2023 PCL Chapter 3 CPP Ei Requirements

Chapter
3
Canada Pension Plan and Employment
Insurance Requirements
Learning Objectives:
Upon completion of this chapter, you should be able to:
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
Communication Objectives:
Upon completion of this chapter, you should be able to explain the following:
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
© National Payroll Institute – Payroll Compliance 3-1

Legislation Vs 17.0
Chapter 3
Canada Pension Plan and Employment Insurance Requirements
Chapter Contents
Introduction ........................................................................................................................ 3-3

Canada Pension Plan Requirements................................................................................... 3-4
Determination of Pensionable Earnings......................................................................... 3-8
Content Review............................................................................................................ 3-14
Review Questions ........................................................................................................ 3-15
Canada Pension Plan Contribution Calculations ......................................................... 3-16
Regular Pay Periods ................................................................................................. 3-18
Content Review............................................................................................................ 3-27
Non-Regular Situations ................................................................................................ 3-29
Content Review............................................................................................................ 3-34
Employment Insurance Requirements ............................................................................. 3-36
Determination of Insurable Earnings ........................................................................... 3-36
Employment Insurance Premium Calculations ............................................................ 3-39
Regular Pay Periods ................................................................................................. 3-39
Non-Regular Situations ............................................................................................ 3-42
Employment Insurance Premium Reduction Program ................................................ 3-43
Content Review............................................................................................................ 3-45
The Record of Employment ......................................................................................... 3-48
Form Issuance .......................................................................................................... 3-49
Record of Employment Forms ................................................................................. 3-51
Content Review............................................................................................................ 3-53
Chapter Review Questions and Answers ......................................................................... 3-55
© National Payroll Institute – Payroll Compliance Legislation 3-2

Chapter 3
Introduction
This chapter focuses on the government pension and insurance programs.
The Canada Pension Plan (CPP) is a social insurance program legislated under the federal
Canada Pension Plan Act. The purpose of the act is to protect contributors and their families
against the loss of income due to retirement, disability and death. Employees fund the
program through payroll deductions that are matched, dollar for dollar, by their employer.
Since this is a pension plan, employee deductions are called Canada Pension Plan
contributions.
Employers may also provide non-government-sponsored pension plans for their employees,
requiring withholding contributions from employee pay. The payroll withholding
requirements for these pension plans will be covered in Payroll Fundamentals 1. At this
point, you should be aware that the Canada Pension Plan is not the only pension plan in many
organizations.
Employment Insurance (EI) is a social insurance program legislated under the federal
Employment Insurance Act. The program provides temporary income support to unemployed
workers while looking for employment or upgrading their skills. The EI program also
provides special benefits to workers who take time off work due to specific life events.
Special benefits are available for illness, pregnancy, caring for a newborn or newly adopted
child, a critically ill or injured person, or a family member who is seriously ill with a
significant risk of death. Employees fund the Employment Insurance program through
payroll deductions, and employers pay a premium based on their employees' deductions.
Since this is an insurance program, employee deductions are termed Employment Insurance
premiums.
Employment Insurance may not be the only insurance program within an organization. Many
organizations have life and disability insurance plans funded by employers or employees.
These non-government or private insurance programs will be discussed in Payroll
Fundamentals 1. This chapter focuses on the government-legislated Employment Insurance
program.
Membership or participation in the Canada Pension Plan (CPP) and Employment Insurance
Plan (EI) is compulsory for certain types of employment. As a payroll professional, you will
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).
Note:
Employers 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). This will be discussed later in the course.

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The Record of Employment (ROE) is the form used by Service Canada to determine an
individual's eligibility 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.
Payroll is responsible for collecting CPP contributions and EI premiums and for remitting
these deductions, along with the employer's portion, to the Canada Revenue Agency. In this
chapter, you will learn the criteria that determine pensionable and insurable earnings,
calculate the deductions required on these earnings for regular pay periods and non-regular
payments, and calculate the employer's portion of the remittances.
Although there is no legislative priority amongst federal statutory withholding amounts, it is

common practice to withhold the Canada Pension Plan contribution as the first deduction
from employment income, Employment Insurance premium as the second deduction and
federal and provincial income taxes as the third deduction. Since these deductions are
required under government legislation or statutes, they are referred to as statutory deductions.
Canada Pension Plan Requirements

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 was originally designed to replace about 25 per cent of the
earnings on which a person's contributions were based. As a result of enhancements
introduced in 2019, future pension benefits may increase to 33 per cent of contributory
earnings. 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 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.

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Who Must Contribute to the Canada Pension Plan

The CPP is a contributory plan. 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 70.
Example:
Janice Blair has a summer job at a fast-food restaurant from May 1 through August 31.
Janice will turn 18 in October. For the employment this summer, as the employee has
not reached age 18, no CPP contributions will be withheld from earnings.
Janice's friend Harry, who is 22 years old, has a summer job at the same restaurant.
Since Harry is at least 18 years of age, the employer must deduct CPP contributions.
Payroll software programs use the date of birth to determine if CPP contributions must be
withheld from an employee. A payroll professional may mistakenly enter the date of hire
in the field used for the employee's birth date. The software program assumes the
employee is only days old (under 18 years) and does not deduct CPP contributions. As a
payroll professional, part of your responsibility is to check that the information has been
entered accurately and that the system calculates the contributions correctly.
2. CPP contributions must be withheld from employees who are in pensionable

employment.
Pensionable employment includes most employment in Canada under a contract of
service. The types of employment that are not considered pensionable by the CRA are
provided in this chapter.

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Example:
Last year Lisa Melo, who is 40 years old, worked as a mechanical engineer for Ball
Elevators. Lisa was in pensionable employment, and therefore the employer withheld the
appropriate CPP contributions from their salary.
3. CPP contributions must be withheld from employees in pensionable employment who are
not considered disabled by either Service Canada or Retraite Québec.
No further CPP contributions are withheld once an employee is considered disabled by

either Service Canada or Retraite Québec.
Example:
Charlene Joseph is 62 years of age and works part-time for a small company. The
employee is considered disabled by Service Canada due to an injury and receives
disability pension benefits from Service Canada. Charlene's part-time employer is not
required to deduct CPP contributions for Charlene once presented with the disability
award letter from Service Canada.
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 Canada or Québec Pension Plan retirement
pension but have not filed an election to stop paying CPP contributions (form CPT30).
Example:
In March, Richard Doyle applied for and started receiving a CPP retirement pension at
age 65. An election to stop paying CPP contributions has not been filed, so the employer
must continue to deduct CPP contributions from pensionable earnings until an election is
filed or the employee reaches age 70.
Types of Employment Subject to Canada Pension Plan Contributions

Pensionable employment includes most employment in Canada under a contract of service
(where an employee-employer relationship exists). Canada also has reciprocal social security
agreements with other countries, allowing Canadian employees working in other countries to
continue contributing to the Canada Pension Plan.

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Types of Employment Not Subject to Canada Pension Plan

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 the
CRA publishes.
The following types of employment are excluded by legislation and 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:
o who pays the employee less than $250 in cash remuneration in a calendar year;
or
o 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
Note:
In a calendar year, when the employee reaches both minimums, $250.00 or more in
cash remuneration and works 25 days or more, the employment is pensionable
starting from the first day of work.
• 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:
o not regularly employed by that employer, and
o employed by that employer for less than seven days in a year
Note:
When the employee works seven days or more, the employment is pensionable from
the first day of work.
• employment of a person by a government body as an election worker if that person:
o is not a regular employee of the government body and
o works for less than 35 hours in a calendar year
Note:
When the 35 hour limit is reached or exceeded, the entire employment is pensionable
from the first day the employee was engaged.

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• 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 a rescue operation if
the employee is not regularly employed by the employer
Determination of Pensionable Earnings

CPP contributions are based on pensionable employment income. While salaries are obvious
sources of income, employees can also be compensated for their work through benefits, such
as paid leaves, free rent and low-interest loans. The Canada Revenue Agency provides details
of which payments and benefits are subject to, or not subject to, CPP contributions. This
information can be found in the Employers' Guide – Payroll Deductions and Remittances –
T4001 and Employers' Guide – Taxable Benefits and Allowances – T4130, which the CRA
publishes annually.
Payments and Benefits Subject to Canada Pension Plan

Contributions
The payments and benefits subject to CPP contributions generally fall into the following
categories:
1. Income from employment

2. Taxable benefits and allowances
3. Certain fees and honorariums
4. Controlled tips
5. Paid leaves
6. Benefits under certain wage-loss replacement plans
While general information is provided on each category, payroll professionals will most
often deal with the CPP contribution requirements on income from employment and taxable
benefits and allowances.
1. Income from employment

Includes, but is not limited to, salary and wages or other remuneration, commissions,
wages in lieu of termination notice, bonuses, and the value of board and lodging (other
than an exempt allowance paid to an employee at a special work site or remote work
location).

