021)
a yearly basic exemption (YBE), which is an amount employees are allowed to earn
before CPP is required to be deducted ($3,500.00 for 2020)
a contribution rate employers use to calculate the amount of CPP to deduct from
employees (5.45% for 2021)
The yearly maximum pensionable earnings (YMPE) less the yearly basic exemption (YBE)
are the contributory earnings the CPP contribution rate is applied to, for deduction purposes.
For 2021:
Yearly Maximum Pensionable Earnings (YMPE) A $61,600.00
Yearly Basic Exemption (YBE) B $3,500.00
Contributory Earnings (A – B) C $58,100.00
CPP Contribution Rate* D 5.45%
Annual Maximum Employee Contribution to CPP (C x D) E $3,166.45
Annual Maximum Employer Contribution to CPP (C x D) F $3,166.45
*The QPP contribution rate for Québec employees is 5.90% and will be discussed later in the course.
Note:
In 2016, finance ministers representing each province and territory met with federal
government officials to discuss future enhancements to the CPP program. An agreement
was realized and work has begun on the design of the enhanced CPP program which would
impact CPP pensionable earnings and contributions as follows:
Once an employer has deducted the annual maximum CPP contribution from an employee,
no further CPP deductions are to be withheld from the employee for that year.
Both employees and employers have to make CPP contributions. Employers match their
employees’ CPP contributions dollar for dollar and remit both portions to the CRA.
The yearly basic exemption of $3,500.00 is divided by the number of regular pays in the year
to determine the amount of the exemption that should be applied to the pensionable earnings
for each pay period.
Example:
Weekly exemption $3,500.00 = $67.3076
52
Every seven years the calendar days fall in such a way that there can be 53 weekly pays in
the year, rather than 52, depending which day of the week is the pay day. In this case, the
basic exemption for each of the 53 weekly pay periods will be:
$3,500.00 = $66.03
53
Every eleven years, for the same reason, there will be 27 bi-weekly pays in the year, rather
than 26. In this case, the basic exemption for each of the 27 bi-weekly pay periods will be:
$3,500.00 = $129.62
27
Payroll service providers and organizations that use an in-house payroll system will build the
formulas for computer programs into their software. Payroll practitioners must be prepared to
use PDOC or the manual calculation method if they need to produce a manual payroll
cheque.
Note:
The payroll deduction tables and online tools used as illustrations throughout this chapter are
not necessarily those of the current year.
Withholdings for the following most common pay period frequencies are provided in the
Payroll Deductions Tables – T4032:
Weekly
Bi-weekly
Semi-monthly
Monthly
The Payroll Deductions Supplementary Tables – T4008 provide the withholding amounts for
10, 13, 22, 27, 53 or 240 pay periods a year.
STEP ACTION
1 Refer to the appropriate pay period table for your payroll frequency.
2 Look down the “Pay/Rémuneration” column and find the range containing the
employee’s gross pensionable/taxable income for the pay period.
3 Locate the corresponding CPP contribution required.
Example:
Carole Lemieux works for The Wellness Centre in Ajax, Ontario. Carole is paid on a semi-
monthly basis. Her gross pensionable/taxable income per pay is $1,575.00. Following the
above steps:
The Payroll Deductions Online Calculator (PDOC) is available on the CRA’s website.
Within PDOC, the exact salary is used to determine the statutory withholdings. In the
publications Payroll Deductions Tables and Payroll Deductions Supplementary Tables, the
midpoint of the salary range is used to determine the statutory withholdings. All the results
are correct, but the PDOC calculations are more precise.
Example:
Carole Lemieux works for The Wellness Centre in Ajax, Ontario and is paid semi-monthly.
Her gross pensionable/taxable income per pay is $1,575.00.
Note: this is an example for illustration purposes only and is not based on current year rates.
xxxx-
$13,229.00
$10,783.00
The PDOC is updated January 1 each year and also when income tax changesoccur during
the year. WinRAS*, available on Revenue Québec’s website, calculates QPP contributions,
QPIP premiums and Québec provincial income tax deductions. WinRAS will be discussed
later in this course.
*In early 2020, Revenu Québec released an online version called WebRAS that does not
need to be downloaded like WinRAS.
the employee’s pensionable earnings are greater than the maximum in the tables
the employee is paid by commission on an irregular basis
the employee is receiving more than one payment in the pay period
The method for manually calculating the CPP contribution follows.
Calculate the basic pay period exemption that applies to the pay frequency. To do
this, divide the yearly basic exemption ($3,500.00 ) by the number of regular pay
periods in the year; do not round this calculation.
Subtract the result of Step 1 from the employee’s gross pensionable/taxable income
for the pay period.
Multiply the result of Step 2 by the current year’s CPP contribution rate (5.45% for
2021 ). The result is the amount of contributions you should withhold from the
employee. As an employer, you have to pay the same amount as your employee.
