Canadian Payroll Tax Rates

Current CPP Rates and EI Rates - PIER Reports
CPP and EI Exclusions - How to Pay Employees with Cash
Manual Payroll Journal Entries - Stat Holidays

Payroll Tax Deduction Topics - Part 2

In this chat, you'll find current payroll tax rates that would be of interest to Canadian small business owners and bookkeepers who work from home. Have a cup of tea while you browse through this chat.

Click here for 2013 CPP rates & EI rates.

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Canadian Payroll 4 Part Series Click on an image to go to the chat. 2013 CPP and EI rates are in Chat 2.

Table of Contents for Series Payroll Q&A

Part 1 Payroll Tax Deductions Employee Taxable Benefits

Part 2 Current EI & CPP Rates Paying Employees With Cash

Part 3 Subcontracting Reporting Requirements

Part 4 Minimum Wage Rates Provincial Labor Standards

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You can scroll down the page to find which rate you are looking for or click on one of the QUICK LINKS to go right to the topic you are interested in.

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What you will find in this chat ...

Quick Links to Payroll Tax Rates and Topics

• 2013 EI Rates includes information on EI for self-employed
• 2013 CPP Rates
• 2013 RRSP and Defined Benefits Limits
• BC Minimum Wage Rate Increases May 1, 2011, Nov 1, 2011, and May 1, 2012
• Unclaimed Pay Cheques
• Statutory Holiday Payroll Tax Rates
• The Bookkeeping Forum Q&A Links Relating to Payroll
• Let's Chat About ... What is PIER?
• Let's Chat About ... How to Calculate CPP & EI Manually
• Let's Chat About ... CPP and EI Exclusions
• Let's Chat About ... How to Pay Employees with Cash
• Manual Payroll Journal Entries

Payroll Tax Rates / Limits / Thresholds

Current Payroll Tax Rates - 2013 EI Rates
( EI rates are usually released in September each year)

The 2012 federal budget delivered on March 29 proposed CEIFB set the EI rates as follows: 2013 - 1.88%; 2014 - 1.93%; 2015 - 1.98%; 2016 - 1.95%

EI Rates	2013	2012	2011
Employee Contibution Rate see note 1 & 3	1.88%	1.83%	1.78%
Employer Contibution Rate see note 3	2.632%	2.562%	3.56%
Maximum Insurable Earnings see note 2	$47,400	$45,900	$44,200
Maximum Contribution see note 2	$891.12	$839.97	$786.76
Self Employed Voluntary Program Contribution Rate see note 3	4.512%	4.392%	5.34%
Self Employed Minimum Annual Earnings Required see note 3	$6,342	$6,222	$6,000

Note 1 - On September 30, 2010, the Finance Minister announced that EI premiums for 2011 will rise by no more than 5 cents (.05%) per $100 of insurable earnings (instead of the expected 15 cents (.15%)) to 1.78% ... and 10 cents (.10%) for subsequent years.

However, on November 7, 2011, the Finance Minister announced EI premiums will only rise by 5 cents to 1.83% for 2012 due to the global economic slowdown.

Then on June 29, 2012 Bill C-38: the Jobs, Growth and Long-term Prosperity Act was given Royal Assent. One of the elements in this bill is to "ensure stable, predictable EI premium rates by limiting premium rate increases to 5 cents each year until the EI Operating Account is in balance, and then moving to a seven-year break-even rate".

Note 2 - 2013 EI maximum insurable earnings were released on September 14 by CEIFB. The operating account is expected to breakeven in 2013. Here are your 2013 amounts:

2013 EI maximum insurable earnings are $47,400. The maximum amount in 2012 was $45,900.

2013 EI maximum contribution is $891.12. The maximum amount in 2012 was $839.97.

Note 3 - Employers will continue to contribute 1.4 times the employee rates. Self-employed sole proprietors do NOT make EI contributions unless they have opted into the voluntary program. If they have joined, they pay the same rates as employees.