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2. Taxable benefits and allowances

Rent-free and low-rent housing, car allowances, interest-free and low-interest loans,
personal use of an automobile that an employer owns or leases, certain gifts, prizes and
awards, holiday trips, subsidized meals, employer contributions to an employee's
Registered Retirement Savings Plan (RRSP), and employer-paid group term life and
accidental death and dismemberment insurance premiums. It also includes any taxable
benefits paid in cash.
3. Certain fees and honorariums
Honorariums by virtue of employment or office, incentive payments, directors' fees, fees
paid to board or committee members, executor's and administrator's fees earned by an
executor or administrator to administer an estate as long as the person does not act in this
capacity in the regular course of business.
4. Controlled Tips
Tips and gratuities are received for services performed, such as tips received by someone
working in a restaurant. Controlled gratuities are tips that the employer, not the customer,
control, for example, when a certain percentage is added to the bill by the restaurant.
5. Paid leaves
a) Remuneration received while on furlough or sabbatical. Examples include vacation,
sick leave, or lost time pay from a union. Also included are payments received under a
supplementary unemployment benefit plan (SUB), which does not qualify as a SUB
plan under the Income Tax Act, such as maternity or parental top-up payments and
sick leave credits.
b) A salary continuance paid before or after a Workers' Compensation Board (WC)
claim is decided, as well as:
a. any advance or loan that is more than the WC award
b. any advance or loan not repaid or
c. a top-up amount paid by the employer
6. Benefits under certain wage-loss replacement plans
a) Benefits paid directly by employers to employees from a wage-loss replacement plan
(WLRP)
b) WLRP benefits paid by an insurance company, trustee or independent organization on
behalf of the employer where the employer:
• funds part or all of the plan
• exercises a degree of control over the terms of the plan, and
• determines eligibility for benefits.
Note:
Payments under an Administrative Services Only (ASO) plan are generally considered
pensionable since the third party (insurance company) is acting as an agent of the
employer. Since there is no contract of insurance indemnifying the employer against risk,
the employer is still considered to be exercising a degree of control over the plan's terms.

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Canada Pension Plan Contributions on Non-cash Taxable Benefits

When an employer provides employees with non-cash taxable benefits, the CRA requires
that the value of the benefit be included in the employee's earnings as it is earned or enjoyed.
One of the most common non-cash taxable benefits is employer-paid group term life
insurance. The CRA requires that the amount of the premium the employer pays for the
insurance, plus any applicable taxes, be included in the employee's pensionable earnings as it
is enjoyed, that is, on a pay period basis. Based on the employer's pay frequency, the annual
premium must be pro-rated to a pay period amount.
Example:
In Alberta, Superior Foods provides its employees with group term life insurance. The
coverage is two times the employee's annual salary.
For Louise Davis' coverage of $75,000.00, Superior Foods pays an annual premium of
$780.00. As Louise is paid on a bi-weekly basis, the non-cash taxable benefit to be included
in the bi-weekly pensionable earnings is calculated as follows:
Taxable Benefit = Annual employer-paid insurance premium

Pay period frequency
= $780.00
26
Taxable Benefit = $30.00 per bi-weekly pay period
The group term life insurance non-cash taxable benefit will show on Louise's pay statement
and be included in calculating CPP contributions and income tax withholdings.
Payments and Benefits Not Subject to Canada Pension Plan

Contributions
Some payments received by employees are not considered to be compensation for work
performed because they are:
• Death benefits
• Pension benefits
• A payment at the end of employment that is not considered employment income,
for example, severance payments or retiring allowances
• Wage-loss replacement plan (WLRP) benefits paid under a contract of insurance
• Workers' compensation advances or loans
• Payments linked to special conditions under the Income Tax Act

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The payments and benefits that are not subject to CPP contributions are detailed as follows:
1. Death benefits
Example:
Marie Gelinas passed away in June after a lengthy illness. In recognition of Marie's
service to the organization, the surviving spouse receives a $10,000.00 death benefit.
The discretionary payment does not include any outstanding wages or vacation owed to
the employee; no CPP contributions are calculated on the payment.
2. Pension benefits
a) pension payments
Example:
Len Bud retires from Tire Wares, at age 55, after 30 years of service and receives a
monthly pension of $1,500.00 from the employer's registered pension plan. Tire Wares
asked Len to return to work as a guide for school tours of the plant. Len receives
$2,000.00 a month for this work. Tire Wares does not include Len's pension income of
$1,500.00 when calculating Len's CPP contributions.
b) lump-sum payments out of a pension fund
Example:
Fred Way terminated employment before becoming vested in the registered pension plan.
The employer will process a lump-sum payout of Fred's contributions to the plan. This
payment would not be subject to CPP contributions.
c) amounts allocated by a trustee under a profit-sharing plan or paid by a trustee under a

deferred profit-sharing plan
Example:
Lise Gordon, 36 years old, has been diagnosed with a terminal illness. The Deferred
Profit Sharing Pension Plan allows for a lump-sum payment out of the plan due to the
shorter than normal life expectancy. The lump-sum payment in these circumstances
would be taxable at the lump-sum tax rates but not subject to CPP contributions.

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d) benefits received under a qualified supplementary unemployment benefit plan

(SUBP) under the Income Tax Act
Example:
General Promotions provides a supplementary unemployment benefit plan (SUBP) to
employees receiving Employment Insurance sickness benefits. The benefits paid by a
trustee, when combined with the EI sickness benefits, equal 95% of the employee's
regular weekly gross earnings. The amount paid by the trustee is not subject to CPP
contributions.
3. Payments at the end of employment

Retiring allowances or severance payments received upon or after retirement in
recognition of long service or in respect of loss of office or employment, including
accumulated sick leave credits.
Example:
Marjory White's employment was terminated, and the final pay included a $5,000.00
severance payment. There were no CPP contributions withheld on this $5,000.00
payment.
4. Wage-loss replacement plan (WLRP) benefits paid under a contract of insurance

WLRP benefits are paid directly to an employee by an insurance company, trustee or
independent organization under a contract of insurance.
Example:
Alice Chau is covered for long-term disability (LTD) benefits under the organization's
WLRP. An insurance contract exists, and the insurance company maintains all control
and liability over the plan. There are no CPP contributions withheld from the benefit
payments paid by the insurance company.
5. Workers' compensation advances or loans

You pay an advance or loan to an employee while a workers' compensation claim is
being decided. If the advance or loan is not repaid, you must deduct CPP contributions.
Example:
When Seung Dang broke an arm in a work-related accident, the employer advanced an
amount of $3,000.00 until the workers' compensation payments began. As Seung repaid
this advance to the employer, no CPP contributions were calculated on the advance
amount.

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6. Payments linked to special conditions under the Income Tax Act

Amounts for the residence of clergy members if the clergy members receive an income
tax deduction for their residence.
Example:
Reverend Foster's parish pays the $1,000.00 monthly lease payment on the residence.
Reverend Foster claims an allowable deduction for clergy on the annual income tax
return. The parish does not include this $1,000.00 when calculating Reverend Foster's
CPP contributions.

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Content Review
• Canada Pension Plan contributions must be withheld from employees who:
o have reached the age of 18 but are under the age of 70
o are in pensionable employment
o are not considered to be disabled by either Service Canada or Retraite Québec
o are 65 years of age but are under the age of 70 and are in receipt of Canada or
Québec Pension Plan retirement pension but have not filed an election to stop
paying CPP contributions.
• Payments and benefits subject to Canada Pension Plan contributions generally fall
into the following categories:
o income from employment
o taxable benefits and allowances
o certain fees and honorariums
o controlled tips
o paid leave
o benefits under certain wage-loss replacement plans
• Some payments received by employees are not considered to be compensation for
work performed because they are:
o death benefits
o pension benefits
o a payment at the end of employment that is not considered employment
income, for example, severance payments or retiring allowances
o wage-loss replacement plan (WLRP) benefits paid under a contract of
insurance
o workers' compensation advances or loans
o payments linked to special conditions under the Income Tax Act

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Review Questions
1. You have been provided with the following list of new workers. Determine who will be
subject to CPP contributions.
Deduct CPP
Name Age Job Status
(Yes or No)
Manuel 25 Full-time
Sheree 17 Part-time
Finn 32 Independent contractor
Jerry 72 Part-time
Elina 53 Part-time
Josh 40 Full-time
2. True or False. CPP contributions should be stopped for Oscar, a part-time employee who
is 66 years of age and has started receiving a CPP retirement pension.
3. Which of the following types of employment is subject to CPP contributions.

a. Employment by a government body as an election worker for 20 hours in the year
b. Regular part-time employment by a government body
c. Employment by a member of a religious order who has taken a vow of perpetual
poverty
d. Temporary employment of a person during a disaster or rescue operation
4. Which of the following payments and benefits are not subject to CPP contributions.
a) Taxable benefits
b) Death benefit
c) Performance bonus
d) Vacation pay
5. True or False. Canada Pension Plan contributions must be calculated on the severance
payments made to an employee when they leave an organization.

