How CPP/QPP is Calculated
Description:
When you are processing payroll, several taxes are calculated and deducted from your employees' paycards. One of them is CPP, or Canada Pension Plan. This article will help you understand how Harmony calculates CPP based off the Canadian tax tables and how it affects your other taxes.
Prerequisites:
- Your employees have the CPP/QPP payroll category assigned to them
- Have created your employees' paycards
- You know what the employer/employee rate of CPP is for the current year
- You know what the basic exemption amount is for the current year
Solution:
Harmony calculates CPP/QPP by taking into account the basic exemption that every employee is allowed.
Calculating CPP and QPP:
Assume that:
- Employee is paid semi-monthly (24 pay periods per year)
- Employee's gross wage = $3000.00
To calculate CPP, it is usual to multiply the gross wage (minus any exempt wages that are not used in this example) by the rate. In 2021, this is 5.45%, or 0.0545:
3000 * 0.0545 = 163.50
Harmony divides the Basic Exemption Amount by the number of pay periods per year. In 2021, the Basic Exemption Amount is $3500.00:
3500 / 24 pay periods = 291.67
Next, subtract the previous total from the employee's gross wage:
3000 - 291.67 = 2708.33
Finally, multiply the difference above by the rate:
2708.33 * 0.0545 = 147.60
This amount will appear low if the exemption is not taken into account.
Still not sure? Navigate to Payroll Employees > Paycard History and view any employee's paycard, specifically the 'Base Wage' column next to CPP. This column should not match with the 'Gross Wage' column. If you reverse the calculation by dividing the Basic Exemption Amount by your own number of pay periods, then adding this amount to the Base Wage in the paycard you're looking at, you should get a sum that matches your Gross Wage.
You can always refer to the CRA website for more information about the current year's rates and basic exemption amounts: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/payroll-deductions-contributions/canada-pension-plan-cpp/cpp-contribution-rates-maximums-exemptions.html
