Membership or participation in the Canada Pension Plan (CPP) and Employment Insurance Plan (EI) is compulsory for certain types of employment. As a person responsible for the payroll you need to know which employees must participate in these plans, what amounts to withhold from employees and how much the employer will have to remit or send to the Canada Revenue Agency (CRA).

Payroll plays a pivotal role in administering statutory deductions, specifically the collection and remittance of Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums. These mandatory deductions, along with the employer’s matching portion, must be accurately submitted to the Canada Revenue Agency (CRA) within prescribed timelines.

This chapter outlines the essential criteria used to identify pensionable and insurable earnings, and provides detailed guidance on calculating both employee deductions and employer contributions for regular and non-regular pay periods.

In accordance with federal legislation, CPP contributions are the first deduction applied to employment income, followed by EI premiums. Because these deductions are mandated by statute, they are classified as statutory deductions, underscoring their legal significance and the employer’s obligation to ensure full compliance.

Learning Objectives

Upon completion of this chapter, you should be able to explain:

> 1. The requirements and calculations for Canada Pension Plan contributions

> 2. The requirements and calculations for Employment Insurance premiums

> 3. What Service Canada uses the information on a Record of Employment for

This chapter will cover the following topics:

> 1. Identify the following Canada Pension Plan components:

> > - Who must contribute to the Canada Pension Plan

> > - Types of employment subject to Canada Pension Plan contributions

> > - Types of employment not subject to Canada Pension Plan contributions

> > - Payments and benefits subject to Canada Pension Plan contributions

> > - Payments and benefits not subject to Canada Pension Plan contributions

> 2. Calculate Canada Pension Plan contributions at an individual level

> 3. Identify the following Employment Insurance components:

> > - Who must pay Employment Insurance premiums

> > - Types of employment subject to Employment Insurance premiums

> > - Types of employment not subject to Employment Insurance premiums

> > - Payments and benefits subject to Employment Insurance premiums

> > - Payments and benefits not subject to Employment Insurance premiums

> 4. Calculate Employment Insurance premiums at an individual level

> 5. Describe the purpose of a Record of Employment

> 6. Identify when the Record of Employment must be completed

# 3. Canada Pension Plan

Objective of this section is to enable you to identify the following Canada Pension Plan components:

> - Who must contribute to the Canada Pension Plan

> - Types of employment subject to Canada Pension Plan contributions

> - Types of employment not subject to Canada Pension Plan contributions

> - Payments and benefits subject to Canada Pension Plan contributions

> - Payments and benefits not subject to Canada Pension Plan contributions

> - Calculate Canada Pension Plan contributions at an individual level

The Canada Pension Plan (CPP) is a federally legislated social insurance program established under the Canada Pension Plan Act. Its primary purpose is to provide financial protection to contributors and their families in the event of retirement, disability, or death. The program is funded through mandatory payroll deductions from employees, which are matched equally by employers. These employee contributions are specifically referred to as Canada Pension Plan contributions.

In addition to the CPP, employers may offer private or non-government pension plans, which may also involve payroll deductions from employees. The specific payroll withholding requirements for these supplementary pension plans will be discussed in more detail in the later chapters; it is important to note that the CPP is often one of multiple retirement savings vehicles available within an organization’s compensation structure.

Note

Employers located in Quebec are responsible for deducting Québec Pension Plan (QPP) contributions, instead of CPP contributions, from their Québec employees and remitting those contributions to Revenu Québec (RQ).

The Canada Pension Plan (CPP) was designed as an income replacement program for individuals who have been in pensionable employment during their working life. A CPP retirement pension is a monthly benefit paid to people who have contributed to the Canada Pension Plan. The pension is designed to replace about 25 percent of the earnings on which a person’s contributions were based. Individuals can apply for their CPP retirement pension when they turn 60.

There are three Canada Pension Plan benefits:

> - retirement pension

> - disability benefits (for contributors with a disability and their dependent children)

> - survivor benefits (including the death benefit, the survivor’s pension and the children’s benefit)

The CPP operates throughout Canada while the province of Québec administers its own program for workers in Québec called the Québec Pension Plan (QPP). The two plans work together to ensure that all contributors are protected, no matter where the individual lives. Québec Pension Plan requirements will be covered later in this course.