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Canada Pension Plan Contribution Calculations

Canada Pension Plan (CPP) contributions are calculated on an employee's pensionable
earnings (PE). Pensionable earnings include salary, wages, and other remuneration paid as
well as any taxable benefits, taxable allowances and taxable expense reimbursements paid or
provided to employees. Each year, the Canada Revenue Agency determines:
• a yearly maximum amount of pensionable earnings from which employers deduct
CPP contributions up to an annual maximum contribution.
• an annual basic exemption, an amount employees are allowed to earn before CPP is
required to be deducted.
• a contribution rate employers use to calculate the amount of CPP to deduct from
employees.
The employee contribution is calculated as the yearly maximum pensionable earnings less
the annual basic exemption to determine contributory earnings on which the current year
CPP contribution rate is applied.
Both employees and employers have to make CPP contributions. Employers match their
employees' CPP contributions dollar for dollar and remit both portions to the CRA.
For 2023
Yearly Maximum Pensionable Earnings (YMPE) $66,600.00
Annual Basic Exemption − $3,500.00
Contributory Earnings = $63,100.00
CPP Contribution Rate × 5.95%
Annual Maximum Employee CPP Contribution = $3,754.45
Annual Maximum Employer CPP Contribution = $3,754.45
*The QPP contribution rate for Québec employees will be discussed later in the course.
** The employer matching contribution and the CRA remittance will be covered in more detail in Payroll
Fundamentals 2
Once an employer has deducted the annual maximum CPP contribution from an employee,
no further CPP deductions are withheld from the employee for that year.
CPP Enhancement
Since 2019 an enhancement to the CPP program has been gradually implemented. This is
happening over two phases:
• phase 1 gradually increased the contribution rate on YMPE from 4.95% to 5.95%
over five years
• phase 2 will introduce a new 4% contribution on additional yearly maximum
pensionable earnings (AYME) starting in 2024

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Phase 1 is now completed in 2023, with the rate reaching 5.95%. The additional 1%
contribution above the pre-enhancement rate of 4.95% is considered an enhanced
contribution.
The enhanced portion of the CPP contribution will be discussed later in this course because it
has an impact on income tax withholding. This value does not impact the calculation of pay
period CPP contributions for employees with pensionable earnings. Employers must
withhold CPP contributions using the required formula and the current year's CPP
contribution rate.
CPP Pay Period Exemption

The yearly basic exemption of $3,500.00 is divided by the number of regular pays in the year
to determine the exemption amount that should be applied to the pensionable earnings for
each pay period.
The pay period exemptions, based on pay frequency, are:
PAY PERIOD YEARLY BASIC NUMBER OF PAY PERIOD

TYPE EXEMPTION PAYS PER YEAR EXEMPTION
Weekly $3,500.00 52 $67.30
Weekly $3,500.00 53 $66.03
Bi-weekly $3,500.00 26 $134.61
Bi-weekly $3,500.00 27 $129.62
Semi-monthly $3,500.00 24 $145.83
Monthly $3,500.00 12 $291.66
These exemptions are calculated as follows:
Weekly exemption: 52 pay periods per year $3,500.00 = $67.30*

52
Bi-weekly exemption: 26 pay periods per year $3,500.00 = $134.61*

26
Semi-monthly exemption: 24 pay periods per year $3,500.00 = $145.83*

24
Monthly exemption: 12 pay periods per year $3,500.00 = $291.66*

12
*The calculations are not rounded, per the CRA's instructions. Rounding would result in a yearly
basic exemption greater than $3,500.00.

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Example:
Weekly exemption $3,500.00 = $67.3076
52
If weekly exemption rounded $67.3076 rounded up to $67.31

$67.31 x 52 = $3,500.12
The annual exemption would be exceeded $3,500.12 is greater than $3,500.00
Every seven years, the calendar days fall in such a way that there can be 53 weekly pays in
the year rather than 52, depending on which day of the week is the payday. In this case, the
basic exemption for each of the 53 weekly pay periods will be:
$3,500.00 = $66.03
53
Every eleven years, for the same reason, there will be 27 bi-weekly pays in the year rather
than 26. In this case, the basic exemption for each of the 27 bi-weekly pay periods will be:
$3,500.00 = $129.62
27
If an employee's pay period pensionable earnings are less than the pay period exemption,
then no CPP contribution is required for that pay.
Regular Pay Periods

Canada Pension Plan contributions on regular earnings can be calculated using the following
the CRA approved methods:
• Payroll Deductions Tables – T4032

• Payroll Deductions Supplementary Tables – T4008
• Payroll Deductions Online Calculator (PDOC)
• Payroll Deductions Formulas for Computer Programs – T4127
• manual calculation
Payroll service providers and organizations that use an in-house payroll system will build the
formulas for computer programs into their software. Payroll professionals must be prepared
to use PDOC or the manual calculation method to produce a manual payroll cheque.

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Payroll Deductions Tables

The CRA annually publishes tables that provide the amounts to be withheld for CPP
contributions, EI premiums and federal and provincial/territorial income tax deductions for
certain pay period frequencies. As the provincial/territorial income tax deductions vary by
jurisdiction, separate tables are published for each province and territory containing the
federal income tax deductions and the jurisdiction-specific income tax deductions. The tables
are issued effective January 1st of each year; however, if there is a change during the year that
affects the amounts reported in the tables, the CRA will publish new tables effective the date
of the change. The tax tables are only available in electronic format.
Note:
The payroll deduction tables and online tools used as illustrations throughout this chapter are
not necessarily the current year.
Withholdings for the following most common pay period frequencies are provided in the
Payroll Deductions Tables – T4032:
• Weekly
• Bi-weekly
• Semi-monthly
• Monthly
The Payroll Deductions Supplementary Tables – T4008 provides withholding amounts for
10, 13, 22, 27, 53 or 240 pay periods a year.
The following chart explains how to use the tables:
STEP ACTION
1 Refer to the appropriate pay period table for your payroll frequency.
2 Look down the "Pay/Rémuneration" column and find the range containing the
employee's pensionable earnings for the pay period.
3 Locate the corresponding CPP contribution required.

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Example:
Carole Lemieux works for The Wellness Centre in Ajax, Ontario. Carole is paid on a semi-
monthly basis. The pensionable earnings per pay are $1,575.00. Following the above steps:
1 Refer to the generic table as illustrated below

2 Look down the pay column for the range that contains $1,575.00. In this case, the range
is $1,574.82 - $1,575.02
3 Locate the CPP contribution of $70.74
Payroll Deductions Online Calculator

The Payroll Deductions Online Calculator (PDOC) is available on the CRA's website. Within
PDOC, the exact salary is used to determine the statutory withholdings. In the publications
Payroll Deductions Tables and Payroll Deductions Supplementary Tables, the midpoint of
the salary range is used to determine the statutory withholdings. All the results are correct,
but the PDOC calculations are more precise.

Chapter 3
Example:
Carole Lemieux works for The Wellness Centre in Ajax, Ontario and is paid semi-monthly.
The pensionable earnings per pay are $1,575.00.
Note: This is an example for illustration purposes only and is not based on current year rates.
PDOC is updated on January 1 each year and typically again on July 1 if income tax changes
occur during the year.

Chapter 3
Manual Calculation Method

Payroll professionals should be familiar with the manual calculation of Canada Pension Plan
(CPP) contributions to respond knowledgeably to employee questions regarding their pay
and to validate that any payroll software used performs accurate calculations.
The manual CPP contribution formula requires four steps.
1 Identify the pay period CPP pensionable earnings.

2 Determine the pay period CPP exemption (annual exemption divided by pay
frequency).
3 Calculate contributory earnings (pensionable earnings less pay period exemption).
4 Multiple contributory earnings by current year CPP contribution rate.
Example:
Terri Fraser is a part-time employee, paid bi-weekly, who earned $800.00 in the current
pay period. The CPP contribution is calculated as follows:
Pay period pensionable earnings $800.00

Bi-weekly CPP exemption − $134.61
Contributory earnings = $ 665.39
CPP contribution rate × 5.95%
Employee CPP contribution = $ 39.59
Example:
Roman Dior is paid monthly and has pensionable earnings of:
Salary $5,000.00
Car allowance 300.00
Taxable benefit: employer-paid AD&D premiums 10.50
Total pensionable earnings $5,310.50
The CPP contribution for the current monthly pay period will be:
Pay period pensionable earnings $5,310.50

Monthly CPP exemption − $291.66
Contributory earnings = $5,018.84

Chapter 3
An employee is Paid by Commission on an Irregular Basis

When an employee's remuneration is 100% commission-based, the payment of commission
earnings may happen irregularly. For instance, the employer's policy may be to calculate and
pay a commission after a sale is complete and the customer has paid for the products or
services received.
When there is no regular recurring pay frequency, the allocation of a CPP pay period
exemption is determined using the number of days between commission payments paid in the
same year, using the following formula:
Days between payments

CPP exemption = × Annual Basic Exemption
Number of days per year
The number of days per year is generally 365. However, in the case of a leap year, this will
change to 366.
Example:
Tracy Labonte is a salesperson for Logan Industries who is paid by commission calculated
on the sale of the company's products.
On June 1st of the current year, Tracy will be paid a commission of $2,400.00. It has been
73 days since the last commission payment.
The CPP exemption for the current commission payment will be calculated as follows:
73
CPP exemption = × $3,500.00 = $700.00
365
The CPP contribution will be calculated as follows:

The number of days between payments is limited to the number of days in the current year. If
the last payment was made in a previous year, only days from January 1st of the current year
apply.