Make sure you do not exceed the annual maximum contribution.
Example:
An employee has gross pensionable/taxable income of $2,000.00 per month. The CPP
contribution calculation per pay period would be as follows:
Step 1
CPP Pay Period Exemption = Yearly Basic Exemption
Pay Period Frequency
= $3,500.00
12
= $291.66
Step 2
Contributory Earnings = Gross Pensionable/Taxable Income - Pay Period Exemption
= $2,000.00 - 291.66
= $1,708.34
Step 3
CPP Contribution = Contributory Earnings x Contribution Rate
= $1,708.34 x 0.0545
= $ 93.10
In summary:
Gross Pensionable/Taxable Income $2,000.00
CPP Pay Period Exemption ($3,500 ÷ 12) - 291.66
Contributory Earnings $1,708.34
CPP Contribution Rate (5.45%) × 0.0545
CPP Contribution – employee $ 93.10
CPP Contribution – employer $ 93.10
Example:
The employee’s pensionable earnings for a bi-weekly pay period are $7,000.00, which is
over the maximum in the payroll deduction tables. The CPP contribution would be manually
calculated as follows:
Step 1
CPP Pay Period Exemption = Yearly Basic Exemption
Pay Period Frequency
= $3,500.00
26
= $134.61
Step 2
Contributory Earnings = Gross Pensionable/Taxable Income - Pay Period Exemption
= $7,000.00 - 134.61
= $6,865.39
Step 3
CPP Contribution = Contributory Earnings x Contribution Rate
= $6,865.39 x 0.0545
= $374.16
In summary:
Gross Pensionable/Taxable Income $7,000.00
CPP Pay Period Exemption ($3,500 ÷ 26) - 134.61
Contributory Earnings $6,865.39
CPP Contribution Rate (5.45%) x 0.0545
CPP Contribution – employee $ 374.16
CPP Contribution – employer $ 374.16
In the case of a leap year, 366 would be used as the number of days in the year. For the
purposes of this course, 365 days will be used.
Example:
Tracy Labonte is a salesperson for Logan Industries. She is paid by commission only when
she sells the company’s product. On June 1, Tracy was paid $2,400.00 in commissions.
There were 73 days between this and her last commission payment.
= 73 x $3,500.00
365
= 0.20 x $3,500.00
= $ 700.00
When Tracy receives her next commission payment in the year, the exemption will be
calculated based on the number of days since June 1. The exemption is not rounded.
If the last commission payment was in the previous year, the number of days between
payments is limited to the number of days in the current year.
Example:
Jason Jacobs is also a salesperson for Logan Industries. He received a commission payment
of $43,800.00 on December 19 of the previous year. He was paid $3,200.00 in commissions
on May 27 of the current year. There were 146 days from January 1 to the date the
commission was paid.
= 146 x $3,500.00
365
= 0.40 x $3,500.00
= $1,400.00
Although Jason received a commission payment in December of the previous year, the
number of days is limited to the number of days in the current year prior to the current
payment.
Example:
An employee whose employment has been terminated is owed one week’s vacation pay in
the amount of $500.00, in addition to their regular pay. The CPP contribution on the separate
payment of vacation pay would be calculated as follows:
Another option would be to add the two payments together and then either use the Payroll
Deduction Tables or the Payroll Deduction Online Calculator to determine the CPP
contribution, or manually calculate the contribution by reducing the total pensionable
earnings by the pay period exemption and then applying the contribution rate.
Example:
An employee is being paid a bonus of $2,000.00 along with her regular monthly pay of
$3,980.00. She also has a monthly non-cash taxable benefit of $20.00. The CPP contribution
would be manually calculated as follows:
Example:
The employee’s gross pensionable/taxable income for a bi-weekly pay period is $4,000.00.
The CPP contribution would be calculated manually as follows:
Step 1
CPP Pay Period Exemption = Yearly Basic Exemption
Pay Period Frequency
= $3,500.00
26
= $134.61
Step 2
Contributory Earnings = Gross Pensionable/Taxable Income – Pay Period Exemption
= $4,000.00 - 134.61
= $3,865.39
Step 3
CPP Contribution = Contributory Earnings x Contribution Rate
= $3,865.39 x 0.0545
= $210.66
In summary:
Gross Pensionable/Taxable Income $4,000.00
CPP Pay Period Exemption ($3,500 ÷ 26) - 134.61
Contributory Earnings 3,865.39
CPP Contribution Rate (5.45%) x 0.0545
CPP Contribution – employee $ 210.66
CPP Contribution – employer $ 210.66
After 14 pays, this employee will have contributed $2,949.24. We must calculate the amount
of CPP contributions on the 15th pay so that the employee does not contribute over the
annual maximum contribution of $3,166.45.
This employee and the employer will only contribute $217.21 in CPP contributions on the
15th pay. No further CPP contributions from this employee would be required in this year.