Who sets the EI rates?

The Canada Employment Insurance Finance Board (CEIFB) was established in June 2008 to improve the governance and management of the EI Account. It reports to the Minister of Human Resources and Social Development.

The Employment Insurance Commission will continue to be responsible "for supporting the EI appeal system, making regulations with the approval of the Governor in Council and reviewing and approving policies related to EI program administration and delivery."

source: http://www.rhdcc-hrsdc.gc.ca/eng/employment/ei/ceifb/index.shtml

EI For The Self-Employed

The Canada Revenue Agency (CRA) introduced new Employment Insurance (EI) measures for self-employed persons, that came into effect in January 2010. Claims** can be made after twelve months of participation in the program which meant people were first eligible in January 2011, if they were registered before April 1, 2010. This is a voluntary program.

"If you are a self-employed person, or if you are employed by a corporation and you control more than 40 percent of the voting shares of that corporation, you will be able to voluntarily enter into an agreement, through Service Canada, to be eligible for EI special benefits ... If you enter into such an agreement, you will be required to calculate and pay EI premiums on your tax returns for the applicable years."

Independent workers (taxi drivers, fishermen, hair dressers) are NOT eligible for this program as they are eligible for regular EI.

You can find more details on how to apply on the Service Canada website at A to Z Services Index> S> Self Employed EI benefits ... or you can visit my favorite tax website for a factual, easy to read break down. The special benefits are listed as well as qualifications to enter the program.

The cost will be the same premiums as salaried employees. You will NOT have to pay the employer portion which is 1.4 times the employee rate.

**One caveat - This program does not include regular EI benefits. Once you collect EI from this program, you will not be allowed to remove yourself from it (if you stay self-employed) ... so take time to make your decision before increasing your home business taxes.

Initial reference: Government of Canada news release November 3, 2009

Current Payroll Tax Rates - 2013 CPP Rates
( CPP rates are usually released in early November each year)

EE = employee's portion, ER = employer's portion

CPP Rates	2013	2012	2011
EE / ER Contibution Rate see note 1 & 5	4.95%	4.95%	4.95%
Basic Exemption see note 2	$3,500	$3,500	$3,500
Maximum Pensionable Earnings see note 3	$ 51,100	$50,100	$48,300
Maximum Contribution see note 4	$2,356.20	$2,306.70	$2,217.60
Maximum Monthly Contribution see note 4	$196.35	$192.22	$184.40
Self Employed Contribution Rate see note 5	9.90%	9.90%	9.90%
Self Employed Maximum Contribution see note 5	$4,712.40	$4,613.40	$4,435.20
Self Employed Maximum Monthly Contribution see note 5	$392.70	$384.45	$396.60

Note 1 - CPP payroll tax rates for employers and employees have held steady at 4.95% since 2003 and will NOT be changing in 2013 as it was capped in 2003 (see resource note below).

Note 2 - first $3,500 of earnings continue to be exempt. However, thresholds and maximum contributions increase each year as average weekly salaries increase.

Note 3 - 2013 CPP maximum pensionable earnings are $51,100. The rate in 2012 was $50,100.

Note 4 - 2013 CPP maximum contribution is $2,356.20 ($196.35 per month). The maximum amount in 2012 was $2,306.70 ($192.22 per month).

Note 5 - Employers will continue to contribute 1.0 times the employee rates. This means the maximum self-employed contribution is double ($2,356.20 x 2 = $4.712.40 or $392.70 per month).

Resource: The CPP Payroll Tax Hike: Macroeconomic Transition Costs and Alternatives by Peter Dungan Institute for Policy Analysis published in Canadian Public Policy Vol. XXIV, No. 3 1998

Who invests the CPP Contributions?

The Canada Pension Plan Investment Board (CPPIB) was created in December 1997 by an Act of Parliament to manage the CPP investment portfolio. This federal Crown corporation operates like a private sector investment management company with several legislative safeguards to protect it from political interference.

