Canadian Payroll Reporter

2 Canadian HR Reporter, a Thomson Reuters business 2018 News December 2018 | CPR and later years each for employ- ers and employees. As a result, the CPP rate will be 5.1 per cent in 2019; 5.25 per cent in 2020; 5.45 per cent in 2021; 5.7 per cent in 2022; and 5.95 per cent in 2023 and later years. For QPP, the rate will be 5.55 per cent in 2019; 5.7 per cent in 2020; 5.9 per cent in 2021; 6.15 per cent in 2022; and 6.4 per cent in 2023 and later years. The second change will begin in 2024, when the governments implement a new contribution rate (called the second addition- al contribution rate) of four per cent each for employers and em- ployees on pensionable earnings between the YMPE and a new upper earnings limit. In 2024, the new upper earn- ings limit will be 107 per cent of the YMPE. In 2025, it will rise to 114 per cent of the YMPE. The CRA will continue to al- low employees to claim a non- refundable tax credit for their base C/QPP contributions; however, the first and second ad- ditional contributions will be tax deductible. The CRA has also said there will be no changes to T4 report- ing as a result of the CPP en- hancement. The same is expect- ed for RL-1 reporting in Quebec. For payroll professionals, the biggest change in 2019 will be implementing a new contribu- tion rate and updated YMPE. The annual exemption for both plans will remain $3,500. While payroll professionals are used to annual YMPE changes, it will be the first time the CPP con- tribution rate has increased since 2003. The QPP rate rose each year from 2012 to 2017. To ensure that payroll runs smoothly with the first pay in January, the Canadian Payroll Association (CPA) advises that employers spend the time now to make sure that their systems are ready. "They should ensure that they have the proper rates in their system for Canada and Que- bec Pension Plan. And with any programming changes, it is rec- ommended that employers do testing in the background prior to the first live run of their 2019 payroll," said Janet Grossett, manager of compliance services and programs for the CPA. "Simply inputting the rate in the system is not good enough. You could potentially make mis- takes, so it would be advisable to test," she said. Employers operating in multi- ple jurisdictions including Que- bec must ensure they input, test, and apply the correct rates for both the CPP and the QPP. All payroll professionals should also start notifying em- ployees of the changes if they have not already done so. "This will ensure that there are no surprises when payroll has been processed and when the employees view their first pay statement for the new year," said Grossett. "It will definitely decrease some of the calls received after the first statement is processed," she said. Communicating changes in advance can also help employ- ees plan for increased costs, said Marlo Hertling, vice-president of people and culture at Avanti Software in Calgary. "As many employees live pay- cheque to paycheque, they will appreciate the advance notice so they can plan for the additional amount that will be deducted," she said. When notifying employees, it is important to tell them about the full C/QPP enhancement and not just the immediate rate increase, said Andrew Hamil- ton, partner and Ontario retire- ment practice leader at profes- sional services firm Aon. "If you look at the changes, we can fall into a bit of a trap of just communicating the details on what is changing," he said. "Immediately, it's not a big deal, but if you back up and look at all the changes, it is actually pretty significant." "It is the first time that the CPP benefit levels have been enhanced since inception," said Hamilton. "CPP benefits could potentially be about 50 per cent higher (in the future) for a lot of Canadians than they would have otherwise been in the existing program." "It's a pretty big deal and we can lose sight of that if we just fo- cus on incremental changes over the next few years," he said. Informing employees about both the rate and benefit chang- es can help them better under- stand what the changes mean for them, according to Hertling. "Provide an example to show them what it will really look like to them, so they don't feel pan- icked or fearful of how much this will really be for them; then they can budget accordingly," she said. "Educating employees builds trust in your organization, shows them that you care and that you want them to be aware of the changes in advance," said Hertling. The easiest way to commu- nicate the changes is through the employer's intranet or via company-wide emails, said Grossett. "Some software may have the capability to include messages on their pay statements, but (employers) want to check with their payroll software provider for this because they will need to have some lead up time for that," she said. Employers who use pay- roll service providers should work with them to ensure that employees are notified of the changes before Jan. 1. Payroll professionals should also ensure that the accounting department and executive teams are aware that C/QPP changes are coming, if they do not al- ready know. "They will need to know to budget more for the upcoming years for contributions," said Kim Groome, solution specialist at Avanti Software. "This impacts the bottom line and you want to keep them in- formed so that they can plan ac- cordingly," she said. Since the C/QPP rate chang- es will also increase costs for employers, Hamilton recom- mended that employers re- mind employees that C/QPP is a shared-cost program that will also require additional employer funding. "Employers probably want to point out that there is an addi- tional contribution that they are making." "While quite modest in 2019, it will grow to a not insignifi- cant amount in 2024, '25 and '26. I think we want to put that front and centre when we go out to employees to remind them that employers continue to make these investments," he said. The C/QPP enhancement may also have implications for employer pension plans, so companies that have not yet done so should begin to review their plans for possible cost or policy changes, according to Hamilton. "This is the first time that the social security programs have changed in many, many years and a lot of organizations have designed (pension) programs that either implicitly or explicitly reflect the level of social secu- rity benefits that are provided in Canada," he said. "A lot of organizations would have designed the plans look- ing at what members would get from CPP and OAS (old age security) implicitly and some would have looked at actually integrating their formulas — ei- ther contribution rates or ben- efit amounts or both — with CPP," said Hamilton. "If you look at them from the standpoint of were those pro- grams integrated, will they au- tomatically integrate with the new CPP enhancement? Some programs will," he said. "The vast majority, though — the way the programs are typi- cally written — they won't auto- matically integrate with the new level of benefit." "That will have to be a deci- sion that is taken actively by plan sponsors if that is the path that they want to go down," said Hamilton. "It's probably a good time to look to see whether those plans are delivering on their objectives." Spend time now to ensure system readiness: CPA from CPP, QPP on page 1 Communicating payroll changes in advance can help employees plan for increased costs.

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