Content Review
Gross pensionable/taxable income includes salary, wages, and other remuneration
paid as well as any taxable benefits, taxable allowances and taxable expense
reimbursements paid or provided to employees.
Both employees and employers have to make Canada Pension Plan (CPP)
contributions. Employers match their employees’ CPP contributions dollar for dollar
and remit both portions to the Canada Revenue Agency (CRA).
The Payroll Deduction Tables have the pay period exemption built into the
calculations for CPP contributions; for this reason, the calculation must be done
manually in certain situations.
Once the maximum contribution for the year has been withheld from the employee,
no further CPP contributions would be required for the current year.
Review Questions
6. Lily was handed a list of new workers and was asked to calculate the monthly Canada
Pension Plan contributions for each worker, where applicable. Complete the questions,
using the worksheets provided.
Question 6 worksheets:
a. Determine for which of the workers listed the employer must deduct Canada Pension
Plan contributions.
CONTRIBUTE
REASON
YES NO
Michael
Steven
Frank
Jerry
Ed
John
c. Assume it is December and that this is the 12th pay for each of these employees.
They have earned the same pensionable earnings in each month of the current year.
Calculate the employee and employer Canada Pension Plan (CPP) contributions for
each employee for December. (The current annual maximum employee Canada
Pension Plan contribution is $3,166.45 ).
7. Neil Cheng is a salesperson for Lake City Printing. Neil is paid by commission only. Neil
received a commission payment of $37,450.00 on September 1. There were 219 days
between this payment and Neil’s last commission payment.
Calculate the Canada Pension Plan exemption to be applied to Neil’s payment, his
contributory earnings, and both his and his employer’s Canada Pension Plan
contributions for this payment. Neil will not reach the annual maximum contribution on
this pay.
Non-Regular Situations
There are three situations that require special consideration when calculating an employee’s
CPP contributions:
turns age 18
turns age 70
is considered to be disabled by Service Canada
is at least 65 years of age and under the age of 70, in receipt of C/QPP retirement
pension, and files an election to stop CPP contributions
dies
When an employee turns age 18, the employer must begin withholding CPP contributions the
first pay of the month following the month in which the employee’s 18 th birthday falls.
The maximum contribution for the year has to be prorated for employees turning age 18 to
reflect only those months that they were eligible to contribute.
Example:
Alan Singh turned age 18 on July 10th. His maximum annual CPP contribution would be the
current year’s maximum ($3,166.45) divided by 12 months, multiplied by the 5 months that
he was eligible to contribute (August to December).
= $3,166.45 x 5
12
= $ 263.87 x 5
= $1,319.35
Once Alan has had $1,319.35 in CPP contributions withheld from his pay, no further CPP
contributions should be deducted.
When an employee turns age 70 or is considered to be disabled by Service Canada during the
year, the employer must stop deducting CPP contributions the first pay of the month
following the month the employee turned age 70 or was considered to be disabled.
An employee who continues to work after being considered to be disabled should provide
his/her employer with a copy of the award letter from Service Canada stating that they will
be receiving disability benefits. This letter is proof that contributions are no longer required.
If the employee is late in providing the award letter, the employer can refund the over-
contribution within the same taxation year.
The employer can recover their over-contribution by reducing the current year remittances.
Previous year’s employer over-contributions can be refunded by completing a PD24 –
Application for a Refund of Overdeducted CPP Contributions or EI Premiums form. The
employee will receive a credit for their CPP contributions when they file their personal
income tax return.
Example:
Ingrid Johannson turned age 70 on February 10th. Her annual maximum contribution would
be the current annual maximum contribution ($3,166.45) divided by 12 months, multiplied
by the two months (January and February) that she was eligible to contribute.
= $3,166.45 x 2
12
= $ 263.87 x 2
= $ 527.74
If Ingrid had more than $ 527.74 in CPP contributions withheld from her pay, the over-
contribution should be refunded to her.
The employee is at least 65 years of age but under the age of 70, is receiving a C/QPP
retirement pension and files an election to stop CPP contributions.
When a working employee is at least 65 years of age but under the age of 70 and is receiving
a C/QPP retirement pension, they will have to contribute to the CPP as long as they are
receiving pensionable earnings, unless they file an election to stop contributing.
Employees who wish to stop contributing to the CPP must meet all of the following criteria.
The employee:
Both employee and employer CPP contributions are required to be remitted as per the
employer’s remittance frequency. In other words, if an eligible employee does not choose to
opt out and instead continues making CPP contributions, the employer must match their
contributions and send both portions to the CRA.
Once employers receive a signed and completed CPT30 form from an eligible employee,
they should stop deducting CPP contributions as of the first pay in the month following the
month they receive the form.
Example:
Charles is 65 years of age and in receipt of a CPP retirement pension. He filed a CPT30
election form on April 15th to stop CPP contributions; his employer stopped deducting CPP
contributions as of the first pay in the month of May.
