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Canadian Payroll Tax Rates
Payroll Tax Deduction Topics - Part 2

by L. Kenway BComm CPB Retired

In this chat, you'll find a handy reference of current payroll tax rates that would be useful to Canadian small business owners and bookkeepers working from home. Make Bookkeeping-Essentials YOUR practical solutions RESOURCE for basic accounting help.

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Payroll Tax Rates / Limits / Thresholds

Current Payroll Tax Rates - 2023 EI Rates
( EI rates are usually released in September each year)

You can find EI projections to 2023 at https://www.canada.ca/en/employment-social-development/programs/ei/ei-list/reports/premium/rates2023.html

EI Rates	Employee Contribution Rate see note 1 & 3	Employer Contribution Rate see note 3	Maximum Insurable Earnings see note 2	Maximum Contribution see note 2	Self Employed Voluntary Program Contribution Rate see note 3	Self Employed Minimum Annual Earnings Required see note 3
2023	1.63%	2.282%	$61,500	$1,002.45	1.63%	$8,255
2022	1.58%	2.212%	$60,300	$952.54	1.58%	$8,092/$5,289
2021	1.58%	2.212%	$56,300	$889.54	1.58%	$7,555/$5,000
2020	1.58%	2.212%	$54,200	$856.36	1.58%	$7,279
2019	1.62%	2.268%	$53,100	$860.22	1.62%	$7,121
2018	1.66%	2.324%	$51,700	$858.22	1.66%	$6,947
2017	1.63%	2.282%	$51,300	$836.19	1.63%	$6.888
2016	1.88% 1.60% w credit	2.632% 2.24% w credit	$50,800	$955.04 $812.80	1.88%	$6,820
2015	1.88% 1.60% w credit	2.632% 2.24% w credit	$49,500	$930.60 $792.00	1.88%	$6,645
2014	1.88%	2.632%	$48,600	$913.68	1.88%	$6,515
2013	1.88%	2.632%	$47,400	$891.12	1.88%	$6,342
2012	1.83%	2.562%	$45,900	$839.97	1.83%	$6,222
2011	1.78%	2.492%	$44,200	$786.76	1.78%	$6,000

Note 1 - On September 15, 2020, the federal government froze the employment insurance premium rates for the next two years as a relief measure due to the COVID-19 pandemic.

Other historical announcements for background and backward:

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".

Subsequently, the Harper government announced on September 9, 2013 they were freezing EI rates for three years at the 2013 rates.

On September 11, 2014 a Small Business Job Credit was introduced effectively reducing the 1.88% EI premium to 1.60% for 2015 and 2016. It applies to any business with EI premiums of $15,000 or less. The Small Business Job Credit expired with 2016 tax year but you can still get credit if you are filing back taxes.

Beginning in 2017, the EI rate is based on OSFI forecasted breakeven rate, however increases are not to exceed $0.05.

Note 2 - 2023 EI maximum insurable earnings were published on September 14, 2022 by OSFI. The 7-year breakeven rate is forecast at 1.81% of insurable earnings. Here are your 2023 amounts:

2023 EI maximum insurable earnings are $61,500. The maximum amount in 2022 was $61,300.

2023 EI maximum contribution is $1002.45.  The Small Business Job Credit expired in 2016. The maximum amount in 2022 was $952.74.

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.

Employment and Social Development Canada announced August 20, 2020 on their website that "self-employed workers who have opted in to the EI program to access special benefits may use a 2020 earnings threshold of $5,000 for claims established between January 3, 2021 and September 25, 2021. This is lower compared to the previous threshold of $7,555."

On September 14, 2021,  the Commission's report titled "Summary of the 2022 Actuarial Report on the Employment Insurance Premium Rate" stated that "for 2022, the prescribed amount of self-employed earnings is $8,092. However, special temporary measures are lowering this amount to $5,289 for claims established between September 26, 2021 and September 24, 2022."

 

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."

In September 2013, the government suspended the CEIFB permanently. The Canada Employment Insurance Commission (the Commission) will be responsible for rate setting from 2017 forward.

sources: www.rhdcc-hrsdc.gc.ca/eng/employment/ei/ceifb/index.shtml and www.esdc.gc.ca/en/reports/ei/premium/rates2015.page?

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-2023 CPP Rates
(CPP rates are released in early November each year)

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

CPP Rates	2023	2022	2021	2020	2019	2018	2017	2016	2015	2014
Employee / Employer Contribution Rate see note 1	5.95%	5.7%	5.45%	5.25%	5.10%	4.95%	4.95%	4.95%	4.95%	4.95%
Basic Exemption see note 2	$3,500	$3,500	$3,500	$3,500	$3,500	$3,500	$3,500	$3,500	$3,500	$3,500
Maximum Pensionable Earnings see note 3	$66,600	$64,900	$61,600	$58,700	$57,400	$55,900	$55,300	$54,900	$53,600	$52,500
Maximum Contribution see note 4	$3,754.45	$3,499.80	$3,166.45	$2,898.00	$2,748.90	$2,593.80	$2,564.10	$2,544.30	$2,479.95	$2,425.50
Maximum Monthly Contribution see note 4	$312.87	$291.65	$263.87	$241.50	$229.08	$216.15	$213.68	$212.03	$206.66	$202.13
Self Employed Contribution Rate see note 5	11.9%	11.40%	10.90%	10.50%	10.2%	9.90%	9.90%	9.90%	9.90%	9.90%
Self Employed Maximum Contribution see note 5	$7,508.90	$6,999.60	$6,332.90	$5,796.00	$5,497.80	$5,187.60	$5,128.20	$5,088.60	$4,959.90	$4,851.00
Self Employed Maximum Monthly Contribution see note 5	$625.74	$583.30	$527.74	$483.00	$458.12	$432.30	$427.35	$424.05	$413.33	$404.25

Note 1 - CPP payroll tax rates for employers and employees increased to 5.95% up from 5.70%.  The rate was capped at 4.95% for 2013 to 2018. The rates began changing in 2019 due to the CPP Enhancement implementation on January 1, 2019. Prior to 2019,  CPP retirement income replaced one quarter of average work earnings. Beginning in 2019, CPP retirement income will eventually one third of average work earnings. It will gradually increase by 14% by 2025.