Chapter 3
Example:
Jason Jacobs is also a salesperson for Logan Industries. The last commission payment
received was on December 19th of the previous year.
The first commission payment of the current year, for $3,200.00, will be made on May
27th. Although the last commission payment was on December 19th of the previous year,
only days in the current year will be counted when determining the CPP exemption. Since
January 1st, there have been 146 days before this payment.
The CPP exemption for the current commission payment will be calculated as follows:
146 × $3,500.00 = $1,400.00
CPP exemption =
365

Monthly CPP exemption − 1,400.00
The employer must match the employee's contribution.
More Than One Payment Per Pay Period

The figures contained in the payroll deduction tables already have the CPP pay period
exemption built into them. For this reason, if issuing more than one payment within the same
pay period, use the tables to calculate the CPP contribution for the first payment only.
Calculate the CPP contribution for the second payment by multiplying the pensionable
earnings by the CPP contribution rate without applying an exemption. This will ensure that
only one pay period exemption is applied for each pay period and that the yearly basic
exemption is not exceeded.

Chapter 3
Example:
Chen Lee will be taking a two week vacation and has requested $1,000.00 of accrued
vacation pay be paid out.
The employer will process two payments for the current pay period, the regular pay period
earnings and a second payment for the vacation pay.
The pay period CPP exemption will be allocated to the regular pay period earnings. The
CPP contribution for the vacation payout, on a second pay, will be calculated as follows:
Vacation payout 1,000.00

Only one CPP exemption can be applied to a pay period. No exemption applies to
additional payments in the same pay period.
Another option would be to add the two payments together and then use either the Payroll
Deduction Tables or the Payroll Deduction Online Calculator to determine the CPP
contribution or manually calculate the contribution by reducing the total pensionable
earnings by the pay period exemption and then applying the contribution rate.
Example:
Kristof Kratz is being paid a bonus of $2,000.00 and regular monthly pensionable earnings
of $3,980.00.
Total pensionable earnings will be $5,980.00 ($3,980.00 + $2,000.00)
Pay period pensionable earnings 5,980.00

Annual Maximum Contribution

Once the maximum contribution for the year has been withheld from the employee, no
further CPP contributions will be required for the current year. It is important to monitor your
payroll system to ensure CPP contributions stop once the employee has reached the
maximum contribution for the year. If issuing an off-cycle manual payment to the employee,
be sure to check the year-to-date CPP contributions so that you do not withhold any amounts
over the annual maximum contribution.

Chapter 3
Example:
Shonda Hall has bi-weekly pensionable earnings of $4,000. The pay period CPP
contribution is calculated as:

Bi-weekly CPP exemption − $134.61
Shonda's year-to-date CPP contributions are approaching the maximum for the year. The
contribution will be the amount required to reach the current year's annual maximum
contribution on the current pay.
Annual maximum contribution $3,754.45

Year-to-date CPP contributions 16 × $229.99 $3,679.84
Final CPP contribution for the year $ 74.61
No further CPP contributions will be required for the current year.

Chapter 3
Content Review
• Pensionable earnings include salary, wages, and other remuneration paid as well as
any taxable benefits, taxable allowances and taxable expense reimbursements paid or
provided to employees.
• Employees and employers both make Canada Pension Plan (CPP) contributions.
Employers match their employees' CPP contributions dollar for dollar and remit both
portions to the Canada Revenue Agency (CRA).
• The Payroll Deduction Tables have the pay period exemption built into the
calculations for CPP contributions; for this reason, the calculation must be done
manually in certain situations.
• Once the maximum contribution for the year has been withheld from the employee,
no further CPP contributions will be required for the current year.

Chapter 3
Review Questions
6. Calculate the CPP contributions for the current monthly pay period for the following
employees.
Manuel Elina Josh
Pensionable earnings $7,500.00 $275.00 $4,600.00
Pay period exemption −
Contributory earnings =
CPP contribution rate ×
CPP contribution =
7. If Manuel's monthly pensionable earnings have remained the same, what will the monthly
CPP contribution be for September, ensuring that the annual maximum CPP contribution is
not exceeded?
8. Rena Cheng is a salesperson for Lake City Bridal, who is paid by commission only. The
current commission payable is $22,500.00, and it has been 90 days since the last commission
payment. Calculate CPP exemption and contribution for the current commission payment.

Chapter 3
Non-Regular Situations
Three situations require special consideration when calculating an employee's CPP
contributions:
• pro-rating the annual CPP maximum contribution

• employees hired during the year
• mergers and acquisitions
Pro-rating the Canada Pension Plan Maximum Contribution

Prorating is the process required to calculate CPP contributions based on pensionable
employment for only part of the year. The annual CPP maximum contribution for the year
must be pro-rated when the employee:
• turns age 18
• turns age 70
• is considered to be disabled by Service Canada
• is at least 65 years of age and under the age of 70, in receipt of C/QPP retirement
pension, and files an election to stop CPP contributions
• dies
Proration formula
To pro-rate the maximum annual CPP contributions, the following formula is applied.
Maximum annual CPP contribution $3,754.45

Number of months in a year ÷ 12
$ 312.87
Months of pensionable employment × [1 to 12]
Pro-rated maximum CPP contribution = $#,###.00
The employee turns age 18

When an employee turns 18, the employer must begin withholding CPP contributions on the
first pay of the month following the month in which the employee's 18th birthday falls.
The maximum contribution for the year has to be pro-rated for employees turning 18 to
reflect only those months they were eligible to contribute.

Chapter 3
Example:
Alan Singh turned 18 years of age on July 10th of the current year. Pensionable
employment and CPP contributions will begin in August.
The pro-rated maximum CPP contribution for the year will be:

$ 312.87
Months of pensionable employment (Aug – Dec) × 5
Pro-rated maximum CPP contribution = $1,564.35
The employee turns age 70 or is considered to be disabled by Service Canada

When an employee turns age 70 or is considered disabled by Service Canada during the year,
the employer must stop deducting CPP contributions on the first pay of the month following
the month the employee turns age 70 or was considered disabled.
An employee who continues to work after being considered disabled should provide their
employer with a copy of the award letter from Service Canada stating that they will be
receiving disability benefits. This letter is proof that contributions are no longer required.
Example:
Ingrid Johnsson turns 70 on February 18th of the current year. Pensionable employment
and CPP contributions end on the last day of February.

Number of months in a year 12 ÷
$ 312.87
Months of pensionable employment (Jan - Feb) × 2
Pro-rated maximum CPP contribution = $ 625.74
If the employee has contributed more than the pro-rated maximum, the employer can refund
the employee any over-contribution within the same taxation year.

Chapter 3
Example:
If Ingrid had already had $650.52 in CPP contributions withheld, the employer must
refund the over-contribution.
$650.52 − $625.74 = $ 24.78
The employer can recover their over-contribution by reducing the current year's remittances.
The previous year's employer over-contribution can be refunded by completing a PD24 –

Application for a Refund of Overdeducted CPP Contributions or EI Premiums form. The
employee will receive a credit for their CPP contributions when filing their income tax
return.
The employee is at least 65 years of age but under the age of 70, is receiving a C/QPP
retirement pension and files an election to stop CPP contributions.
When a working employee is at least 65 years of age but under the age of 70 and is receiving
a C/QPP retirement pension, they will have to contribute to the CPP as long as they receive
pensionable earnings unless they file an election to stop contributing.
Employees who wish to stop contributing to the CPP must meet all of the following criteria.
The employee:
• is at least 65 years of age but under 70 years of age

• receives a CPP or QPP retirement pension
• has filed their election to stop contributing to the CPP with their employer and has
sent a copy to the CRA using the CRA's form CPT30 – Election to Stop Contributing
to the Canada Pension Plan, or Revocation of a Prior Election, and
• has not filed a revocation of a prior election with their employer during the current
calendar year
Both employee and employer CPP contributions must be remitted per the employer's
remittance frequency. In other words, if an eligible employee does not choose to opt-out and
instead continues making CPP contributions, the employer must match their contributions
and send both portions to the CRA.
Once employers receive a signed and completed CPT30 form from an eligible employee,
they should stop deducting CPP contributions as of the first pay in the month following the
month they receive the form.