His maximum CPP contribution for the year would be the current annual maximum
contribution, $3,166.45 , divided by 12 months, multiplied by the four months (January to
April) that he was eligible to contribute.
= $3,166.45 x 4
12
= $ 263.87 x 4
= $1,055.48
If Charles had more than $1,055.48 in CPP contributions withheld from his pay, the over-
contribution should be refunded to him. The employer could recover its overpayment by
reducing its next remittance to the CRA.
When an employee dies, the annual maximum contribution is prorated over the number of
months before and including the month of the death. Any refund owing to the deceased
employee resulting from this prorating is made payable to the estate of the employee.
Example:
Helen Tsang died on September 30th. She had already contributed the maximum yearly
contribution of $3,166.45 for the current year. The annual maximum contribution must be
prorated over the nine months up to and including the month of her death (January to
September of the current year).
= $3,166.45 x 9
12
= $ 263.87 x 9
= $2,374.83
Helen’s over-contribution of $ 791.62 should be refunded to her estate. The employer could
also recover its overpayment by reducing its next remittance to the CRA. If the over-
contribution occurred in a previous year, the employer could recover the overpayment by
completing form PD24.
In the case where there is undue hardship to the employee for having to pay the extra
contributions, the employee may request a letter from the Canada Revenue Agency Tax
Services Office waiving the equivalent amount of income tax withholdings. Note that this
letter of waiver does not affect the payment of employee or employer CPP contributions.
then the new employer may consider the amounts deducted, remitted or paid under the
Canada Pension Plan by the former employer for the year for the employees as if they had
been deducted, remitted, or paid by the new employer.
If you are not sure whether CPP contributions are payable in a particular restructuring or
succession of employers situation, you can ask the Canada Revenue Agency (CRA) for a
ruling.
Content Review
The annual Canada Pension Plan (CPP) maximum contribution for the year must be
prorated when the employee:
o turns age 18
o turns age 70
o is considered to be disabled by Service Canada
o is at least 65 years of age and under the age of 70, in receipt of C/QPP
retirement pension, and files an election to stop CPP contributions
o dies
If an employee leaves one employer during the year to start work with another
employer, the new employer has to deduct CPP contributions without taking into
account what the employee’s previous employer had withheld.
Employers are not required to re-start the employees’ CPP contributions in the case of
a merger or an acquisition.
Review Questions
8. Jennifer Alexander turned age 18 on September 14.
10. True or False. If an employee leaves one employer during the year to start work with
another employer, the new employer can take into account what the employee’s previous
employer withheld in Canada Pension Plan contributions.
11. Mary Smith had applied for her Canada Pension Plan (CPP) retirement pension benefits
which she started receiving when she turned age 65 in March. Mary called the payroll
department in August of the same year to ask why she was still being deducted for
Canada Pension Plan contributions. Explain what your response to Mary would be and
what actions you would take.
Both employees and employers must pay EI premiums. The employee’s premium is
calculated by multiplying the insurable earnings by the annual premium rate (1.58% for
2021). The employer rate is 1.4 times the employees’ premiums, or 2.212% (1.4 x 1.58%) of
the employees’ insurable earnings. Employers remit both portions to the CRA.
For 2021:
Maximum Insurable Earnings (MIE) A $56,300.00
Employee EI Premium Rate (except in Québec)* B 1.58%
Annual Maximum Employee Premium for EI (A x B) C $ 889.54
Employer Rate to apply to Employee Premium D 1.4
Annual Maximum Employer Premium for EI (C x D) E $1,245.36
*The EI premium rate for Québec employees is 1.18% and will be discussed later in this course.
EI premiums must be withheld from employees as of the first insurable dollar earned; there is
no exemption for EI purposes, so the calculation is the same for all pay period frequencies.
Once an employer has deducted the maximum premiums for the year, no further EI
premiums should be withheld for that year.
Some employers have applied for, and been granted, a reduced employer rate of less than 1.4
times the employee’s premium. To qualify for a reduced rate, an employer must maintain a
short term disability plan (STD), which reduces employment insurance benefits payable to
individuals by Service Canada under certain circumstances. Further information on the
employer premium reduction program is provided later in this chapter.
Unlike CPP contributions, there are no age restrictions on the withholding of EI premiums.
As a result, regardless of an employee’s age, EI premiums are withheld on all insurable
earnings earned through insurable employment.
The information that follows describes the types of employment, as well as the types of
payments that are and that are not subject to EI premiums. This information can also be
found in the Employers’ Guide – Payroll Deductions and Remittances – T4001, which is
published by the CRA.
The following are some of the types of employment that are exempted by legislation and are
not insurable. Any monies paid for these types of employment are therefore not subject to EI
premiums, even though there may be a valid contract of service.
casual employment, if it is for a purpose other than the employer’s usual trade or
business
employment where the employer and the employee are not dealing with each other at
arm’s length. Essentially this covers family connections (blood relationship, marriage,
common-law relationship or adoption); however, if the terms and conditions of
employment of a related person are such that a similar contract would have been
negotiated with any other person, the related person will be considered to be dealing
at arm’s length. Rulings can be requested where an employer is not sure whether or
not to deduct EI premiums in this situation.
