Canadian HR Reporter

IN FOCUS PAYROLL Credit: Facto Photo (Shutterstock) By Rachel De Grâce I n June 2016, after years of discussions, the federal govern- ment reached an agreement in principle with provincial and territorial fi nance ministers to strengthen the Canada Pension Plan (CPP). For those tasked with implementing the CPP enhancement on behalf of their employers — including those in payroll, human re- sources and accounting — regulatory and administrative compli- ance will require careful consideration. Beyond that, these professionals will need to be able to clearly explain and communicate changes and challenges of the CPP en- hancement to both employers and employees. What we know so far e agreement in principle enabled federal Finance Minister Bill Morneau to table legislation in Parliament. Bill C-26, An Act to amend the Canada Pension Plan, the Canada Pension Plan Invest- ment Board Act and the Income Tax Act, which received royal assent on Dec. 15, 2016, will offi cially usher in changes to the CPP. e enhanced CPP will: • replace 33 per cent of pre-retirement income, up from 25 per cent • increase the yearly maximum pensionable earnings (YMPE), the maximum amount of income subject to CPP, by 14 per cent, which is projected to be equal to roughly $79,400 in 2025 • gradually phase in contribution increases over seven years, be- ginning Jan. 1, 2019: A fi ve-year contribution rate phase-in of an additional one per cent up to the YMPE for both employees and employers, followed by a two-year phase-in of an additional four per cent contribution on a new upper earnings limit for both employees and employers • increase the working income tax benefi t to help low-income earners • provide a tax deduction, instead of a tax credit, for em- ployee contributions associated with the enhanced portion of CPP. It is important to note that while the current CPP em- ployee contributions of 4.95 per cent of pensionable earnings will remain as a tax credit, the increased CPP employee contributions will represent a tax deduction. Employers will not be responsible for program- ming this distinction within their payroll systems for the phase one CPP enhancements eff ective 2019 to 2023. Employees will be entitled to a tax deduc- tion when fi ling their T1 personal income tax and benefi t return for the enhanced portion of CPP contributions. e Canadian Payroll Association (CPA) has also confi rmed that the T4 slip will re- main the same, with the enhanced portion of CPP contributions included in the exist- ing CPP boxes. e federal government is still working on proposed regulations and administration for phase two of the CPP enhancements that come into eff ect be- ginning 2024. In November 2017, Quebec Finance Minister Carlos Leitão introduced Bill 149, An Act to enhance the Quebec Pen- sion Plan and amend various retirement- related legislative provisions. e bill looked to harmonize enhance- ments to the Quebec Pension Plan (QPP) with CPP amend- ments by amending the Act respecting the Quebec Pension Plan, and introduces an additional plan. e changes are intended to mirror the CPP enhancements, with additional employee and employer contributions starting in 2019. e rate will increase progressively until it reaches two per cent per year (meaning one per cent per employee and one per cent employer contributions). is will still provide for a diff erential between CPP and QPP rates. Potential impacts ere are a number of points to consider around sponsor retire- ment plans — such as defi ned benefi t, defi ned contribution or other capital accumulation plans such as group RRSPs. e total employee and employer CPP/QPP contribution in- crease will be gradually phased in over a seven-year period. e increased mandatory contributions for employers may be signifi - cant, depending on the size of their payroll and if they are already sponsoring retirement savings programs. Employers will need to re-assess their current retirement and benefi t off erings for practicality and fi nancial preparedness. Addi- tional employer contributions could impact the kinds of employer- sponsor programs provided to employees. ere is a possibility that employers could scale back some re- tirement programs to recoup the costs of additional CPP/QPP contributions. Collective agreements and registered pension plans should be reviewed, especially for language around retirement and savings programs that are integrated with the CPP/QPP. Employers should anticipate that such changes may aff ect poli- cies, staff responsibilities, and remuneration planning. ey will also have to ensure compliance within payroll systems, HR policies, employee handbooks, and pension documents. For those with payroll oversight, be mindful that CPP/QPP en- hancement will require mandatory, ongoing payroll system chang- es in the coming years. Implementation should be planned and discussed well in advance of the actual deadline dates. While the proposed gradual phase-in will provide additional time for organizations to assess the full