Chapter 3
Example:
Charles is 65 years of age and receives a CPP retirement pension. A CPT30 election form
was filed on April 15th to stop CPP contributions; the employer stopped deducting CPP
contributions as of the first pay in May.

$ 312.87
Months of pensionable employment (Jan - Apr) × 4
The employee dies

When an employee dies, the annual maximum contribution is pro-rated over the number of
months before and including the month of the death. Any refund owing to the deceased
employee resulting from this pro-rating is made payable to the employee's estate.
Example:
Helen Tsang died on September 30th.

$ 312.87
Months of pensionable employment (Jan - Sep) × 9
Helen had already contributed the maximum annual CPP contribution for the year at the
time of death. The employer must refund Helen's estate the over-contribution.
$3,754.45 − $2,815.83 = $ 938.62

The employer could also recover its overpayment by reducing its next remittance to the
CRA. If the over-contribution occurred in a previous year, the employer could recover the
overpayment by completing form PD24.

Chapter 3
CANADA PENSION PLAN (CPP) CONTRIBUTIONS FOR A NEW HIRE

When an employee leaves one employer to start work with another employer during the year,
the new employer must deduct CPP contributions without considering what the employee's
previous employer had withheld. This applies even if the employee had already paid the
maximum amount during the previous employment. When the employee files their income
tax return the following year, they will receive a refund of any over-contribution. However,
the new employer is not entitled to any refund of their employer portion based on the
employee's overpayment.
When there is an undue hardship to the employee for paying the extra contributions, the
employee may request a letter from the Canada Revenue Agency Tax Services Office
waiving the equivalent amount of income tax withholdings. Note that this letter of waiver
does not affect the payment of employee or employer CPP contributions.
MERGERS AND ACQUISITIONS

An employer, with the agreement of the former employer or by operation of law, may
immediately succeed another employer as the employer of an employee as a result of:
• the formation of a corporation

• the dissolution of a corporation, or
• the acquisition of all or part of a business
Then the new employer may consider the amounts deducted, remitted or paid under the
Canada Pension Plan by the former employer for the year for the employees as if they had
been deducted, remitted, or paid by the new employer.
If you are unsure whether CPP contributions are payable in a particular restructuring or
succession of employers situation, you can ask the Canada Revenue Agency (CRA) for a
ruling.

Chapter 3
Content Review
• The annual Canada Pension Plan (CPP) maximum contribution for the year must be
pro-rated when the employee:
o turns age 18
o turns age 70
o is considered to be disabled by Service Canada
o is at least 65 years of age and under the age of 70, in receipt of C/QPP
retirement pension, and files an election to stop CPP contributions
o dies
• When an employee leaves one employer during the year to start work with another
employer, the new employer must deduct CPP contributions without considering
what the employee's previous employer had withheld.
• Employers are not required to re-start the employees' CPP contributions in the case of
a merger or an acquisition.

Chapter 3
Review Questions
9. Paul Wilson will turn 70 on September 14th of the current year.
a) When will CPP contributions stop?
b) Calculate the pro-rated maximum CPP contributions for the current year.
10. True or False. If Paul Wilson had already contributed more than the pro-rated maximum
CPP contribution for the year, the employee should receive a refund of the over-contribution.
11. True or False. Suppose a new employee presents proof of CPP contributions deducted by
their previous employer. In that case, the new employer may consider this year-to-date
balance when calculating CPP contributions on their payroll.

Chapter 3
Employment Insurance Requirements

Employment Insurance (EI) premiums are calculated on, and deducted from, an employee's
insurable earnings, which are insurable salary, wages, cash allowances and other
remuneration paid to an employee up to their maximum insurable earnings (MIE). The
Canada Revenue Agency (CRA) determines what is considered insurable employment and
which earnings are insurable. A list of insurable employment and insurable earnings will
follow. This information can also be found in the Employers' Guide – Payroll Deductions
and Remittances – T4001, published by the CRA.
Employment Insurance premiums are required under government legislation or statutes.

Therefore, they are statutory deductions and are the second deduction after Canada Pension
Plan (CPP) contributions.
Determination of Insurable Earnings

Each year, Employment and Social Development Canada (ESDC) determines:
• an annual maximum insurable earnings (MIE) amount on which the employer

calculates Employment Insurance premiums
• a premium rate employers use to calculate the amount of Employment Insurance to
deduct from employees.
The employee's premium is calculated by multiplying the insurable earnings by the premium
rate.
Both employees and employers must pay EI premiums. The employer premium is calculated
by multiplying the employee contribution by an assigned multiplier. The default employer
multiplier is 1.4 times the employees' premiums. Employers remit both portions to the CRA.
For 2023:
Maximum Insurable Earnings $61,500.00
EI premiums rate* × 1.63%
Annual Maximum Employee EI Premiums** = $1,002.45
Annual Maximum Employer EI premium (multiplier 1.4) = $1,403.43
*The EI premium rate for Québec employees will be discussed later in this course.
** The employer EI premium will be covered in more detail in Payroll Fundamentals 2
EI premiums must be withheld from employees as of the first insurable dollar earned; there is
no exemption for EI purposes, so the calculation is the same for all pay period frequencies.
Once an employer has deducted the maximum premiums for the year, no further EI
premiums should be withheld for that year.

Chapter 3
Some employers have applied for and been granted a reduced employer multiplier of less
than 1.4 times the employee's premium. To qualify for a reduced rate, an employer must
maintain a short-term disability plan (STD), which reduces employment insurance benefits
payable to individuals by Service Canada under certain circumstances. Further information
on the employer premium reduction program is provided later in this chapter.
Unlike CPP contributions, there are no age restrictions on the withholding of EI premiums.
EI premiums are withheld on all insurable earnings earned through insurable employment,
regardless of an employee's age.
Who Must Pay Employment Insurance Premiums

Employers and employees must pay EI premiums on insurable earnings and allowances from
insurable employment. Most cash allowances given to employees (for example, a car
allowance) are also insurable. Information on the insurability of different types of
employment and payments follows.
Types of Employment Subject to Employment Insurance Premiums

Insurable employment includes most employment in Canada under a contract of service
(where an employee-employer relationship exists). Some employment outside Canada is also
insurable. Certain workers who are not employees might be considered to be in insurable
employment. Examples of such workers are taxi and other passenger-vehicle drivers, barbers,
hairdressers, and fishers.
The following information describes the types of employment and the types of payments that
are not subject to EI premiums. This information can also be found in the Employers' Guide –
Payroll Deductions and Remittances – T4001, which the CRA publishes.
Types of Employment Not Subject to Employment Insurance

Premiums
The following are some types of employment that are exempted by legislation and are not
insurable. Any monies paid for these types of employment are, therefore, not subject to EI
premiums, even though there may be a valid contract of service.
• casual employment, if it is for a purpose other than the employer's usual trade or
business
• employment where the employer and the employee are not dealing with each other at
arm's length. Essentially this covers family connections (blood relationship, marriage,
common-law relationship or adoption); however, if the terms and conditions of
employment of a related person are such that a similar contract would have been
negotiated with any other person, the related person will be considered to be dealing
at arm's length. Rulings can be requested where an employer is not sure whether or
not to deduct EI premiums in this situation.
• employment by a corporation of a person who controls more than 40% of the
corporation's voting shares

Chapter 3
• employment that constitutes an exchange of work or service

• employment in Canada under an exchange program if the employee is not
remunerated by a Canadian employer
• employment of a member of a religious order who has taken a vow of perpetual
poverty and whose remuneration is paid either directly to the order or by the member
to that order
• employment of a person in a rescue operation, as long as that person is not regularly
employed by that employer
Information on other less common types of exempted employment can be found in the CRA's
publication Employers' Guide – Payroll Deductions and Remittances – T4001.
Payments and Benefits Subject to Employment Insurance Premiums

Most earnings (including controlled tips) and allowances that an employer pays completely
or partly in cash to an employee are insurable. Employer contributions to employees'
registered retirement savings plan (RRSP), when paid to the financial institution, not the
employee, are considered a deemed cash taxable benefit to the employee and are therefore
insurable. As a result, you have to deduct EI premiums from these amounts. In cases where
the employees cannot withdraw amounts from the group RRSP until they retire or cease to be
employed, the employer's contributions are not insurable. Also, benefits paid under certain
wage-loss replacement plans (WLRPs) are considered insurable earnings (using the same
criteria as explained under CPP).
Payments and Benefits Not Subject to Employment Insurance