Information on other less common types of exempted employment can be found in the
CRA’s publication Employers’ Guide – Payroll Deductions and Remittances – T4001.
all non-cash taxable benefits, except the value of board and lodging received in a
period if paid cash for the pay period
employer contributions to an employee’s RRSP where the employee cannot withdraw
amounts from the plan until they retire or cease to be employed
a retiring allowance or severance pay
director’s fees (unless paid to a director of a crown corporation listed in Schedule III
of the Financial Administration Act)
monies earned (salary, banked overtime, bonus, vacation, etc.) before the death of an
employee and not yet paid at the time of death
a supplement for any part of an Employment Insurance maternity, parental or
compassionate care benefit period
WLRP benefits paid under a contract of insurance
STEP ACTION
1 Look down the “Insurable Earnings” column and find the range containing the
employee’s insurable earnings for the pay period.
2 Locate the corresponding EI premium required.
Example:
George Roy works part-time for Marcie’s Coffee Shop. He is paid on a weekly basis and on
the pay ending July 21, George worked 9.0 insurable hours and had $90 in insurable earnings
for the pay period. Following the above steps:
1. Look down the “Insurable Earnings” column and find the range that contains $90.00. In
this case, the range is $89.46 - $90.06
2. Locate the EI premium of $1.49
Note:
The payroll deduction tables and online tools used as illustrations throughout this chapter are
not necessarily those of the current year.
Example:
Terri Fraser works 20 hours and has insurable earnings of $800.00 for the week. Terri’s year-
to-date insurable earnings are $32,000.00 (40 weeks).
Example:
Frank Lasalle works 75 hours in the bi-weekly pay period and earns $30.00 an hour. He also
receives a $100.00 car allowance each pay. Employment Insurance premium calculations are
the same, regardless of the pay period frequency.
Example:
Jean Lamont works 30 hours per week and has insurable earnings of $1,525.00 for the week.
His year-to-date (YTD) insurable earnings are $54,900.00 (36 weeks in the current year) and
his year-to-date EI premiums deducted are $867.60 ($1,525.00 x 0.0158 = $24.10 x 36).
Jean will only pay EI premiums of $ 21.94 on his next pay to reach the annual premium
maximum.
If issuing a payment to an employee between regular payrolls, be sure to check the year-to-
date EI premiums so that you do not withhold any amounts in excess of the maximum.
Example:
It’s the first pay of the year and the executives received their annual bonuses. Maria Lopez
receives a salary of $3,500.00 plus a bonus of $55,000.00. All of the monies received are
insurable but the premium will only be calculated on the insurable earnings up to the annual
maximum of $56,300.00 . In this case, Maria will have paid the entire year’s premiums on
the first pay of the year.
Non-Regular Situations
Employment Insurance (EI) Premiums for a New Hire
Similar to the handling of CPP contributions, if an employee leaves one employer during the
year to start work with another employer, the new employer has to deduct EI premiums
without taking into account what the employee’s previous employer had withheld. For
example, an employee was working for organization “A” and paid the maximum EI premium
by July. In September the employee left organization “A” to work for organization “B”. Even
though the employee had already paid the yearly maximum they would start to have EI
premiums deducted again with organization “B”. When the employee files their T1 income
tax return, the employee will be entitled to a refund of any overpaid EI premiums. The
employer is not entitled to a refund of their portion of EI premiums.
In the case where there is undue hardship to the employee for having to pay the extra
premiums, the employee may request a letter from the Canada Revenue Agency Tax Services
Office waiving the equivalent amount of income tax withholdings. Make note that this letter
of waiver does not affect the payment of employer or employee EI premiums.
the new employer may consider the amounts deducted, remitted or paid under the
Employment Insurance Act by the former employer for the year for the employees as if they
had been deducted, remitted, or paid by the new employer.
EI provides special benefits to persons who are not working because of illness, injury or
quarantine. It also allows for maternity, parental (including adoption) and compassionate care
benefits. When employers make similar income protection coverage available to their
employees, the latter may not have to collect benefits from EI, or may collect for a shorter
time. Because this reduces the demands made on the EI system, the government initiated this
program to return the savings to both employers and their employees.
If the level of income provided by the plan meets or exceeds the EI benefits available, the
employee would not file a claim for benefits under the EI program; they would be paid by the
employer’s plan. As this plan would eliminate an employee’s claim for EI benefits, Service
Canada will grant the employer an EI premium rate less than the standard 1.4 times the
employees’ premiums.
