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2023 Changes to Canada Pension Plan and Employment Insurance: How They Affect Your Paycheck Thumbnail

2023 Changes to Canada Pension Plan and Employment Insurance: How They Affect Your Paycheck

Economic Insights

With the new year upon us, for working Canadians comes more increases in required contributions to both the Canada Pension Plan and Employment Insurance – often referred to as “pay cheque tax”.

It affects the amount you pay (or if retired, receive), and as a result will also affect your cashflow –  it's appearing there isn't much that doesn’t affect our cashflow these days!

Here is a breakdown of what you can expect in 2023.

Employment Insurance

Employment insurance premiums are based on a set amount per $100 of an employee’s earnings up to a maximum of $61,500 (2023) up from $60,300 from the previous year. The rate however is increasing from 1.58 percent (which it has been for the last 3 years) to 1.63 percent. This means if you are an insured worker, a deduction of $1.63 will be made for every $100 of salary until the $61,500 has been reached for the year. The dollar maximum equivalent for 2023 is $1,002.42 up from $952.74 in 2022.

When establishing the rates, the government has the final say on EI premiums and the Liberals have frozen rates for the last two years. They also reduced the number of hours you need to work to qualify and extended the covered period from 15 weeks to 26 weeks affective December 18, 2022. Legislation requires the government to aim to ensure the overall EI account returns to balance over seven years, this is assisted with help from economists and actuaries. When the account is in surplus, governments can lower premiums.

But the EI account today is far from surplus, the pandemic drained it to the point where it ended the last fiscal year $29 billion in the red. The government’s assessment of EI actually recommended a larger increase of $1.74 per $100 of earnings, but legislation prevents any increase of more than $0.05 in a single year. (Source: National Post 2022)

Canada Pension Plan

The “pay cheque tax” is increasing on CPP contributions as well. The increases are a part of the governments broader plan to increase retirement benefits for working Canadians and their families.

The maximum pensionable earnings under the Canada Pension Plan (CPP) for 2023 will be $66,600 – up from $64,900 in 2022.

The employer and employee contribution rate for 2023 will be 5.95 percent of earnings – up from 5.7 percent in 2022. If you are a self-employed individual, you are responsible for the total rate of 11.90 percent. Up from 11.40 in 2022.

The dollar maximum equivalent will be $3,754.45 ($7,508.90 if your self-employed and paying both portions) up from $3,499.80 and $6,999.60 respectively in 2022. These increases at a time when we are facing 40-year highs in inflation; interest rate hikes and housing prices. On a positive note, EI benefits will now cover you for 6.5 months vs. 3.75 months, which if you have ever been a recipient of these benefits can mean all the difference. Maximum CPP benefits are expected to reach $20,000 annually up from roughly $15,000 per year. These are big long-term benefits if you want to look at it that way.