Here's Everything You Need To Know About CPP On Pay Stubs
As an employer in Canada, it's essential to understand the different deductions on your employees' pay stubs. One of the most important deductions you'll see is the Canada Pension Plan (CPP).
The Canada Pension Plan is a mandatory retirement savings plan for all eligible employees in Canada. Employers and employees both contribute a certain percentage of the employee's earnings to the CPP. The contributions are then invested by the Canada Pension Plan Investment Board (CPPIB) to help ensure that Canadians have a secure and stable source of retirement income.
How is CPP Calculated?
In recent years, the CPP contribution rate for employees in Canada has changed each year. In 2023, the rate is 5.95% of their gross salary. The rate has been gradually increasing but is expected to stay at 5.95% going forward. A new additional CPP component on higher earnings will be introduced in 2024; more on that in our next blog post. The maximum amount is also set by the government each year. For the 2023 year, the maximum pensionable earnings amount was $66,600. Note that CPP premiums are not paid on the first $3,500 of an employee’s earnings. This means that the maximum CPP contribution for the year is $3,754.45 ($63,100 X 5.95%).. Employers also contribute an equal amount to their employees' CPP. While this may sound intimidating, pay stub generators like OneTwoPay do these calculations for you. While it’s always advisable to review calculations and ensure they’re in keeping with your numbers, our reliable calculations are one of the biggest perks of using OneTwoPay.
It is important to pay attention to the maximum contributions that should be deducted for an employee. i.e. If / when $3,754.45 has been deducted for an employee in 2023, no more CPP should be deducted for the rest of the year. Payroll services like OneTwoPay automatically detect this and stop deducting CPP premiums when it happens.
When it comes to showing CPP on pay stubs, it's important to provide clear and accurate information. Typically, pay stubs will show the employee's gross earnings, followed by a deduction for CPP contributions.
Ensuring Accuracy in CPP Contributions
To ensure accuracy in CPP contributions, employers should regularly review and reconcile their payroll records with the Canada Revenue Agency (CRA) to ensure that their CPP contributions are correct. Employers should also ensure that any updates or changes to employees' payroll information are reflected in their CPP contributions.
In the event of any discrepancies or errors in CPP contributions, employers should take immediate steps to correct them. Failure to do so may result in penalties or fines from the CRA.
Helping Employees Understand CPP on Pay Stubs
While it's important for employers to understand CPP on pay stubs, it's equally important for employees to understand the numbers they see on their pay stubs. Here is a useful summary of CPP and EI deductions from the CRA that employers can share with their employees. Employers can help their employees by providing clear and concise information about CPP contributions, including how much they contribute and how it impacts their retirement savings.
Employers can also provide resources or information on how employees can calculate their expected CPP retirement benefits, as well as information on other retirement savings options, such as registered retirement savings plans (RRSPs) or tax-free savings accounts (TFSAs).
Have questions about this? We're here to help. Open a chat at OneTwoPay.ca, and we'll try to answer any questions you have.