To benefit from a reduced employer premium rate, an employer has to apply for the
reduction by:
Employers who are participating in the program do not need to complete renewal
applications each year. Once an employer has been granted a premium reduction, their
participation in the program will automatically continue until they change or cancel their
STD plan. Employers who have been granted a premium reduction will receive a yearly
notice indicating the reduced EI premium rate for the plan, approved according to
information on file.
Employers who qualify and are approved for a premium reduction are required to:
advise Service Canada of any change to the STD plan within 30 days of the effective
date of the change
report the income earned by employees covered under the plan under a different
Payroll Program Account Number from those who are not covered by the plan, which
entails filing separate T4 Summaries and remitting source deductions under separate
account numbers
share at least 5/12 of the savings with the employees to whom the reduced rate
applies
Concerning the 5/12 sharing, the legislation does not specify the way in which employers
must share 5/12 of their savings; however, employers must be prepared to satisfy Service
Canada that they have met this obligation in the year of the savings or within the first four
months of the following year. Some examples of acceptable sharing arrangements are as
follows:
cash rebate (in which case this money is fully pensionable, insurable and taxable)
increased or new employee benefits such as a dental plan, group life insurance,
payment to employees’ benevolent fund or association, lowering prices in staff
cafeteria, more holidays or time off
Example:
An employer would calculate the amount to be shared as follows:
(Note: this reduced rate of 1.262 is for illustration purposes).
Content Review
Employment Insurance (EI) premiums are based on insurable salary, wages, cash
allowances and other remuneration paid to an employee.
Both employees and employers must pay EI premiums. The employee’s premium is
calculated by multiplying the insurable earnings by the premium rate. The employer
rate is 1.4 times the employees’ premiums. Employers remit both portions to the
CRA.
Once an employer has deducted the maximum premiums for the year, no further EI
premiums should be withheld for that year.
Insurable employment includes most employment in Canada under a contract of
service (where an employee-employer relationship exists). Some employment outside
Canada is also insurable.
Employers are not required to re-start EI premiums if the organizational structure
changes as a result of mergers or acquisition, provided the employees’ work is
continuous.
Short-term disability plans that have been approved by Service Canada allow the
employer’s EI premiums to be paid at a reduced rate (less than 1.4 times the
employee’s premiums).
Employers are required to return 5/12 of the savings from the premium reduction to
all employees to whom the reduced rate applies.
Review Questions
12. Keith Tucker earns $2,000.00 in insurable earnings on a bi-weekly basis. Calculate the
Employment Insurance (EI) premiums to be withheld from his next pay as well as the
employer’s premium. Keith will not reach the maximum annual EI premiums on this pay.
The employer does not offer a wage loss reduction plan to the employees.
13. Alex has had $ 837.80 deducted in Employment Insurance premiums to date. What
would be the withholding for Employment Insurance on his next bi-weekly pay of
$3,550.00? Also show the employer’s premium, assuming the employer has a reduced
Employment Insurance premium rate of 1.27.
14. Joanne Keating, who is paid $2,200.00 bi-weekly, also receives the following in addition
to her regular salary each pay: a group term life insurance non-cash taxable benefit of
$6.50 and a taxable cash car allowance of $250.00. Calculate Joanne’s Employment
Insurance premium. She will not reach the annual maximum for EI premiums with this
payment. Also show the employer’s premium, assuming a reduced employer premium
rate of 1.208.
15. Indicate whether the following are subject to Employment Insurance premiums by
indicating ‘yes’ or ‘no’ in the appropriate box.
YES NO
a) retiring allowance
b) supplement for any part of an employment insurance
maternity, parental or compassionate care benefit period
c) bonus paid to an employee
d) cash moving allowance
e) non-cash taxable benefit for stock options
Service Canada considers the ROE the single most important document produced by payroll
as it uses the employment history information on the ROE to decide:
Electronic ROEs are submitted to Service Canada using one of these methods:
through ROE Web using a compatible payroll software to upload ROEs from the
organization’s payroll system
through ROE Web manually entering data online through Service Canada’s website
through Secure Automated Transfer (SAT), which may be performed by a payroll
service provider using bulk transfer technology
The paper ROE is a three part form: the first is the original and the second and third are
copies. The copies are distributed as follows:
copy 1 is given to the employee to submit to Service Canada if they file for EI
benefits
copy 2 is sent to Service Canada
copy 3 is kept by the employer for their records; to comply with records retention
legislation, it must be securely stored for six years after the year to which the
information relates
Paper ROE forms are identified by serial numbers and employers should maintain control of
the ROE forms by recording the serial numbers of all blank forms and keeping a log of
deleted or distributed forms.
A warning is clearly given by Service Canada that states, "It is a serious offence to
misrepresent the reason for issuing an ROE. If you enter a false or misleading reason for
issuing an ROE, you may be subject to fines or prosecution."
Form Issuance
Whether or not the employee intends to file a claim for EI benefits, the ROE must be issued:
When an employee has had, or is anticipated to have, seven (7) consecutive calendar
days with no work and no insurable earnings from the employer. This is called the
seven-day rule.