Their role is "to invest the CPP Fund to maximize returns without undue risk of loss".

CPPIB does not administer CPP benefits; this is done by The Canada Pension Plan. The Chief Actuary of Canada reviews the funding of the CPP program every three years.

source: http://www.cppib.ca/About_Us/

Is CPP Sustainable For Future Generations?

"The Budget 2012 announced that the 2010–2012 triennial review of the Canada Pension Plan (CPP) confirms the financial sustainability of the Plan, as reported by the Chief Actuary of the CPP, for at least the next 75 years at the current contribution rate."

source: http://www.cppib.ca/About_Us> sustainability backgrounder; Department of Finance's Economic & Fiscal Implications of Canada's Aging Population report

Historical Canadian Payroll Tax Rates

Historical rates (1997 - 2011) for CPP and EI can be found on CRA's website under Business>Payroll> Calculating deductions> CPP> CPP contributions, maximums and exemptions ... and Business> Payroll> Calculating deductions> EI> EI premium rates and maximums respectively.

LET'S CHAT ABOUT ...

How to Proof CPP and EI ... Payroll Tax Rates

In this day and age of computers, sometimes it is hard to know and understand how a number is calculated. Have you ever wanted to figure out your CPP and EI deductions by hand?

If you don't have a payroll program or service, and your payroll requirements are minimal, you can go to the CRA website and use their Payroll Deductions Online Calculator (PDOC). It will calculate the correct payroll tax rates for each employee.

Generally, here is how to calculate the employee and employer's portion for CPP and EI manually so you can spot check your overall payroll tax rates for CPP contributions and EI premiums.

Remember, this is the calculation for a single payroll run. If you are proofing your full year, omit the "divide by the number of pay periods in the year" part of the calculation.

Calculation of payroll tax rates for CPP contributions - The gross payroll less the basic exemption ($3500 per employee divided by the number of pay periods in the year) times the CPP contribution rate of 4.95% (2013) equals the CPP premium (employee portion). The employer portion is equal to the employee contributions.

For example: Gross Pay of $2,500 - ($3,500 / 24 pay periods = $145.83) x 4.95% = $116.53 employee CPP contribution + $116.53 CPP employer portions = $233.06 total CPP contribution remittance due to CRA for this one employee.

Year	CPP Maximum Contribution Per Employee	CPP Maximum Pensionable Earnings Per Employee	CPP Basic Exemption Per Employee	CPP Contribution Rate	CPP Employer Portion
2013	2,356.20	51,100	3,500	4.95%	match
2012	2,306.70	50,100	3,500	4.95%	match
2011	2,217.60	48,300	3,500	4.95%	match
2010	2,163.15	47,200	3,500	4.95%	match
2009	2,118.60	46,300	3,500	4.95%	match
2008	2,049.30	44,900	3,500	4.95%	match

Calculation of payroll tax rates for EI premiums - The gross payroll times the EI premium rate of 1.88% (2013) equals the EI premium (employee portion). The employer portion is 1.4 times the employee premiums. Note there is no basic exemption for EI premiums.

For example: Gross Pay of $2,500 x 1.88% = $47.00 employee EI premium + ($47.00 x 1.4 EI employer portion) = $112.80 total EI premium remittance due to CRA for this one employee.

Year	EI Maximum Premiums Per Employee	EI Maximum Insurable Earnings Per Employee	EI Basic Exemption Per Employee	EI Premium Rate	EI Employer Portion
2013	891.12	47,400	nil	1.88%	1.4 times
2012	839.97	45,900	nil	1.83%	1.4 times
2011	786.76	44,200	nil	1.78%	1.4 times
2010	747.36	43,200	nil	1.73%	1.4 times
2009	731.79	42,300	nil	1.73%	1.4 times
2008	711.03	41,100	nil	1.73%	1.4 times

Now you can quickly verify that your payroll taxes were calculated using the proper payroll tax rates.

