All Canadian employers other than those in Quebec¹ are required to:

• Deduct Canada Pension Plan (CPP) contributions from their employees’ pensionable earnings if the employee meets certain conditions;
• Contribute an amount equal to the CPP contributions that were deducted; and
• Remit both amounts.

These obligations end when the employee reaches the maximum contribution for the year.

On January 1, 2024, Canada entered the last phase of CPP enhancements introduced in 2016 through Bill C-26, An Act to amend the Canada Pension Plan, the Canada Pension Plan Investment Board Act and the Income Tax Act.

Prior to January 1, 2019, employees and employers made base contributions. Employees contributed 4.95% on their pensionable earnings up to a year’s maximum pensionable earnings (YMPE) (first ceiling) and employers made an equal contribution.

A first phase of CPP enhancements occurred between 2019 to 2023 when the contribution rate to CPP for employees gradually increased from 4.95% to 5.95%. This was the base contribution (4.95%) and the first additional contribution to the CPP (1%).

Commencing on January 1, 2024, a year's additional maximum pensionable earnings (YAMPE) (second higher ceiling) was introduced, requiring a second CPP contribution (CPP2) to be made on these earnings, beginning at the first earnings ceiling and up to the second earnings ceiling. Note that the first earnings ceiling was not replaced; rather, workers’ earnings have now been made subject to two earnings limits.

On November 1, 2023, Canada announced that in 2024, the maximum pensionable earnings under the CPP will be $68,500, and a higher, second earnings ceiling of $73,200 will be implemented and used to determine CPP2. Accordingly, pensionable earnings between $68,500 and $73,200 are now subject to CPP2 contributions.

Employee and employer CPP contribution rates for 2024 remain at 5.95%, and the maximum contribution will be $3,867.50 each.

Employee and employer CPP2 contribution rates for 2024 are 4% on earnings above the first earnings ceiling (YMPE), up to the amount of the second earnings ceiling (YAMPE). In 2024, the maximum yearly CPP2 contribution is $188.00 each for the employee and the employer.

In its announcement, Canada indicated that in 2025, the second earnings ceiling will be set at an amount that is approximately 14% higher than the first earnings ceiling; from 2026 on, the first and second earnings ceilings will increase incrementally each year, but the contribution rates will remain the same indefinitely.

Bottom Line for Employers

Now that Canada has entered the final phase of CPP enhancements, employers are encouraged to revise their payroll processes for making CPP deductions and contributions. These revisions should consider that commencing in 2024, in addition to being required to make base CPP contributions, employers are also responsible for making CPP2 contributions on employee incomes greater than the YMPE up to the YAMPE, if applicable.