When an employee’s salary falls below 60% of regular weekly earnings because of
illness, injury, quarantine, pregnancy, the need to care for a newborn or a child placed
for the purposes of adoption, the need to provide care or support of a family member
who is gravely ill with a significant risk of death or the need to provide care or
support for a critically ill or injured child or adult.
Example:
Using the current year calendar provided in the Student Information Guide, for the week
ending August 10, Wheeler Industries issued Records of Employment for the following
employees:
Meredith Jackson: started leave on August 3 for 12 months unpaid maternity leave
Phil Campbell: was injured playing soccer August 5 and will be off work for three
months unpaid sick leave
Francine Rivard: requested, and was approved for, an unpaid eight week compassionate
care leave to take care of her mother beginning August 6
Rita Romano: employment was terminated effective August 7, after two months of
employment
The deadline for issuing an ROE depends on the format used, electronic or paper.
If filing electronically, employers with a weekly, bi-weekly or semi-monthly pay cycle have
five calendar days after the end of the pay period in which there was an interruption of
earnings to issue the electronic ROE.
If the pay cycle is monthly, or every four weeks, employers must issue electronic ROE forms
on the earlier of:
five (5) calendar days after the end of the pay period when the interruption of
earnings begins, and
15 calendar days after the first day of the interruption of earnings
When filing a paper ROE, an employer must issue the ROE within five calendar days of the
first day of an interruption of earnings or the date the employer becomes aware of the
interruption.
It is the responsibility of the employer to maintain accurate records and be able to report the
total hours of insurable employment.
An insurable hour is considered an hour worked and paid within insurable employment.
This is regardless of the fact that the hour of work may have been paid at a higher rate of pay.
Not all employees are paid by the hour. For employees who are paid a fixed salary for a pay
period, the employee-employer contract would need to be reviewed. If the employee is expected
to work for a fixed number of hours in order to receive their salary, then those are the hours that
will be recorded as insurable hours. In a situation where the employee works more than the
contracted amount, only the contracted amount is reported, unless the employee is paid for the
extra hours.
Example:
An employee is paid a salary of $500.00 a week and is expected to work 37.5 hours. Due to
some extra work that came in, the employee actually worked an extra 2.5 hours but was not
remunerated for them. For ROE reporting purposes, only 37.5 hours are recorded.
In the case where there are no set hours of work for the pay, such as in piecework, then the
employee and employer can agree upon a reasonable number of hours. The key word here is
reasonable. Hours that are unreasonably high for the remuneration will be questioned.
Examples of the electronic and paper ROEs are shown on the following pages.
PAPER
Content Review
Service Canada uses the employment history information on the Record of
Employment (ROE) to decide:
o if a person qualifies for Employment Insurance (EI) benefits
o what the benefit amount should be
o how long a person is eligible for these benefits
Review Questions
16. What is the Record of Employment (ROE) and what is it used for?
a. employees in pensionable employment who have reached the age of 18 but are
under the age of 70
b. all employees who are paid a salary
c. employees who are considered to be disabled by either Service Canada or Retraite
Québec
Answer: a
b. is incorrect – some employees who earn a salary, such as employees under the age of
18, do not make contributions to the Canada Pension Plan.
c. is incorrect – employees who are considered to be disabled by Service Canada or
Retraite Québec do not make contributions to the Canada Pension Plan.
2. True or False. Canada Pension Plan contributions should be deducted from an employee
who is 65 years of age and is in receipt of the CPP retirement pension but has not filed an
election to stop paying CPP contributions.
True.
Answer: a
b. is incorrect – the ticket taker worked less than seven days in a year
c. is incorrect – teachers on exchange from a foreign country are not subject to CPP
contributions
4. Which of the following payments and benefits is subject to Canada Pension Plan
contributions?
a. Winona received a $100 gift certificate from her friends at work for her birthday
b. Stephan received a $100 tip at the restaurant where he is head waiter and the
restaurant determined the amount of the tip
c. Harold took a one-year unpaid leave from his job to travel
d. Betty received a payment of $75 from her employer as a reimbursement for office
supplies she had purchased from her own money
Answer: b
a. is incorrect because the gift is from friends, not her employer
c. is incorrect because only income from paid leave is subject to Canada Pension Plan
contributions
d. is incorrect because the $75 is repayment of an expense and not income to the
employee
5. True or False. Canada Pension Plan contributions must be calculated on the severance
payments made to an employee when they leave an organization.
6. Lily was handed a list of new workers and was asked to calculate the monthly Canada
Pension Plan contributions for each worker, where applicable. Complete the questions,
using the worksheets provided.
a. Determine for which of the workers listed the employer must deduct Canada Pension
Plan contributions.