Employees who have over payments to EI and CPP in the year receive a refund when they file their annual personal tax return.

Overpayments can happen if an employee has more than one job or retires during the year. The employer portion of the overpayment is NOT refundable.

You will want to check the CRA payroll tables each year to determine the maximum pensionable / insurable earnings, the contribution/premium rates and maximum contributions / premiums.

2013 RRSP and Defined Benefit Limits
Rates Used to Calculate PA, PSPA, PAR

Following are the limits for 2013 with regards RRSP and defined benefit limits:

• MP limit - $24,270 restricted to 18% of compensation for PA purposes
  
• RRSP limit - $23,820
• DPSP limit is half of the MP limit and restricted to 18% of compensation for PA purposes - $12,135
• YMPE limit - $51,100
• Defined benefit limit is 1/9 of the MP limit - $2,696.67

Click here for historical rates back to 1990.

Acronyms Index and Definitions:

• PA - Pension adjustment ensures that all taxpayers at comparable income levels will have access to comparable tax assistance, regardless of the type of plan to which they belong. It is limited to 18% of earned income.
  
• PSPA - Past service pension adjustment ensures benefit upgrades and past service purchases to defined benefit pension plans are charged against the 18% limit. As past service event is broadly defined as any transaction, event or circumstance that causes a member's post-1989 benefits to increase.
  
• PAR - Pension adjustment reversal is used to restore an individual's RRSP room when a member terminates their membership in a benefit provision of a registered pension plan or deferred profit sharing plan (DPSP).
• MP - Money purchase is an RPP. Unlike defined benefit plans, MPPs shift the risk of the retirement income level to the employee instead of the employer.
  
• RPP - Retirement pension plan is an arrangement by an employer or a union to provide pensions to retired employees in the form of periodic payments.
  
• RRSP - Registered retirement savings plan allows tax deferral on contributions until retirement income commences. Earnings in the plan remain tax-free and payments out of an RRSP are taxable on receipt.
  
• DPSP - Deferred profit sharing plan is an arrangement under which an employer may share profits from their business with all or a designated group of employees to provide pensions.
  
• YMPE - Year's maximum pensionable earnings is set by the government. It is the amount used in calculating annual CPP contributions.
  

Source: CRA website

LET'S CHAT ABOUT ...

What is PIER? ... And What To Do If You Get One

PIER stands for Pensionable and Insurable Earnings Review. It is a review CRA performs every year on T4 slips and T4 summaries submitted. They examine whether the correct payroll tax rates were used in your source deductions, and if remittances and reporting were adequate.

If you receive a PIER report (usually sometime during the summer), CRA has found a payroll tax rate deficiency in your records for the year under review. OOPS! The report comes with detailed instructions on how to proceed.

Here are two references on the CRA website that should help you deal with any CPP or EI under/over payments ... as you cannot recover shortfalls by adjusting the employee's income tax deductions.

A to Z index> Payroll> C> CPP ... Overpayment (includes information on recoveries as well)

A to Z index> Payroll> E> EI, Employment Insurance> EI overpayment and recovering EI premiums

If you are looking for more information on PIER reports, here is your reference:

A to Z index> Payroll> P> PIER-Employment Insurance (EI)

Statutory Holiday Payroll Tax Rates

To determine the pay rates for statutory holidays, refer to your provincial labour standards if you are under provincial regulations ... or federal labour standards for those under federal jurisdiction.

For BC, here is the link to the BC Ministry of Labour Statutory Holidays Fact Sheet ...

labour.gov.bc.ca/esb/facshts/statutory_holidays.htm

The Tax Detective blog on November 19, 2010 mentions that in B.C., "if a stat holiday falls on a regular day off, an eligible employee is to be paid an average day's pay, but the employer isn't required to give the employee another day off. Unless you have a very generous employer, don't expect to be paid for the statutory holidays and to get a day off in lieu, it will be one or the other, not both."

