Payroll is an essential part of any business, but it can also be complex and challenging to keep up with the latest rules and regulations. In this blog, we will highlight some of the major changes in payroll that will take effect in 2024, and how they will impact employers and employees in Canada. We will also provide some examples to illustrate the changes and offer some tips on how to prepare for them.
Second Additional Canada Pension Plan (CPP2) Contributions
One of the most significant changes in payroll for 2024 is the introduction of the second additional Canada Pension Plan (CPP2) contributions. This is part of the CPP enhancement that aims to increase the retirement income of Canadians by gradually raising the contribution rates and the maximum pensionable earnings.
The CPP2 contributions will apply to workers who earn more than the Year’s Maximum Pensionable Earnings (YMPE), which is the annual limit of earnings that are subject to CPP contributions.
For 2024, the YMPE will be $68,500. The CPP2 contributions will be 4% for both employers
and employees on the portion of earnings above the YMPE, up to a second earnings limit of $73,200.
This means that the total CPP contribution rate for 2024 will be 11.9% for earnings up to the YMPE, and 8% for earnings between the YMPE and the second earnings limit.
Self-employed individuals contribute 8% of the amount they earn between the first earnings ceiling and the second earnings ceiling
Employees contribute 4% of the amount they earn between the first earnings ceiling and the second earnings ceiling
Example for Second Additional Canada Pension Plan (CPP2):
Alice earns $90,000 in 2024. Her CPP contributions for the year will be calculated as follows:
For the first $68,500 of her earnings, she will pay 5.95% and her employer will pay 5.95%, for a total of 11.9%. (Subject to basic exemption of $3,500)
For the remaining, up to the second ceiling i.e. $73,200, she will pay 4% and her employer will pay 4%, for a total of 8%.
Her total CPP contributions for 2024 will be:
Example: 2
Alice earns $70,000 in 2024. Her CPP contributions for the year will be calculated as follows:
For the first $68,500 of her earnings, she will pay 5.95% and her employer will pay 5.95%, for a total of 11.9%. (Subject to basic exemption of $3,500)
For the remaining, up to the second ceiling i.e. $73,200, she will pay 4% and her employer will pay 4%, for a total of 8%.
Her total CPP contributions for 2024 will be:
Canada Dental Benefit Impact on Tax Form Reporting
Another change in payroll for 2024 is the impact of the Canada Dental Benefit (CDB) on tax form reporting. The CDB is a new program that helps lower dental costs for eligible families earning less than $90,000 annually. The CDB provides a refundable tax credit of up to $600 per year for a family of four, or up to $150 per person, for eligible dental expenses. The CDB is administered by the Canada Revenue Agency (CRA), and the credit is claimed on the personal income tax return.
The CDB affects the tax form reporting for employers and employees in two ways:
Employers who provide dental benefits to their employees will have to report the CDB amount as a taxable benefit on the T4 slip, in addition to the actual dental benefits paid by the employer. This means that the employee’s income will be increased by the CDB amount, and the employer will have to deduct income tax, CPP, and EI on that amount.
Employees who receive dental benefits from their employer will have to report the CDB amount as income on their personal income tax return, in addition to the actual dental benefits received from the employer. This means that the employee’s taxable income will be increased by the CDB amount, and the employee will have to pay income tax on that amount. However, the employee will also be able to claim the CDB credit for the eligible dental expenses incurred, which will reduce the tax payable.
Example for Canada Dental Benefit:
Bob is a single parent with two children, and earns $60,000 in 2024. His employer provides dental benefits to him and his children, and pays $1,200 for their dental expenses in 2024. Bob also pays $300 out of his pocket for his own dental expenses in 2024. His tax form reporting for 2024 will be as follows:
His employer will report $1,800 as a taxable benefit on his T4 slip, which is the sum of the actual dental benefits paid by the employer ($1,200) and the CDB amount ($600). This means that Bob’s income will be increased by $1,800, and his employer will have to deduct income tax, CPP, and EI on that amount.
Bob will report $1,800 as income on his personal income tax return, which is the same amount as the taxable benefit reported by his employer. This means that Bob’s taxable income will be increased by $1,800, and he will have to pay income tax on that amount. However, Bob will also be able to claim the CDB credit for the eligible dental expenses incurred, which is the lesser of $600 or 50% of the total dental expenses paid by him and his employer ($1,500). In this case, Bob will claim $600 as the CDB credit, which will reduce his tax payable.
Regulations for Employee Termination
A third change in payroll for 2024 is the new regulations for employee termination. The federal government has introduced new rules to protect employees who are terminated without cause, and to ensure that they receive fair and timely compensation. The new rules apply to federally regulated employers, such as banks, telecommunications, and transportation companies.
The new rules include the following provisions:
Employees who are terminated without cause must receive written notice of termination at least two weeks before the termination date, or pay in lieu of notice for the same period. The notice period increases by one week for each additional year of service, up to a maximum of eight weeks.
Employees who are terminated without cause must also receive severance pay equal to one week’s pay for each year of service, up to a maximum of 26 weeks. The severance pay is in addition to the notice period or pay in lieu of notice.
Employees who are terminated without cause must be given priority for rehiring by the same employer for six months if they meet the qualifications for the vacant position.
Example for Regulations for Employee Termination 2024:
Carol has been working for a federally regulated bank for five years, and earns $1,000 per week. She is terminated without cause by her employer in 2024. Her termination benefits will be as follows:
She will receive written notice of termination at least five weeks before the termination date, or pay in lieu of notice for the same period. This is based on the minimum notice period of two weeks, plus one week for each additional year of service.
She will also receive severance pay equal to five weeks’ pay, or $5,000. This is based on the severance pay rate of one week’s pay for each year of service.
She will have priority for rehiring by the same employer for six months, if she meets the qualifications for the vacant position.
As you can see, there are many changes in payroll for 2024 that will affect both employers and employees in Canada. These changes can be confusing and complicated to implement and may require adjustments to your payroll systems and processes. That’s why you need the help of professionals to plan and manage your payrolls.
We at Presyz, a professional and reliable service provider can assist you in managing all your payroll needs, while you take care of your business. Presyz has the expertise and experience to handle any payroll challenge, and to provide you with the best payroll solutions for your business. Contact us today to find out how we can help you with your payroll needs.
The content above is meant for educational or basic understanding purpose. One should not make financial or any decisions without consulting the professionals.
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