CONTRIBUTE
REASON
YES NO
Michael Between 18 and 70 years
Steven Younger than 18 years
Frank Is an independent contractor and not a
regular employee
Jerry Older than 70 years
Ed Between 18 and 70 years
John Between 18 and 70 years
MICHAEL ED JOHN
Gross Pensionable/Taxable Income $2,000.00 $500.00 $5,500.00
CPP pay period Exemption ($3,500.00 ÷ 12) - 291.66 - 291.66 - 291.66
Contributory Earnings $1,708.34 $208.34 $5,208.34
CPP Contribution Rate (5.45%) x 0.0545 x0.0545 x 0.0545
Employee CPP Contribution $ 93.10 $ 11.35 $ 283.85
Employer CPP Contribution $ 93.10 $ 11.35 $ 283.85
c. Assume it is December and that this is the 12th pay for each of these employees. They
have earned the same pensionable earnings in each month of the current year.
Calculate the employee and employer Canada Pension Plan (CPP) contributions for
each employee for December. (The current annual maximum employee Canada
Pension Plan contribution is $3,166.45 )
MICHAEL ED JOHN
CPP contributions per pay $ 93.10 $ 11.35 $ 283.85
Number of previous pays this year x 11 x 11 x 11
Total CPP contributions to date $1,024.10 $124.85 $3,122.35
Balance to reach maximum ($3,166.45 for
the current year less YTD contributions) $2,142.35 $3,041.6 $ 44.10
Employee CPP Contribution this pay $ 93.10 $ 11.35 $ 44.10
Employer CPP Contribution this pay $ 93.10 $ 11.35 $ 44.10
7. Neil Cheng is a salesperson for Lake City Printing. Neil is paid by commission only. Neil
received a commission payment of $37,450.00 on September 1. There were 219 days
between this and Neil’s last commission payment.
Calculate the Canada Pension Plan exemption to be applied to Neil’s payment, his
contributory earnings, and both his and his employer’s Canada Pension Plan
contributions for this payment. Neil will not reach the annual maximum contribution on
this pay.
Her Canada Pension Plan contributions will commence on the first pay of
October
10. True or False. If an employee leaves one employer during the year to start work with
another employer, the new employer can take into account what the employee’s previous
employer withheld in Canada Pension Plan contributions.
False, the new employer has to deduct Canada Pension Plan (CPP) contributions
without taking into account what the employee’s previous employer had withheld.
11. Mary Smith had applied for her Canada Pension Plan (CPP) retirement pension benefits
which she started receiving when she turned age 65 in March. Mary called the payroll
department in August of the same year to ask why she was still being deducted for
Canada Pension Plan contributions. Explain what your response to Mary would be and
what actions you would take.
Advise Mary that if she wants to stop paying CPP, she will have to provide
proof that she is receiving a CPP retirement pension and will also have to file
a CPT30 election form.
When the completed CPT30 form is received by the employer, make the
required entry in the payroll system to stop future CPP contributions on the
first pay in the following month.
Mary is not entitled to a refund of CPP contributions since the CPT30
election form is only effective once received by the employer.
12. Keith Tucker earns $2,000.00 in insurable earnings on a bi-weekly basis. Calculate the
Employment Insurance (EI) premiums to be withheld from his next pay as well as the
employer’s premium. Keith will not reach the maximum annual EI premiums on this pay.
The employer does not offer a wage loss reduction plan to the employees.
13. Alex has had 837.8 deducted in Employment Insurance premiums to date. What would be
the withholding for Employment Insurance on his next bi-weekly pay of $3,550.00? Also
show the employer’s premium, assuming the employer has a reduced Employment
Insurance premium rate of 1.27.
14. Joanne Keating, who is paid $2,200.00 bi-weekly, also receives the following in addition
to her regular salary each pay: a group term life insurance non-cash taxable benefit of
$6.50 and a taxable cash car allowance of $250.00. Calculate Joanne’s Employment
Insurance premium. She will not reach the annual maximum for EI premiums with this
payment. Also show the employer’s premium, assuming a reduced employer premium
rate of 1.208.
Salary $2,200.00
Car allowance 250.00
Total insurable earnings $2,450.00
EI premium rate (1.58%) x 0.0158
EI Premiums – employee $ 38.71
EI Premiums – employer ($38.71 x 1.208) $ 46.76
Note: Non-cash taxable benefits (group term life insurance) are not insurable.
15. Indicate whether the following are subject to Employment Insurance premiums by
indicating "yes" or "no" in the appropriate box.
YES NO
a) No retiring allowance
b) supplement for any part of an employment insurance
No
maternity, parental or compassionate care benefit period
c) Yes bonus paid to an employee
d) Yes cash moving allowance
e) No non-cash taxable benefit for stock options
16. What is the Record of Employment (ROE) and what is it used for?
The Record of Employment is a form employers must complete for each employee
who has an interruption of insurable employment. Service Canada uses the
employment history information on the Record of Employment to decide: