Blog

By: Brian Adams CLU, C.H.F.C.

Every employer wants to fairly compensate their employees well. At the same time, they do not want to give away the farm as the expression goes.

When you pay an employee with salary, there are a lot of additional costs that comes along with that in the form of, such things as, EI, CPP, WSIB, and payroll tax. This means “that raise” ends up costing you more than what you originally intended.

There are also additional costs that are passed on to the employee as well, such as EI, CPP, and income tax. The tax factor becomes greater for the employee, meaning he/she does not get the intended benefit you wanted them to receive. So, imagine what they think of your raise now?

Also, keep in mind that CPP and EI costs are going up for 2023 for both parties. Here is an excerpt from the CTV news release published on Dec 30, 2022:

CTV News – Published Dec. 30, 2022

Higher Payroll Deductions

Canada Pension Plan (CPP) contributions and employment insurance (EI) premiums are increasing in 2023, meaning less take-home pay for Canadian workers.

The employee and employer CPP contribution rates will increase to 5.95 per cent in 2023 from 5.70 per cent in 2022, the Canada Revenue Agency announced in November.  Click HERE to read more on this.

That means the maximum employee contribution to the CPP plan for 2023 will be $3,754.45, up from $3,499.80 in 2022.

In a separate notice, the federal government said that changes to employment insurance rates will result in workers paying a maximum annual EI premium of $1,002.45 in 2023, compared to $952.74 in 2022. Click HERE to read more on this.

Well, there is a way to offer your employee more whereby it is a win/win situation for both parties:

Employee Benefits!!!

When you, as an employer, contribute that same amount of money to either a group or pension plan, the employee gets the full benefit you intended and there are no other costs to you (other than the 8% Ontario sales tax on the premium). And even better news… your whole contribution to the benefit package is a write off for the business!

Book an appointment with us to discuss setting up an employee benefits plan for your business!

Employers are seeing a trend of their employees quitting their jobs. The Covid-19 pandemic has caused many to re-evaluate how they are spending their lives. Employees are valuing their time more than ever and are looking for opportunities where work life balance is a top priority. One worry that employees may have as they embark on their next stage of life: What happens to my pension?

The three most common retirement savings plans in Canada are: Defined Benefit Pensions (DBPP), Defined Contribution Pension Plans (DCPP), and Group Registered Retirement Savings Plans (Group RRSP). Regardless of which type of plan you are enrolled in; all is not lost once you leave your job. Each type of plan has special rules and provisions for what you can do with the money when you leave your employer.

What You Need to Know

1. Defined Contribution Pension Plans – Defined Contribution plans are typically made up of a combination of employer and employee contributions. The retirement benefit is dependent on how much is in the account at the time and how it has performed in the markets. When you leave your job, you will have to transfer your pension into either a LIRA, LIF, or RRIF, depending on your province of residence. A LIRA is a locked in retirement account holding the pension money until it comes time to take an income from it, when it will be converted to a LIF. It is also possible to transfer pensions directly to a LIF, if age requirements are met. Provincial authorities are responsible for regulating pension money and most pension money is “locked-in”, which means there are age restrictions on when you can withdraw the money and limits on how much you can take. Rules differ from province to province.
2. Defined Benefit Pension Plans – Defined Benefit Pension Plans guarantee an income to employees in their retirement. Defined Benefit plans may be made up of both employer and employee contributions, or just employer contributions. When you leave your employer and have a Defined Benefit plan, you will have two options: 1. Leave the money in the plan and take an income based at retirement based on contributions up until the point you leave. 2. Take the commuted value of the plan and transfer it to a LIRA. The LIRA will be subject to the same locking provisions as mentioned above. Whether or not to take the commuted value of a Defined Benefit plan is a financial planning issue that should be worked through with a professional. They will help you determine whether the income or lump sum would be more beneficial to your retirement plan.
3. Group RRSPs – Group RRSPs are the most flexible pension option. When you leave your employer, you will be able to transfer your Group RRSP directly into your individual RRSP. Alternatively, you could withdraw the account in cash, but be prepared to take a tax hit.

The Bottom Line

There are exceptions to locking-in rules and each province has a different set of regulations. A financial advisor can help you understand the rules in your province and help you determine the best course of action of your pension money.

Book an Appointment with us – CLICK HERE