Premiums
For the most part, the CRA determines that non-cash taxable benefits are not considered
insurable. EI premiums should not be deducted from the following types of payments or
benefits.
• all non-cash taxable benefits, except the value of board and lodging, received in a
period if paid cash for the pay period
• employer contributions to an employee's RRSP where the employee cannot withdraw
amounts from the plan until they retire or cease to be employed
• a retiring allowance or severance pay
• director's fees (unless paid to a director of a crown corporation listed in Schedule III
of the Financial Administration Act)
• monies earned (salary, banked overtime, bonus, vacation, etc.) before the death of an
employee and not yet paid at the time of death
• a supplement for any part of an Employment Insurance maternity, parental or
compassionate care benefit period
• WLRP benefits paid under a contract of insurance
• a payment by an employer under a Supplementary Unemployment Benefit plan
(SUBP)

Chapter 3
• an advance or loan, equal to the workers' compensation award, paid to employees

before or after the workers' compensation board claim is decided
• a top-up amount you pay to an employee in addition to the workers' compensation
award paid by a workers' compensation board if you pay it after the claim is accepted
by the workers' compensation board
Employment Insurance Premium Calculations

Regular Pay Periods
EI premiums can be found in the Payroll Deductions Tables. There are no pay period
exemptions to apply as there are with CPP contributions. There is only one section for
insurable earnings; there is no separation by pay period frequency. The following steps
explain how to use the tables:
STEP ACTION
1 Look down the "Insurable Earnings" column and find the range containing the
employee's insurable earnings for the pay period.
2 Locate the corresponding EI premium required.
Example:
George Roy works part-time for Marcie's Coffee Shop. He is paid weekly, and on the pay
ending July 21, George worked 9.0 insurable hours and had $90 in insurable earnings for the
pay period. Following the above steps:
1. Look down the "Insurable Earnings" column and find the range that contains $90.00. In
this case, the range is $89.46 - $90.06
2. Locate the EI premium of $1.49

Chapter 3
Note:
The payroll deduction tables and online tools used as illustrations throughout this chapter are
not necessarily the current year.
Employee EI premiums can also be manually calculated by multiplying the employee's

insurable earnings, up to the annual maximum insurable earnings for the year, by the EI
premium rate. The EI premium rate for employees outside Quebec is 1.63% for 2023.
Example:
Terri Fraser works 20 hours and has insurable earnings of $800.00 for the current bi-
weekly pay.
Insurable earnings $800.00

EI premium rate × 1.63%
Employee EI premiums = $ 13.04
Example:
Roman Dior is paid monthly and has insurable earnings of:
Salary $5,000.00
Car allowance 300.00
Total pensionable earnings $5,300.00
The EI premium for the current monthly pay period will be:
Insurable earnings $5,300.00


Chapter 3
Annual Maximum Premium

Once the maximum premium for the year has been withheld from the employee, no further
EI premium deductions would be required for the current year. It is important to monitor
your payroll system to make sure EI premiums stop once the employee reaches the maximum
deduction for the year.
Example:
Shonda Hall has bi-weekly insurable earnings of $4,200.00. The pay period EI premium is
calculated as:

Shonda's year-to-date EI premiums are approaching the maximum for the year. The
premium will be the amount required to reach the current year's annual maximum premium
on the current pay.
Annual maximum premiums $1,002.45

Year-to-date EI premiums 14 × $68.46 $ 958.44
Final EI premium for the year $ 44.01
No further EI premiums will be required for the current year.
Example:
It's the first pay of the year, and the executives receive their annual bonuses. Maria Lopez
receives a pay period salary of $5,500.00 plus a bonus of $60,000.00. All monies received
are insurable, but the premium will only be calculated on the insurable earnings up to the
annual maximum of $61,500.00. In this case, Maria will have paid the entire year's
premiums on the first pay of the year.

Employee EI premiums = $1,002.45
No further EI premiums will be required for the current year.

Chapter 3
Non-Regular Situations
Employment Insurance (EI) Premiums for a New Hire
Similar to the handling of CPP contributions, if an employee leaves one employer during the
year to start work with another employer, the new employer has to deduct EI premiums
without considering what the employee's previous employer had withheld. For example, an
employee worked for organization "A" and paid the maximum EI premium by July. In
September, the employee left organization "A" to work for organization "B." Even though
the employee had already paid the yearly maximum, they would have EI premiums deducted
again with organization "B." When the employee files their T1 income tax return, they will
be entitled to a refund of any overpaid EI premiums. The employer is not entitled to a refund
of their portion of EI premiums.
When there is an undue hardship to the employee for paying the extra premiums, the
employee may request a letter from the Canada Revenue Agency Tax Services Office
waiving the equivalent amount of income tax withholdings. Make note that this letter of
waiver does not affect the payment of employer or employee EI premiums.
Mergers and Acquisitions

An employer, with the agreement of the former employer or by operation of law, may
immediately succeed another employer as the employer of an employee as a result of:
• the formation of a corporation

• the dissolution of a corporation
• the acquisition of all or part of a business
The new employer may consider the amounts deducted, remitted or paid under the
Employment Insurance Act by the former employer for the year for the employees as if they
had been deducted, remitted, or paid by the new employer.
If you are unsure whether EI premiums are payable in a particular restructuring or succession
of employers situation, you can ask the Canada Revenue Agency (CRA) for a ruling.

Chapter 3
Employment Insurance Premium Reduction

Program
Employers who provide their employees with disability coverage for short-term illness or
injury may be eligible to use a reduced multiplier to calculate the employer Employment
Insurance (EI) premium.
The Employment Insurance Premium Reduction Program allows employers to pay EI

premiums at a reduced rate if their employees are covered by a short-term disability (STD)
plan that meets certain requirements set by Service Canada.
The program was introduced in 1971 when the federal government introduced sickness
benefits through the EI program. To limit the cost of providing the benefits, the government
required employees covered by employer short-term disability plans to use up their employer
benefits before accessing EI sickness benefits. To ensure employers with existing short-term
disability plans did not cancel them with the introduction of sickness benefits, the federal
government created the premium reduction program to reward employers with plans.
To participate in the EI Premium Reduction Program, employers must provide coverage for
STD to their employees and meet the standards established by the EI Regulations. An
employer's STD plan provides a reduced level of income to the employee if they are off work
due to illness or injury. The plan can be offered through the employer's insurance benefit
carrier or funded by the employer.
If the level of income provided by the plan meets or exceeds the EI benefits available, the
employee will not file a claim for benefits under the EI program; the employer's plan will pay
them. This plan would eliminate an employee's claim for EI benefits, and Service Canada
will grant the employer an EI multiplier less than the standard 1.4 times the employees'
premiums.
To benefit from a reduced employer premium, an employer has to apply for the reduction by:
• completing Form NAS-5022, Application for Employment Insurance Premium

Reduction, available on the Service Canada website, or requesting the reduction in
writing using the organization's letterhead
• submitting evidence of the organization's commitment to providing a short-term
disability plan to the employees and sharing the employee's portion of the savings
Employers participating in the program do not need to complete renewal applications each
year. Once an employer has been granted a premium reduction, their participation in the
program will automatically continue until they change or cancel their STD plan. Employers
who have been granted a premium reduction will receive a yearly notice indicating the
reduced EI multiplier for the plan, approved according to the information on file.

Chapter 3
Employers who qualify and are approved for a premium reduction are required to:
• advise Service Canada of any change to the STD plan within 30 days of the effective
date of the change
• report the income earned by employees covered under the plan under a different
Payroll Program Account Number from those who are not covered by the plan, which
entails filing separate T4 Summaries and remitting source deductions under separate
account numbers
• share at least 5/12 of the savings with the employees to whom the reduced rate
applies
Concerning the 5/12 sharing, the legislation does not specify how employers must share 5/12
of their savings; however, employers must be prepared to satisfy Service Canada that they
have met this obligation in the year of the savings or within the first four months of the
following year. Some examples of acceptable sharing arrangements are as follows:
• cash rebate (in which case this money is fully pensionable, insurable and taxable)
• increased or new employee benefits such as a dental plan, group life insurance,
payment to employees' benevolent fund or association, lowering prices in the staff
cafeteria, more holidays or time off
Example:
An employer would calculate the amount to be shared as follows:
(Note: this reduced multiplier of 1.262 is for illustration purposes).
Total employee premiums $20,000.00
Employer premiums at default multiplier ($20,000.00 × 1.4) $28,000.00

Employer premiums at reduced multiplier ($20,000.00 × 1.262) − $25,240.00
Total employer savings $2,760.00
× 5
$13,800.00
÷ 12
Amount to share with employees $1,150.00

Chapter 3
Content Review
• Employment Insurance (EI) premiums are based on insurable salary, wages, cash
allowances and other remuneration paid to an employee.
• Both employees and employers must pay EI premiums. The employee's premium is
calculated by multiplying the insurable earnings by the premium rate. The default
employer multiplier is 1.4 times the employees' premiums. Employers remit both
portions to the CRA.
• Once an employer has deducted the maximum premiums for the year, no further EI
premiums should be withheld for that year.
• Insurable employment includes most employment in Canada under a contract of
service (where an employee-employer relationship exists). Some employment outside
Canada is also insurable.
• Employers are not required to re-start EI premiums if the organizational structure
changes due to mergers or acquisitions, provided the employees' work is continuous.
• Short-term disability plans that Service Canada has approved allow the employer's EI
multiplier to be reduced (less than 1.4 times the employee's premiums).
• Employers must return 5/12 of the savings from the premium reduction to all
employees to whom the reduced rate applies.

