Canada’s Pension Plan (CPP) is a monthly taxable benefit replacing part of your income when you retire. Upon qualification, you receive the Canadian Pension Plan retirement pension for the rest of your life. It helps to know the eligibility of employees for CPP contributions. The employee must:
- Be physically fit under the CPP
- Be of the ages between 18 and 69 years
What Are Employer Obligations Under the CPP?
As an employer, you must deduct Employment Insurance (EI) premiums and CPP contributions from the amounts you pay your employees. You will remit the payment from the Canada Revenue Agency (CRA).
The CPP also requires you to:
- Withhold the CPP contributions from your company’s payroll
- Report CPP contributions on your business tax returns
- Lastly, pay employee contributions
How Much Can International Employers Contribute to the Canadian Pension Plan?
The Canadian government determines how much employees and employers contribute to the CPP. The provisions include:
- Basic exemption amount: This is the minimum amount an employee should earn before making CPP contributions. Any Canadian employee aged at least 18 years and earning at least $3500 must contribute to the CPP.
If you are an employer, you pay half of the set contributions while your employee will pay the other half.
- Contribution rate: This is the percentage of salary an employee and employer makes to the CPP. Your client will pay the employer and employee contribution if they’re self-employed. The payment scales up to the self-employed maximum.
- Maximum employee and employer contribution: An employer and employee must make annual contributions to the CPP.
- Maximum contributory pay: Employers and employees make CPP contributions on an income per the expected earnings.
What Is the Difference Between the CPP and the Quebec Pension Plan (QPP)?
CPP is for individuals working outside Quebec, while QPP is for people working in Quebec. Quebec is a French-speaking region located in North-Eastern Canada. Each guideline provides survivor benefits and retirement disability to employees who have made suitable contributions.
Why Does Quebec Have a Separate Pension Plan?
Quebec has a separate pension plan to provide financial protection to people working in Quebec, which is crucial in the event of:
- Disability
- Retirement
- Death
The Quebec Pension plan operates as a mandatory public insurance policy. QPP provides support to the families in Quebec following the financial contributions from the region’s employers and workers.
Quebec employers and workers pay higher contributions than their peers in other provinces. This variance follows a decision made in the mid-1960s to launch QPP and enhance economic development. If an employee moves outside Quebec, they retain their right to receive the underlying retirement pension.
How Can Employers Determine Canadian Pension Plan Contributions?
Determining the CPP contribution enables employers to know their proportions in the scheme. To formulate the employer’s CPP contributions:
- Calculate the number of yearly periods
- Formulate the pensionable income for the pay period. That includes summing up the employee’s gross income to the allowances and taxable benefits.
- Divide the minimum exemption by the pay periods to get the exemption amount
- Subtract the pay period exemption in step 3 from pensionable income in step 2 to get the amount qualifying for CPP contributions.
- Formulate the CPP contributions by multiplying the current CPP rate by the total in step 4. It’s the amount the employer will deduct from the employee’s pay. It is also the amount the employer should pay on the employee’s behalf.
Are You After the Canadian Pension Plan?
The CPP mandates you to make contributions and Employment Insurance (EI) premiums for each worker as an employer. The Canadian government sets rates each year, determining the value of the CPP.
At BrightR Limited, we strive to provide meaningful consultancy on appropriate compliance measures to the CPP as an employer. Contact us today and benefit from our vast consulting options.