## 3.1. Who Must Contribute to the Canada Pension Plan

The CPP is a contributory plan. This means that all costs are covered by the financial contributions paid by employees, employers and self-employed workers, and from revenue earned on CPP investments. The CPP is not funded through general tax revenues.

Canada Pension Plan contributions must be withheld from employees who:

> 1. CPP contributions must be withheld from employees who have reached the age of 18 but are under the age of 70.

> 2. CPP contributions must be withheld from employees who are in pensionable employment.

> 3. CPP contributions must be withheld from employees in pensionable employment who are not considered to be disabled by either Service Canada or Retraite Québec.

> 4. CPP contributions must be withheld from employees who are 65 years of age but are under the age of 70 and are in receipt of the Canada or Québec Pension Plan retirement pension, but have not filed an election to stop paying CPP contributions.

In principle, employees who do not fall within the categories listed previously would not make CPP contributions. However, it is not always clear what constitutes pensionable earnings and pensionable employment. To clarify eligibility, the CRA has developed a list of the types of employment that are not subject to CPP contributions. This information can also be found in the Employers’ Guide - Payroll Deductions and Remittances - T4001, which is published by the CRA.

The following types of employment are excluded by legislation and therefore do not constitute pensionable employment. Payments arising from such employment are not subject to CPP contributions:

> - employment in agriculture, or an agricultural enterprise, horticulture, fishing, hunting, trapping, forestry, logging, or lumbering, by an employer:

>   - who pays the employee less than $250 in cash remuneration in a calendar year; or

>   - employs the employee for a period of less than 25 working days in the same year on terms providing for payment of cash remuneration—the working days do not have to be consecutive

> - employment of a casual nature other than for the purpose of the employer’s usual trade or business

> - employment of a person, other than as an entertainer, in connection with a circus, fair, parade, carnival, exposition, exhibition, or other similar activity, if that person is:

>   - not regularly employed by that employer, and

>   - employed by that employer for less than seven days in a year

> - employment of a person by a government body as an election worker, if that person:

>   - is not a regular employee of the government body, and

>   - works for less than 35 hours in a calendar year

> - employment as a teacher on exchange from a foreign country

> - employment of a spouse or common-law partner if the employer cannot deduct the remuneration paid as an expense under the Income Tax Act

> - employment of a member of a religious order who has taken a vow of perpetual poverty. This applies whether the remuneration is paid directly to the order or paid by the member to the order.

> - employment for which no cash remuneration is paid, where the employee is the child of, or is maintained by, the employer

> - employment of a person who helps the employer in a disaster or in a rescue operation if the employee is not regularly employed by the employer

# 4. Employment Insurance

Objective of this section is to enable you to identify the following Employment Insurance components:

> - Who must pay Employment Insurance premiums

> - Types of employment subject to Employment Insurance premiums

> - Types of employment not subject to Employment Insurance premiums

> - Payments and benefits subject to Employment Insurance premiums

> - Payments and benefits not subject to Employment Insurance premiums

> - Calculate Employment Insurance premiums at an individual level

Employment Insurance (EI) is a federally legislated social insurance program established under the Employment Insurance Act. It provides temporary financial support to individuals who are unemployed while seeking new employment or engaging in skill development. In addition to regular benefits, EI offers special provisions for workers who take leave due to significant life events such as illness, pregnancy, caring for a newborn or newly adopted child, supporting a critically ill or injured person, or tending to a family member facing a serious health condition with a risk of death.

The EI program is funded through payroll contributions made by employees, known as Employment Insurance premiums. Employers also contribute by paying a premium that is calculated based on their employees’ deductions.

While Employment Insurance is a government-mandated program, it may not be the only insurance plan available in the workplace. Many organizations offer private or non-government insurance options such as life and disability coverage, which are funded by employers, employees, or both. Although this chapter focuses specifically on the federally legislated EI program, additional information about private insurance plans will be covered in the later chapters.

# 5. Record of Employment

The Record of Employment (ROE) is the form used by Service Canada to determine an individual’s qualification to collect Employment Insurance benefits when their employment is interrupted, how much the benefit will be and how long they will collect it. As payroll is responsible for completing the ROE, the form will be illustrated in this chapter, along with an explanation of what payroll information must be tracked for ROE reporting purposes.