Pensionable pay periods

Thanks @Rein. I did not know that. When I worked at a previous firm it was normal to adjust the CPP and EI on T4 slips only when the employee was a shareholder. Even then, I suppose it is technically incorrect, but how would CRA know? Payroll remittances are a lump sum of CPP, EI, and tax - as long as the total remittances during the year match what you report on the T4 summary, there is nothing for them to audit.

Thanks @jimt, but this employee was 22 years old. In Sage 50, there is only one field to enter the type of pay period, and it is set to “26 periods per year”. There is no way to tell it that only 5 of those pay periods WILL BE used.

Again, I don’t understand why the tax law would treat an employee differently based on whether or not they EXPECT to work less than a full year.

Thanks @Arliss. That is what I am planning to do, unless someone can point me to some court evidence to indicate that my client should immediately pay the $134 in “late” remittances (which CRA has no knowledge about), accept a penalty for late payment, and then submit a PD24 to request a refund of the $134 “over-payment”. Sounds like a lot of headache to end up in the same position they started…

To add a few more pennies to the conversation…

No retail payroll software, nor the CRA online PDOC would have calculated such low total CPP contributions as as $12.37 based on Gross Earnings of 3539.41 in a 5 bi-weekly employment term. As roxane.pratt mentioned, payroll calculation software would have calculated an average of about 29.24 per pay period (or 146.20 for the year as byron.jonson confirms) if he earned the same amount each pay, or something similar even if his pays different each pay period. Something was wrong in the bi-weekly payroll calculations.

You are not allowed to “adjust down” CPP contributions if the employee’s CPP contributions seem to be more than what is required unless they are over the annual maximum (2,748.90 for 2019).

Nezzer… I know it seems reasonable but you can’t use the logic that it seems wrong that an employee should have to pay $146 in CPP when their total earnings are 3,539. Let’s say he worked for your client for 10 weeks (5 pay periods) and earned $3,500. Then he came to work for my client for another 10 weeks and earned a further $3,500 then did the same for 3 more employers during the year and made $3,500 from each. The employee has now earned 17,500 during the year but would have made no CPP contributions.

You are required to deduct CPP each pay, using a portion of the 3,500 exemption (calculated as 3,500 divided by number of pay periods in the year). You can’t choose to use up the 3,500 then start deducting CPP. If it turns out the employee has overpaid during the year (based on all of his employment and self employment earnings) then he will receive a credit on line 448 of his T1 return for the overpayment. The employer, however, does not have an over payment.

If I hire an employee in July that I know had a great job and has already reached his maximum CPP contributions for the year, as his new employer I still need to begin deducting CPP from him. When the employee files his T1 return he will get any overage refunded, but as the employer I will not because I have no overage.

Having said all this, even though your CPP contributions are short for the employee that you have shown as an example, chances are the CRA would not kick out a PIER because they have no details or information on the number of weeks the employee worked for your client. Their computer checks the calculation based on Total Gross minus 3,500 x 0.051 and if the CPP contributions on the T4 are greater than the result of that calculation then it passes their checks. Once again, the CPP is short on the slip, but it would not be flagged because it is impossible for the CRA to know those earnings did not span the entire 52 weeks. The number of pensionable periods you enter in TaxCycle does not get transmitted to the CRA. Only the pensionable earnings and the CPP contributions.

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Thanks Wayne. That make sense. Now I’ll have to investigate why Sage 50 didn’t calculate it correctly.

I find it very interesting that comments on this thread are so divergent. Amen to what @snoplowguy said. Just to drive the point home (and there appears to be some confusion on this point), there is a difference between a CPP overcontribution of an employee and that of the employer. They can be the same, but they don’t have to be. For an employee, it is based on the total earnings for the year, less the annual exemption. An employer (acting independent of any and all other employers for the same employer in any given year) withholds based on the pay period. It is calculated as pensionable earnings less the basic exemption for the pay period (which is $134.61 for biweekly pay) X 5.1% (for 2019). Any more than that for that pay period is an overcontribution. In your case @Nezzer, that total amount is $146.20, and that is NOT an overcontribution for the employer…it is the correct amount. It is an overcontribution for the employee if $3539.41 is the total earned for that employee for the year (given that this employee is 22 years old). For the employee (and the employee only), the total amount should be $2.01 (3539.41 - 3500) X 5.1%.

Now as to your point about the Sage 50 calculations. Taxcycle does not know how much was paid in each of the 5 pay periods. It only knows the total over those 5 pay periods and does the calculation based on the average pay for each of those 5 periods. There is a situation where Taxcycle is wrong. The basic exemption per pay period for biweekly pay is $134.61 (as stated above). If the gross pay for any of the 5 periods is < $134.61, you will not get the same result as Taxcycle…and Taxcycle will be wrong in that instance. So, it would be interesting to know if this is the case for you. If it is, Sage 50 might very well be correct. If it is not the case, Sage 50 calculations are for sure wrong. I hope that makes sense.

In the end, for an employee that works less than the full year, you CANNOT put 26 and 26 in the two Taxcycle fields and get the correct result. It could be the correct result for the employee if that is the only employer for the year, but it is not correct for the employer because it is not calculated the same way.

I think I need to take back some of what I just said relating to the Sage 50 calculations. You could have occasions where the per pay period amount is < $134.61, but that will make the calculated amount from Sage higher than Taxcycle, not lower…and Sage would be correct. In the end, your Sage 50 calculations are for sure incorrect. Just go through each of the 5 pay periods, deduct $134.61 from gross pay, multiply by 5.1%, add them all up, and that is the correct amount.

LOL. Yes, I agree @byron.johnson - it seems to be quite a debate! And, it is something that I “should” have known. I’m sure I learned this, and performed these calculations in school, and even for clients. I guess, over the years, after relying on software, I forgot the details, while believing I still knew them…

My daughter has just taken over payroll for her employer - and at best she is self taught. She asked me a question about CPP for someone that just turned 18 in the year. If I really wanted to confuse her, I would give her this entire thread to read!

Let us say that the employer pays every two weeks. Then the type of pay period is either 26 or 27 depending on the pay date.

Now, let us say that the employee worked ten weeks, as they were a summer employee and were over the age of 17. That is, they had received 5 pays. That means, they had 5 pensionable pay periods.

Let us change that and say that the person worked the entire year, but they turned 18 in October 2019. Then the number of pensionable pay periods is 5 if they are paid on November 1 through Nov 5 inclusive, otherwise the number of pensionable pay periods is 4.

Essentially, the number of pensionable pay periods is the number that you HAD to deduct CPP from their pay. If you FORGOT, then there will be a correction applied.

The only time that the number of pensionable pay periods will not equal the type of pay period is when:

  • The employee started or stopped working during the year, or
  • The employee’s pay became pensionable or non-pensionable during the year.

Does that help?

Thanks @TimParris. A little late though. Wayne’s answer (yesterday) finally got it through my thick skull. LOL