fi nancial impact, it's rec- ommended employers begin any program adjustments a minimum of 18 months in advance. at means that if an organization has not already begun prepa- rations, it needs to begin immediately. In fact, it may have to expedite the planning depending on the complexity of employee scenarios (for example, employees trans- ferring between jurisdictions including Quebec). Payroll profes- sionals are the best people in an organization to work through such employment scenarios in advance of implementation. Employee communications Finally, employers should ensure that ongoing employee communi- cations address retirement questions that staff may have regarding these CPP/QPP changes. When making any changes to employee benefi ts off erings, organizations should provide clear communica- tion to everyone aff ected and be available to answer queries. Payroll and HR should draft fact sheets including typical ques- tions and answers they anticipate arising from the CPP/QPP changes. ey may also want to consider holding some sort of in- formation session to help employees with any ongoing questions they may have. Employees will want to know how the changes will impact them, their pay, pay statements, tax returns, and their retirement savings. Make sure to have payroll or HR available to employees on an ongo- ing basis to help them understand any potential changes. Ultimately, careful planning and ongoing education will be cru- cial for both employees and employers in the wake of CPP/QPP enhancements. Start planning now and engage the resources required to ensure these mandatory changes are well-planned and implemented for employees. Rachel De Grâce is director of advocacy and legislative content at the Canadian Payroll Association in Toronto. For more information, visit www.payroll.ca. Credit: Facto Photo (Shutterstock) By Rachel De Grâce I n June 2016, after years of discussions, the federal govern- ment reached an agreement in principle with provincial and territorial fi nance ministers to strengthen the Canada Pension Plan (CPP). For those tasked with implementing the CPP enhancement on behalf of their employers — including those in payroll, human re- sources and accounting — regulatory and administrative compli- ance will require careful consideration. Beyond that, these professionals will need to be able to clearly explain and communicate changes and challenges of the CPP en- hancement to both employers and employees. What we know so far e agreement in principle enabled federal Finance Minister Bill Morneau to table legislation in Parliament. Bill C-26, An Act to amend the Canada Pension Plan, the Canada Pension Plan Invest- ment Board Act and the Income Tax Act, which received royal assent on Dec. 15, 2016, will offi cially usher in changes to the CPP. e enhanced CPP will: • replace 33 per cent of pre-retirement income, up from 25 per cent • increase the yearly maximum pensionable earnings (YMPE), the maximum amount of income subject to CPP, by 14 per cent, which is projected to be equal to roughly $79,400 in 2025 • gradually phase in contribution increases over seven years, be- ginning Jan. 1, 2019: A fi ve-year contribution rate phase-in of an additional one per cent up to the YMPE for both employees and employers, followed by a two-year phase-in of an additional four per cent contribution on a new upper earnings limit for both employees and employers • increase the working income tax benefi t to help low-income earners • provide a tax deduction, instead of a tax credit, for em- ployee contributions associated with the enhanced portion of CPP. It is important to note that while the current CPP em- ployee contributions of 4.95 per cent of pensionable earnings will remain as a tax credit, the increased CPP employee contributions will represent a tax deduction. Employers will not be responsible for program- ming this distinction within their payroll systems for the phase one CPP enhancements eff ective 2019 to 2023. Employees will be entitled to a tax deduc- tion when fi ling their T1 personal income tax and benefi t return for the enhanced portion of CPP contributions. e Canadian Payroll Association (CPA) has also confi rmed that the T4 slip will re- main the same, with the enhanced portion of CPP contributions included in the exist- ing CPP boxes. e federal government is still working on proposed regulations and administration for phase two of the CPP enhancements that come into eff ect be- ginning 2024. In November 2017, Quebec Finance Minister Carlos Leitão introduced Bill 149, An Act to enhance the Quebec Pen- sion Plan and amend various retirement- related legislative provisions. e bill looked to harmonize enhance- ments to the Quebec Pension Plan (QPP) with CPP amend- ments by amending the Act respecting the Quebec Pension Plan, and introduces an additional plan. e changes are intended to mirror the CPP enhancements, with additional employee and employer contributions starting in 2019. for change CPP/QPP enhancements not too far on horizon

• Cover