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 - 2023 CPP maximum pensionable earnings are $66,600. The rate in 2022 was $64,900. 

Note 4 - 2023 CPP maximum contribution is $3,754.45 ($312.87 per month). The maximum amount in 2022 was $3,499.80 ($291.65 per month). 

Note 5 - Employers will continue to contribute 1.0 times the employee rates. This means the maximum self-employed contribution is double ($3,754.45 x 2 = $7,508.90 or $625.74 per month). A good practice for the self-employed is to set aside monies monthly or make quarterly installments to pay your income tax and CPP that will become due in April each year.

Resource: November 1, 2022 Canada Revenue Agency announces maximum pensionable earnings for 2023

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. The last review for the period 2016-2018 was November 2019 .

source: www.cppib.ca/About_Us/

Is CPP Sustainable For Future Generations? Yes.

Every three years the Chief Actuary issues a report that reviews the financial state of the Fund and measures its sustainability. "The most recent triennial report (2018) projected that CPP is sustainable over a 75-year project period." 

The Chief Actuary's projection is based on the assumption that the CPP Fund will achieve a 4.0% real rate of return on Base CPP Assets over the 75-year projection period of his report and 3.4% real rate of return on Additional CPP Assets. The previous 2016 report was based on a 3.9% real rate of return.

Starting in 2021, the CPP is expected to begin using a small portion of CPPIB investment earnings to supplement the contributions that constitute the primary means of funding benefits.

source: cppib.com/en/our-performance>cpp-sustainability

Historical Canadian Payroll Tax Rates

Historical rates (1997 - 2022) for CPP and EI can be found on CRA's website (https://www.canada.ca/en/revenue-agency). The easiest place on the new website (which is really hard to navigate) is to go to the "All Rate" page and follow the links. The file path is Canada.ca> Canada Revenue Agency> Payroll> Calculate deductions and contributions> Canada Pension Plan (CPP) > What are the CPP contribution rates, maximums and exemptions? ...  Canada.ca> Canada Revenue Agency> Payroll> Calculate deductions and contributions> Employment Insurance (EI) respectively.

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.  I like to do this when I first setup payroll to ensure I've done it correctly.

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% (2016) 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 Contri- bution Rate	CPP Employer Portion
2017	2,564.10	55,300	3,500	4.95%	match
2016	2,544.30	54,900	3,500	4.95%	match
2015	2,479.95	53,600	3,500	4.95%	match
2014	2,425.50	52,500	3,500	4.95%	match
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 1.63% (2017) 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 1.63% = $40.75 employee EI premium + ($40.75 x 1.4 EI employer portion) = $97.80 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
2017	836.19	51,300	nil	1.63%	1.4 times
2016	955.04	50,800	nil	1.88%	1.4 times
2015	930.60	49,500	nil	1.88%	1.4 times
2014	913.68	48,600	nil	1.88%	1.4 times
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.

2023 RRSP and Defined Benefit Limits
Rates Used to Calculate PA, PSPA, PAR

Following are the limits for 2023 with regards RRSP and defined benefit limits:

• MP limit - $31,560 restricted to 18% of compensation for PA purposes
  
• RRSP limit - $30,780
• DPSP limit is half of the MP limit and restricted to 18% of compensation for PA purposes - $15,780
• YMPE limit - $66,600
• Defined benefit limit - $3,506.67 (1/9 of the MP limit for 2024)
• TFSA limit - $6,500 announced November 14, 2022. 2022 limit was $6,000.

The 2024 RRSP limit will be the prior year's MP limit - $31,560.

Historical rates back to 1990 can be found on CRA's website (canada.ca/en/revenue-agency). The new website is really hard to navigate but I found the easiest way to find what you are looking for is to search for the "All Rate" page and follow the link called MP, DB, RRSP, DPSP, and TFSA limits and YMPE".

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.
  
• TFSA - Tax free savings account

Source: CRA website

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 are the links to the BC Ministry of Labour Statutory Holidays ...

https://www2.gov.bc.ca/gov/content/employment-business/employment-standards-advice/employment-standards/statutory-holidays

https://www2.gov.bc.ca/gov/content/employment-business/employment-standards-advice/employment-standards/statutory-holidays/calculate-statutory-holiday-pay

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 Easter Sunday, Easter Monday, and Boxing Day are not a statutory holidays in B.C.

For Alberta ...

alberta.ca/general-holidays-pay.aspx

For Ontario ...

ontario.ca/document/your-guide-employment-standards-act-0/public-holidays

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

canada.ca/en/employment-social-development/programs/employment-standards/holidays.html

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 including tips/gratuities controlled by the employer.

Employer Direct Deposit Rules 

PaySavvy posted a great blog on the various direct deposit rules for employers across Canada. As you peruse the blog, you will notice that each province/territory is similar but different.

Generally, payroll direct deposits must be paid into the employee's account NOT third party accounts and side deals are illegal.

While it is important to be knowledgeable of and in compliance with the current payroll tax rates ... being aware of the Employment Standards Act in your province ... which includes the rules around payroll direct deposits ... is critical for employers.

Information Source: PaySavvy Blog June 27, 2013 The Shocking Truth About Paying Employees Via Direct Deposit (You Probably Didn't Know About) by James Plett

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.

See you on the next page ...
Your tutor Lake