Canadian workers could see up to 5 drop in pay in January
Small Business

Canadian workers could see up to $305 drop in pay in January

In less than two weeks, Canadian workers could notice up to $305 less on their annual take-home pay.

Thanks to an increase in payroll deductions beginning in 2023 (yes, that’s in 11 days), every employed Canadian will see their paychecks impacted, even if their employer decides to make up the difference, said the Canadian Federation of Independent Business (CFIB).

The country’s largest non-profit organization dedicated to helping small businesses says employers are bracing for rate hikes for both Employment Insurance (EI) and Canada Pension Plan (CPP) in the new year, and many of these small businesses will “struggle to meet even their existing payroll budgets,” warned the CFIB.

Beginning Jan. 1, 2023, the CPP premiums will see an increase of up to 7.3 per cent, and will cost employers and workers up to $255 more in contributions per employee. The CFIB says the CPP rate hikes are part of a number of phased increases that will run through to 2025.

Also in the new year, EI premiums for employers will rise by as much as 5.2 per cent per employee and all together could cost business owners up to $325 more per worker, a 6.7 per cent jump from 2022.

Here’s what that means for Canadians:

How do these payroll taxes affect your paycheck?

“The maximum additional amount that an employee will pay in EI and CPP contributions is $304.71. It may not seem like a lot, but $300 can cost a family a trip to the grocery store or pay for their transportation or utility bills. Payroll tax increases will hit Canadians at a time when most are already seeing their cost of living quickly increase,” said Dan Kelly, president of CFIB. “The hikes will also affect small businesses. With rising input costs, staggering labor shortages and a potential recession, the economy is already in a bad shape. At minimum, the government should be pressing pause until inflation is under control.”

Kelly says most small business owners can’t afford to raise staff wages in order to offset the increase in payroll taxes. Just over half of small businesses across the country are still recovering from the blow they were dealt with by COVID-19 and pandemic lockdown measures, and have not returned to “normal levels of revenue” according to the CFIB’s latest Small Business Recovery Dashboard.

The organization says 58 per cent of small businesses still carry pandemic-related debt averaging more than $114,000.

For CPP, the employer pays the exact same amount as the employee, so if premiums are $1,600 for a worker, their employer is also paying $1,600. It’s a 50/50 split.

The EI rate hits the employer’s pocketbook more deeply than it does the employee, as the employer has to pay 40 per cent more than the worker.

So while Canadians are looking to their employers for a larger wage to help with inflationary pressures, Kelly said, the employers are simultaneously dealing with their own level of inflationary pressure and lower revenues.

Kelly said many of the business he’s talked to said owners they’re unable to provide the raises employees need in order to offset their rising cost of living and it’s really putting a great amount of pressure on small- and medium-sized businesses at this time .

Why are CPP and EI premiums going up?

The increase is part of a multi-year plan approved by provinces and the federal government years ago to boost retirement benefits through the public plan by increasing contributions over time. The rises started in 2019 and are part of a seven-year plan.

The pension plan requires contributions to go up alongside the upper limit on earnings that are subject to those premiums. The ceiling on earnings is called the yearly maximum pensionable earnings, or YMPE, and that amount, says Kelly, is going up again in 2023 from $64,900 to $66,600.

And Kelly says that’s part of the issue.

Not only are the CPP and EI premiums rising, but the ceiling on earnings is also going up. For example, people who earned more than $64,900 last year were not required to contribute more to the CPP, but starting next year, that threshold will move to $66,600.

What’s the solution?

The CFIB sent an open letter to Deputy Minister Chrystia Freeland asking Ottawa to work with provinces to help small businesses offset the impact of the upcoming payroll tax hikes.

“The January 2023 increase to the CPP and EI premiums will add pressure on all businesses and particularly on those least able to afford it,” the letter reads.

Kelly says the CFIB has urged the federal government to press pause on both increases for the CPP and EI.

“It seems really wrong. The consumers are dealing with massive inflationary pressures, their incomes are under a huge constraint right now. And as a result, every dollar counts,” Kelly said.

During the pandemic, the federal government froze EI premiums for two years, and Kelly said the same could be done for 2023. Kelly told the Star he had just gotten off the phone with the Deputy Minister and had suggested retroactive action in the upcoming budget in the form of a credit for small businesses. It would be similar to the 2015 and 2016 “Small Business Job Credit,” Kelly explained, in order to help offset the rate increases.

“We need to be ensuring that Canadians have more money to buy the basics, not less, especially given the cost of those basics that are going through the roof,” Kelly said.

Statistics Canada announced Wednesday morning that Canada’s annual rate of inflation fell slightly in November, but food prices continued to soar, and the cost of shelter also rose.

The Consumer Price Index was 6.8 higher in November than it was a year ago. That’s a slight drop from the 6.9 per cent annual pace seen in October.

How does this affect self-employed Canadians?

Entrepreneurs or people who are self-employed will only be affected by the CPP premium increase, but Kelly said the jump will actually impact this group of people the most.

“The self-employed actually got hit harder. If you’re, say, a business owner, or a journalist… they have to pay both shares of the CPP, they have to pay the CPP share for themselves as a worker would and they have to pay the employer’s share as well . So they pay double the rate of any other Canadian, so it’s obviously a bigger hit.”

Canadians who are self-employed don’t contribute to the EI program.

What does this mean for retire?

The increase is paying for future benefits for retirees, said Kelly, and the rise in premiums won’t impact current benefits for retired Canadians.

Who benefits from these CPP increases?

When the Liberals first took office, said Kelly, they worked to negotiate a deal with the provinces to significantly enhance the CPP. They announced a seven-year schedule of rate increases and yearly maximum pensionable earnings to try to increase future CPP benefits.

For 2022, the maximum monthly amount of a new CPP recipient who starts drawing a pension at age 65 can receive is $1,253.59, according to the government’s website. Kelly says for most retired Canadians, this works out to about 25 per cent of their pre-retirement income. He said the federal government’s goal in increasing the CPP premiums is to see benefits rise closer to a third of a retired person’s income. But Kelly warns the benefit enhancements — which have already begun, but current amount to pennies — will get phased in over 40 years.

“So the majority of this rate increase is to fund future benefit enhancements. Many, many years from now.”

While the increase may appear to some to be ill-timed, the benefit increase isn’t significantly higher than previous years, said David Macdonald, senior economist with the Canadian Center for Policy Alternatives. And experts tell the Star they must increase to keep up with inflation.

“Every year prior to 2019 the EI rate increased was higher, so at this point the rate we’re seeing is a bargain,” Macdonald said.

Correction — Dec. 22, 2022: A previous web headline for this article erroneously said Canadian workers could see up to $305 less on their paycheck starting in two weeks, when in fact, it is up to $305 less in annual pay. The story was also updated to state EI and CPP are payroll deductions rather than payroll taxes.

With files from Claririe Feinstein and Josh Rubin


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