Chapter 3
Review Questions
12. Joanne Keating has the following earnings and employer benefits for the current bi-
weekly pay period. In the table, record the insurable amounts and calculate the total insurable
earnings for the pay period.
Earning type Amount Insurable

Salary $2,000.00
Taxable car allowance $250.00
Non-cash taxable benefit: employer-paid life insurance $6.50
Total Insurable Earnings $
13. Keith Tucker earns $2,000.00 in insurable earnings on a bi-weekly basis. Keith will not
reach the maximum annual EI premiums on this pay.
a) Calculate the employee Employment Insurance (EI) premiums to be withheld

from the next pay.
b) If the employer must match the employee premium at the default multiplier of
1.4, how much is the employer premium for this pay?
14. Alex has had $978.08 deducted in Employment Insurance premiums to date. The
insurable earnings for the current pay are $3,750.00.
a. Calculate the employee Employment Insurance (EI) premiums to be withheld

from the next pay.
b. If the employer must match the employee premium at a reduced multiplier of


Chapter 3
15. Indicate whether the following are subject to Employment Insurance premiums by
indicating 'yes' or 'no' in the appropriate box.
YES NO
a) retiring allowance
b) supplement for any part of an employment insurance
maternity, parental or compassionate care benefit period
c) bonus paid to an employee
d) cash moving allowance
e) non-cash taxable benefit for stock options

Chapter 3
The Record of Employment

The Record of Employment (ROE) is a form employers must complete for each employee
who has an interruption of insurable employment, according to Employment and Social
Development Canada (ESDC) and Service Canada criteria.
Service Canada considers the ROE the single most important document produced by payroll
as it uses the employment history information on the ROE to decide:
• if a person qualifies for Employment Insurance (EI) benefits

• what the benefit amount should be
• how long a person is eligible for these benefits
There are two ROE formats available – electronic and paper.
Electronic ROEs are submitted to Service Canada using one of these methods:
• through ROE Web using compatible payroll software to upload ROEs from the
organization's payroll system
• through ROE Web manually entering data online through Service Canada's website
• through Secure Automated Transfer (SAT), which may be performed by a payroll
service provider using bulk transfer technology
The paper ROE is a three-part form: the original and the second and third are copies. The
copies are distributed as follows:
• copy 1 is given to the employee to submit to Service Canada if they file for EI
benefits
• copy 2 is sent to Service Canada
• copy 3 is kept by the employer for their records; to comply with records retention
legislation, the ROE must be securely stored for six years after the year to which the
information relates
Paper ROE forms are identified by serial numbers, and employers should maintain control of
the ROE forms by recording the serial numbers of all blank forms and keeping a log of
deleted or distributed forms.
A warning is given by Service Canada that states, "It is a serious offence to misrepresent the
reason for issuing an ROE. If you enter a false or misleading reason for issuing an ROE, you
may be subject to fines or prosecution."

Chapter 3
Form Issuance
Whether or not the employee intends to file a claim for EI benefits, the ROE must be issued:
• each time an employee experiences an interruption of earnings, or

• when Service Canada requests one
An interruption of earnings occurs in the following situations:
• An employee has had or is anticipated to have seven (7) consecutive calendar days
with no work and no insurable earnings from the employer. This is called the seven-
day rule.
• When an employee's salary falls below 60% of regular weekly earnings because of
illness, injury, quarantine, pregnancy, the need to care for a newborn or a child placed
for adoption, the need to provide care or support of a family member who is gravely
ill with a significant risk of death or the need to provide care or support for a critically
ill or injured child or adult.
Example:
The following employees of Wheeler Industries have experienced an interruption of earnings
and will be issued a Record of Employment:
Meredith Jackson: started leave on August 3 for 12 months of unpaid maternity leave
Phil Campbell: was injured playing soccer on August 5 and will be off work for three
months of unpaid sick leave
Francine Rivard: requested, and was approved for, an unpaid eight-week compassionate
care leave to take care of a parent beginning August 6
Rita Romano: employment was terminated effective August 7, after two months of
employment
The deadline for issuing an ROE depends on the format used, electronic or paper.
If filing electronically, employers with a weekly, bi-weekly or semi-monthly pay cycle have
five calendar days after the end of the pay period in which there was an interruption of
earnings to issue the electronic ROE.
If the pay cycle is monthly or every four weeks, employers must issue electronic ROE forms
on the earlier of:
• five (5) calendar days after the end of the pay period when the interruption of
earnings begins, and
• 15 calendar days after the first day of the interruption of earnings

Chapter 3
When filing a paper ROE, an employer must issue the ROE within five calendar days of the
first day of an interruption of earnings or the date the employer becomes aware of the
interruption.
Tracking Insurable Earnings

Even though there are annual maximum insurable earnings to calculate EI premiums, it is
necessary to track all insurable earnings for employees, even those whose earnings are over
the annual maximum. This is required to properly complete Blocks 15B, 15C (when
necessary) and Block 17 of the ROE.
Tracking Insurable Hours

Hours of work are used to determine:
• if individuals are entitled to EI benefits and, if so,

• how long they may collect EI benefits
It is the responsibility of the employer to maintain accurate records and be able to report the
total hours of insurable employment.
An insurable hour is considered an hour worked and paid within insurable employment
even though the hour of work may have been paid at a higher pay rate.
Not all employees are paid by the hour. The employee-employer contract would need to be
reviewed for employees paid a fixed salary for a pay period. If the employee is expected to work
for a fixed number of hours to receive their salary, then those are the hours that will be recorded
as insurable hours. If the employee works more than the contracted amount, only the contracted
amount is reported unless the employee is paid for the extra hours.
Example:
An employee is paid a salary of $500.00 a week and is expected to work 37.5 hours. Due to
some extra work that came in, the employee worked an extra 2.5 hours but was not
remunerated for them. For ROE reporting purposes, only 37.5 hours are recorded.
If there are no set work hours for the pay, such as in piecework, then the employee and employer
can agree upon a reasonable number of hours. The keyword here is reasonable. Hours that are
unreasonably high for the remuneration will be questioned.
Examples of electronic and paper ROEs are shown on the following pages.

Chapter 3
Record of Employment Forms

ELECTRONIC

Chapter 3
PAPER

Chapter 3
Content Review
• Service Canada uses the employment history information on the Record of
Employment (ROE) to decide:
o if a person qualifies for Employment Insurance (EI) benefits
o what the benefit amount should be
o how long a person is eligible for these benefits
• An employer must issue an ROE to an employee when an interruption of earnings
occurs. An interruption of earnings occurs in the following situations:
o An employee has had or is anticipated to have seven (7) consecutive calendar
days with no work and no insurable earnings from the employer. This is
called the seven-day rule.
o When an employee's salary falls below 60% of regular weekly earnings
because of illness, injury, quarantine, pregnancy, the need to care for a
newborn or a child placed for adoption, the need to provide care or support of
a family member who is gravely ill with a significant risk of death or the need
to provide care or support for a critically ill or injured child or adult.
• Whether or not the employee intends to file a claim for EI benefits, the ROE must be
issued:
o each time an employee experiences an interruption of earnings, or
o when Service Canada requests one
• Employers must track all insurable earnings for employees, even those whose
earnings are over the annual maximum.

Chapter 3
Review Questions
16. What is the Record of Employment (ROE), and what is it used for?
17. When does an interruption of earnings occur?

