Why are employers being forced to contribute more to CPP?
In 2019, the Canadian Pension Plan (CPP) enhancement began. This program was implemented to slowly increase CPP premiums a total of 1% between the years of 2019 to 2023. This would allow both employers and employees to adjust to the increase slowly rather than experience it all at once. The program was created to keep up with the cost of living for future pensioners.
Isn’t this just a tax increase for employers and employees?
While it goes by a different name, the CPP enhancement has a very similar impact to your everyday tax hike. This ‘enhancement’ requires both employers and employees to pay additional money out-of-pocket to the Canadian government to ensure the CPP program remains viable in the future.
How has the rate of contribution changed?
Employers and employees are now equally responsible for contributing at a rate of 5.95%. In 2022, the rate of contribution was 5.70% and, in 2018, before the contribution increase began, the rate of contribution set at 4.95%.
The maximum pensionable earnings under the CPP have also been steadily increasing. In 2023, the maximum pensionable earnings is now $66,600—up from $64,900 in 2022 and $55,900 in 2018.
What is the actual dollar increase compared to last year?
The maximum employer and employee CPP contribution for 2023 will be $3,754.45 each and the maximum self-employed contribution will be $7,508.90.
The maximums in 2022 were $3,499.80 and $6,999.60 respectively. Therefore, the maximum increase in CPP contributions per employee that employers can expect to see for 2023 is $254.65.
What does this increase mean for employers?
This increase may not seem too significant on an individual scale but think about the past 5 years. Employers’ maximum contribution in 2018 was $2,593.80. This means in only five years time, employers are now expected to contribute $1,160.65 more in CPP contributions per employee on the highest end. For 1,000 employees this equals a staggering $1,160,650 more in CPP contributions.
It is also not as though these past few years have been smooth sailing for employers either. The COVID-19 pandemic has devastated the Canadian economy and the lingering economic downturn does not appear to be going anywhere any time soon.
If you are an employer with hundreds or even thousands of employees, this is without a doubt going to impact your bottom line. And on the other end of the spectrum, if you are a small business barely affording rent, this increase can feel significant even with only a handful of employees.
Many employers and employees alike hoped for a pause in this program, seeing as the economy has not yet bounced back. While most recognize that this program’s attempt to address future inflation is valid, the sentiment for many over the past few years has been a resounding “not now”.
How are employers going to respond?
There are a few ways employers might respond to CPP enhancements. Some of the more popular responses will include:
- Laying off employees
- Turning to AI
- Increasing the price of products and services
- Scaling back workplace pension plans
When it comes to laying off employees, we are already seeing layoffs happen in droves. Shopify, as a recent example, just recently announced the elimination of 20% of its workforce. That’s an estimated 11,600 employees. For these employees, a CPP contribution of $1,160.65 per employee, amounts to $13,463,540 more contributions annually!
CPP enhancements are without a doubt going to aggravate these corporate giants, and have likely already done so, and its everyday Canadian’s that are going to be stepped on.
Turning to AI
With that being said, some employers may be reluctant to take this approach because there is a labour shortage in many industries. Because of this, we are likely to find employers turning toward the open arms of Artificial Intelligence (AI).
While AI is not yet ready to perform every job, these increasing costs of business will almost certainly force employers to explore what AI is capable of. What comes next is an assessment of which duties (or even entire roles) employers can eliminate, eventually allowing employers to reduce their staff and overall expenses. And once again, the average Canadian will get the short end of the stick, with less jobs to occupy and increasingly obsolete skills.
It is virtually guaranteed that Canadians should expect price increases as a result of CPP enhancements. While employers can use this method to pass off some of the financial burden to their consumers, the average Canadian is now not only going to be paying more towards their half of the CPP contribution but will also have to contend with increased prices for their daily needs.
And what happens when consumers become strapped for cash? They stop spending as much, and this impacts employers.
You might notice there is a trend beginning to form here.
While employers have a handy toolbelt of mechanisms to offset the immediate impact of tax increases, nothing will protect employers from the further economic downturn that these CPP enhancements will no doubt play a part in. When consumers are struggling, employers are struggling, and there is simply no way around it.
Scaling Back Workplace Pension Plans
Finally, a trend we might also see is employers scaling back workplace pension plans as a way to offset the rising costs of CPP contributions. However, this is not always a simple task for employers.
While many employees might not notice or feel the bump to their CPP contributions, they are far more likely to notice a reduction in their pension contributions. It can often be difficult to convince employees that their compensation is remaining virtually identical when there is the perception that something is being taken away.
All in all, it is clear that CPP enhancements are making waves in the Canadian economy, and that neither employers nor employees are safe from its wake. What we are likely to see in the years to come is Canadian employers attempting to sooth their financial aches, most often at the expense of the average working Canadian. Whether it be old practices such as mass layoffs, cutting benefits, and price increases or new practices such as an increased reliance on AI, what can be known for certain is that this is no time for anyone to get comfortable. It’s time to grab a life jacket and brace for that next wave over the horizon!
Contact Minken Employment Lawyers Today
Are you an employer seeking advice on CPP contributions or reducing your workforce? Or has your work been impacted by CPP contributions? If so, contact us today to speak to an experienced employment lawyer. We can be reached at: 905-477-7011 | Toll-Free: 1-866-477-7011 | email@example.com.
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Please note that this article is for informational purposes only and does not constitute legal advice.
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