It should also be noted that Boxing Day is not a statutory holiday in B.C.

For Alberta ...

employment.alberta.ca/documents/WRR/WRR-ES-FI_esfs1.pdf

For Ontario ...

www.labour.gov.on.ca/english/es/pubs/guide/publicholidays.php

For federal standards and all other provinces / territories, try this link ...

www.canadabusiness.ca/eng/guide/1560/

LET'S CHAT ABOUT ...

Who is excluded from paying CPP and EI premiums?

As a small owner manager, the employer portion of payroll tax rates burdens your payroll. The question you need to ask is ... when is it mandatory to pay CPP contributions and EI premiums to your employees?

CPP is a mandatory deduction for anyone employed between the ages of 18 and 70.

Everyone who is employed must contribute to EI. There are no age restrictions. Employees with earnings under $2,000 receive a 100% refund when they file their tax return. Those who earn over $2,000 may receive a partial refund calculated as follows: premiums paid - (earnings - $2,000) = refund.

The above are general rules. There are a lot of exceptions. So now let's answer that question by looking at when CPP and EI do not have to paid by the employer.

Some income is exempt from paying CPP contributions and EI premiums.

There used to be a nice short list of what was exempt. In 2012, CRA revised the site. While it is more comprehensive, it is harder to locate what is exempt now. Under the new site, you have two places to look:

(1) Special payments chart

(2) Benefits and allowances topical search

Another spot that might be useful if you are researching this area of payroll tax rates is CPP/EI Explained which discusses various rulings.

LET'S CHAT ABOUT ...

How to Pay Employees with Cash

Jennifer Thieme, ezine author has an excellent article on How to Pay Employees with Cash. Just bing/google it to find the article.

Her method uses QuickBooks®. The bonus to you? Her method protects your business while accommodating the employee.

A short recap

• There must be a paper trail to prove payment.
• A pay stub detailing how the pay cheque was calculated should still be issued.
• There must be evidence that the employee received their pay for the period.

Why is this necessary? It protects your business in the event of an employee dispute or a payroll audit.

I would handle the payroll run a bit differently though than the article suggests.

My choice would be to run these payroll cheques through a QuickBooks bank account type called "Payroll - Cash". This account would act as a clearing account. After each payroll disbursement, the account balance should be zero. Here's how it would work.

Step One - Do a separate payroll run for cash. Enter your payroll data as usual applying the proper payroll tax rates. This will also create pay stubs for each employee. Print out your summary payroll report.

Step Two - In your accounting software package, release the pay "cheques" issued in the employee's name. The memo field could mention that it was paid in cash. Each "cheque" would be coded to the Payroll-Cash account. Print out the pay stub for each employee.

Step Three - On or about payday, write a cheque from your regular bank account issued in your name for the exact amount of the cash payroll run (calculated in step one), ensuring the memo area of the cheque is completed and stating the payroll period. The cheque would be coded to the Payroll-Cash account. Attach the payroll report as backup.

Check Point on Account Balance - The payroll "cheques" offset the cash withdrawal from your bank. Your clearing account should now be zero if you did everything correctly.

Step Four- Prepare a pay envelope that contains each employee's cash payment AND their pay stub (which you prepared in step two).

Step Five - When you give the employee their pay envelope, have them sign for the pay either in a log (like at Canada Post when you pickup a registered letter/parcel) or on your copy of the pay stub. Have the employee open the envelope in front of you and count his/her pay.

Check Point on Payroll Tax Rates - I would like to emphasize that your payroll tax rates are the same as any employee paid by cheque or direct deposit. You would include and pay your payroll taxes on these cash payments in with your normal payroll source deduction remittance on form PD7A.

Make sure you learn CRA's rules on hiring temporary / casual labor so you don't get into trouble if/when audited.

This concludes my notes on payroll tax rates for Canadian bookkeepers. If you would like me to present any other information, please drop me a line.