The Canada Pension Plan (CPP) began enhancement and modifications in 2019. The goal of the enhancements is to ensure that Canadians have access to higher benefits and greater financial stability through a small increase in the amount they contribute to the CPP.
This post aims to unpack the Canada Pension Plan (CPP) enhancements scheduled for 2024 and their implications for businesses, payroll, CRA compliance, and employee pension plans.
Québec employer or employee? Check out our post on the QPP Enhancement coming in 2024.
Table of Contents
Payroll Changes
Starting in 2024, CPP enhancement will introduce a new, higher earnings limit, also known as the year’s additional maximum pensionable earnings.
This new limit will be 7% higher than the original year’s maximum pensionable earnings. For instance, if the original limit was $69,000, the new limit would be $73,830 in 2024.
More on the CPP enhancement.
What You Should Do:
- Don’t panic: You use PayEvo for your payroll, you have nothing to worry about. Our team of dedicated payroll experts is working hard to ensure that the 2024 CPP enhancements will not alter the way that you process payroll. Employees will see the CPP2 contributions as a new line on their T4s.
- Budget accordingly: Matching CPP contributions isn’t cheap, and it’s about to get more expensive. With employees able to access a higher limit and contribute more to CPP, be prepared to incur higher matching costs. Remember that employer amounts are tax-deductible, find out more about this process on our helpdesk.
Payroll Documentation
The enhanced CPP contributions, also known as CPP2, will not appear as a separate line in your payroll documentation in PayEvo, though your employees will see it as a separate line on their T4s.
What You Should Do:
- Communication: This is a great opportunity to let your employees know about the upcoming changes to CPP, you could even share this post with your team.
Understanding the Calculation
Readers may express concern about the 7% increase in the year’s additional maximum pensionable earnings for 2024, believing it to be a hefty hike. To offer clarity, let’s break down how this percentage works in the real world.
Before Enhancement
Suppose the original maximum pensionable earnings was $69,200. At a contribution rate of 5.95%, an employee would contribute:
$69,200 × 0.0595 = $4,117.40 annually.
After Enhancement
In 2024, the new additional maximum pensionable earnings due to the 7% increase will be $73,830. The calculation is tiered:
- Up to $69,200: You will still pay 5.95% as usual.
- From $69,200 to $73,830: You will pay 4%.
Calculating CPP Contributions
So the new annual contribution would be:
(69,000 × 0.0595) + [(73,830−69,000) × 0.04]
= $4,105.50 + [4,830 × times 0.04]
= $4,105.50 + $193.20
= $4,298.70
Your new annual contribution for 2024, under the enhanced CPP rules, would be $4,298.70.
Quebec Pension Plan (QPP) Similarities
The QPP is also experiencing similar rate changes. Employers and employees in Quebec should be aware that the same principles apply.
CRA Compliance
With the enhancement, you’re also responsible for remitting the higher CPP contributions to the Canada Revenue Agency (CRA). Essentially, you’ll be required to remit both the original and enhanced CPP contributions, each calculated based on their respective maximum pensionable earnings.
What You Should Do:
- CRA Reporting: Double-check that your remittance reports are being sent on payroll, follow our guide here.
- Auditing: It may be wise to conduct internal audits to ensure compliance with the CRA regulations. Certain plans can run a PIER report, to recalculate CPP, EI, QPP and QPIP to see if there are any deficiencies. See if you qualify here.
Impact on Employees
The CPP enhancements not only impact your payroll but also influence your employees’ retirement benefits. Essentially, the enhanced CPP will provide increased retirement, survivor, and disability pensions for all contributors.
The increment is a long-term adjustment and will fully materialize after about 40 years of making contributions, increasing the maximum retirement contribution amount by about 50%.
Employee benefits under enhanced CPP.
The Impact on Employees
Let’s make this clear with an example. Consider Sarah, an employee earning $80,000 annually. Notice that the employee CPP contribution rate remains the same, but the phase 2 maximum pensionable earnings allow Sarah to contribute more.
| Year | Original Maximum Pensionable Earnings | Employee CPP Contribution (5.95%) | Phase 2 Maximum Pensionable Earnings | Enhanced Earnings – Phase 2 | Phase 2 CPP Contribution (4%) | Total CPP Contribution |
|---|---|---|---|---|---|---|
| 2023 | $66,600 | $3,962.70 | N/A | N/A | N/A | $3,962.70 |
| 2024* | $69,200 | $4,117.40 | $73,830 | $4,630 | $185.20 | $4,302.60 |
In 2023, her CPP contribution would be $3,962.70. Come 2024, her CPP could rise to approximately $4,302.60 because she qualifies for phase two of the CPP enhancements.
What You Should Do:
- Communication: Keep your employees informed about how the CPP enhancements may impact their retirement benefits.
- Resources: Consider organizing workshops or seminars to help employees understand the complexities of CPP and its impact on their financial planning. Financial literacy leads to a happier, more productive team.
Conclusion
The CPP enhancement scheduled for 2024 brings several changes that employers need to be prepared for. Being proactive in updating your systems, informing your employees, and ensuring compliance with the CRA will go a long way in smooth sailing through these changes.
Additional Resources
Frequently Asked Questions
What is the CPP enhancement for 2024?
The CPP enhancement for 2024 introduces a new, higher earnings limit, known as the year’s additional maximum pensionable earnings. This limit will be 7% higher than the original year’s maximum pensionable earnings.
Do employers have to update payroll software?
No! We’ll take care of the tricky technical aspects in the background, so you can relax, and keep submitting easy pay runs in the exact same way.
Will CPP2 show separately when submitting payroll?
The enhanced CPP contributions, known as CPP2, will not appear as a separate line in your payroll documentation on PayEvo, though it will appear as a separate line on T4s.
Any new CRA compliance responsibilities?
Yes, with the CPP enhancement, employers will have to remit both the original and enhanced CPP contributions to the Canada Revenue Agency (CRA). This comes as the same process but at a higher cost to employers.
How does CPP enhancement affect employee pensions?
The enhanced CPP will increase retirement, survivor, and disability pensions for employees in the long term. However, the full benefits will take about 40 years to materialize fully.