Chapter 3
Chapter Review Questions and Answers

1. You have been provided with the following list of new workers. Determine who will be
subject to CPP contributions.
Deduct CPP
Name Age Job Status Reason
(Yes or No)
Manuel 25 Full-time YES Employee between 18 and 70
Sheree 17 Part-time NO Employee is under 18
Finn 32 Independent contractor NO Not considered an employee
Jerry 72 Part-time NO Employee is over 70
Elina 53 Part-time YES Employee between 18 and 70
Josh 40 Full-time YES Employee between 18 and 70
2. True or False. CPP contributions should be stopped for Oscar, a part-time employee who
is 66 years of age and has started receiving a CPP retirement pension.
False. Although Oscar is over 65 years of age and is receiving a CPP retirement
pension, the employer must continue withholding CPP contributions until the
employee completes and submits an election to stop paying CPP contributions.
3. Which of the following types of employment is subject to CPP contributions.
a) Employment by a government body as an election worker for 20 hours in the year

b) Regular part-time employment by a government body
c) Employment by a member of a religious order who has taken a vow of perpetual
poverty
d) Temporary employment of a person during a disaster or rescue operation
4. Which of the following payments and benefits are not subject to CPP contributions.
a) Taxable benefits
b) Death benefit
c) Performance bonus
d) Vacation pay
5. True or False. Canada Pension Plan contributions must be calculated on the severance
payments made to an employee when they leave an organization.
False. Severance payments received upon or after retirement in recognition of long

service or in respect of loss of office or employment are not subject to Canada
Pension Plan contributions.

Chapter 3
6. Calculate the CPP contributions for the current monthly pay period for the following
employees.
Manuel Elina Josh

Pensionable earnings $7,500.00 $275.00 $4,600.00
Pay period exemption − 291.66 291.66 291.66
Contributory earnings = $7,208.34 $0.00 $4,308.34
CPP contribution rate × 5.95% 5.95% 5.95%
CPP contribution = $ 428.90 $ 0.00 $ 256.35
7. If Manuel's monthly pensionable earnings have remained the same, what will the monthly
CPP contribution be for September, ensuring that the annual maximum CPP contribution
is not exceeded?
Pensionable earnings $7,500.00

Pay period exemption − 291.66
Completed pays in the year × 8
Year-to-date CPP contributions = $3,431.20
Annual maximum CPP contribution $3,754.45

Year-to-date CPP contributions − $3,431.20
8. Rena Cheng is a salesperson for Lake City Bridal, who is paid by commission only. The
current commission payable is $22,500.00, and it has been 90 days since the last
commission payment. Calculate CPP exemption and contribution for the current
commission payment.
The CPP exemption for the current commission payment will be calculated as
follows:
90
CPP exemption = × $3,500.00 = $863.01
365

Employee CPP contribution = $1,287.40

Chapter 3
9. Paul Wilson will turn 70 on September 14th of the current year.
a) When will CPP contributions stop?

CPP contributions will no longer be required starting with the first pay date in
October.
b) Calculate the pro-rated maximum CPP contributions for the current year.

$ 312.87
Months of pensionable employment (Jan - Sep) × 9
10. True or False. If Paul Wilson had already contributed more than the pro-rated maximum
CPP contribution for the year, the employee should receive a refund of the over-
contribution.
True. If an employee has contributed more than the pro-rated maximum CPP
contribution for the year, the over contributions must be refunded to the
employee.
11. True or False. Suppose a new employee presents proof of CPP contributions deducted by
their previous employer. In that case, the new employer may consider this year-to-date
balance when calculating CPP contributions on their payroll.
False. An employer cannot consider the amount of CPP contributions an

employee had withheld from another employer. Each employer is responsible for
withholding and remitting CPP contributions on pensionable earnings paid
through their payroll. The only exception that may apply is in the event of a
merger or acquisition.

Chapter 3
12. Joanne Keating has the following earnings and employer benefits for the current bi-
weekly pay period. In the table, record the insurable amounts and calculate the total
insurable earnings for the pay period.
Earning type Amount Insurable

Salary $2,000.00 $2,000.00
Taxable car allowance $250.00 $250.00
Non-cash taxable benefit: employer-paid life insurance $6.50
Total Insurable Earnings $2,250.00
13. Keith Tucker earns $2,000.00 in insurable earnings on a bi-weekly basis. Keith will not
reach the maximum annual EI premiums on this pay.
c) Calculate the employee Employment Insurance (EI) premiums to be withheld

from the next pay.
$2,000.00 × 1.63% = $ 32.60
d) If the employer must match the employee premium at the default multiplier of
$32.60 × 1.4 = $ 45.64
14. Alex has had $978.08 deducted in Employment Insurance premiums to date. The
insurable earnings for the current pay are $3,750.00.
a. Calculate the employee Employment Insurance (EI) premiums to be withheld
from the next pay.
Current pay period:

Annual maximum premiums $1,002.45

Year-to-date EI premiums 16 × $61.13 $ 978.08
Final EI premium for the year $ 24.37
b. If the employer must match the employee premium at a reduced multiplier of

$24.37 × 1.27 = $ 30.95

Chapter 3
15. Indicate whether the following are subject to Employment Insurance premiums by
indicating "yes" or "no" in the appropriate box.
YES NO
a) No retiring allowance
b) supplement for any part of an employment insurance
No
maternity, parental or compassionate care benefit period
c) Yes bonus paid to an employee
d) Yes cash moving allowance
e) No non-cash taxable benefit for stock options
16. What is the Record of Employment (ROE), and what is it used for?
The Record of Employment is a form employers must complete for each employee
who has an interruption of insurable employment. Service Canada uses the
employment history information on the Record of Employment to decide:
• if a person qualifies for Employment Insurance (EI) benefits

• what the benefit amount should be
• how long a person is eligible for these benefits
17. When does an interruption of earnings occur?
An interruption of earnings occurs in the following situations:
• An employee has had or is anticipated to have seven (7) consecutive calendar

days with no work and no insurable earnings from the employer. This is called
the seven-day rule.
• When an employee's salary falls below 60% of regular weekly earnings because
of illness, injury, quarantine, pregnancy, the need to care for a newborn or a
child placed for adoption, the need to provide care or support of a family
member who is gravely ill with a significant risk of death or the need to provide
care or support for a critically ill or injured child or adult.

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Chapter

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

1. Identify the following Canada Pension Plan components:

1. The requirements and calculations for Canada Pension Plan contributions

© National Payroll Institute – Payroll Compliance 3-1

Introduction ........................................................................................................................ 3-3

© National Payroll Institute – Payroll Compliance Legislation 3-2

© National Payroll Institute – Payroll Compliance Legislation 3-3

Although there is no legislative priority amongst federal statutory withholding amounts, it is

Canada Pension Plan Requirements

There are three Canada Pension Plan benefits:

© National Payroll Institute – Payroll Compliance Legislation 3-4

Who Must Contribute to the Canada Pension Plan

Canada Pension Plan contributions must be withheld from employees who:

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

© National Payroll Institute – Payroll Compliance Legislation 3-5

No further CPP contributions are withheld once an employee is considered disabled by

Types of Employment Subject to Canada Pension Plan Contributions

© National Payroll Institute – Payroll Compliance Legislation 3-6

Types of Employment Not Subject to Canada Pension Plan

• employment in agriculture, or an agricultural enterprise, horticulture, fishing, hunting,

© National Payroll Institute – Payroll Compliance Legislation 3-7

• employment as a teacher on exchange from a foreign country

Determination of Pensionable Earnings

Payments and Benefits Subject to Canada Pension Plan

1. Income from employment

1. Income from employment

© National Payroll Institute – Payroll Compliance Legislation 3-8

2. Taxable benefits and allowances

© National Payroll Institute – Payroll Compliance Legislation 3-9

Canada Pension Plan Contributions on Non-cash Taxable Benefits

Taxable Benefit = Annual employer-paid insurance premium

Taxable Benefit = $30.00 per bi-weekly pay period

Payments and Benefits Not Subject to Canada Pension Plan

© National Payroll Institute – Payroll Compliance Legislation 3-10

b) lump-sum payments out of a pension fund

c) amounts allocated by a trustee under a profit-sharing plan or paid by a trustee under a

© National Payroll Institute – Payroll Compliance Legislation 3-11

d) benefits received under a qualified supplementary unemployment benefit plan

3. Payments at the end of employment

4. Wage-loss replacement plan (WLRP) benefits paid under a contract of insurance

5. Workers' compensation advances or loans

© National Payroll Institute – Payroll Compliance Legislation 3-12

6. Payments linked to special conditions under the Income Tax Act

© National Payroll Institute – Payroll Compliance Legislation 3-13

© National Payroll Institute – Payroll Compliance Legislation 3-14

3. Which of the following types of employment is subject to CPP contributions.

© National Payroll Institute – Payroll Compliance Legislation 3-15

Canada Pension Plan Contribution Calculations

© National Payroll Institute – Payroll Compliance Legislation 3-16

CPP Pay Period Exemption

The pay period exemptions, based on pay frequency, are:

PAY PERIOD YEARLY BASIC NUMBER OF PAY PERIOD

These exemptions are calculated as follows:

Weekly exemption: 52 pay periods per year $3,500.00 = $67.30*

Bi-weekly exemption: 26 pay periods per year $3,500.00 = $134.61*

Semi-monthly exemption: 24 pay periods per year $3,500.00 = $145.83*

Monthly exemption: 12 pay periods per year $3,500.00 = $291.66*

© National Payroll Institute – Payroll Compliance Legislation 3-17