'It's something that at this time right now, post-pandemic, employers definitely do not need': lawyer
Canada Pension Plan (CPP) contributions are set to rise in 2023 and 2024 and for many employers, the increased costs will be “astronomical,” says an employment lawyer.
“If you’re an employer, with hundreds or even thousands of employees, this is without a doubt going to impact your bottom line and the other end of the spectrum; if you are a small business, this increase can feel significant even with only a handful of employees,” says Ronald Minken, employment lawyer at Minken Employment Lawyers in Toronto.
Employers and employees now must contribute 5.95% of wages, which is up from 5.7% in 2022 and 4.95% in 2018, which was before the contribution increase began, says Minken.
“In only five years’ time, employers are now expected to contribute $1,150.65 more in CPP contributions per employee — so if you have 1,000 employees, that’s $1,150,650,” he says.
Employers will have to submit a maximum $254.65 per employee, says Minken.
The CPP enhancement was first implemented in 2019, with the next phase set to begin in 2024.
While the federal government is positioning the increased rates as an enhancement to CPP outflows for retired Canadians, the timing is not ideal for many employers, says Minken.
“It’s not as though these past years have been smooth sailing for employers. The COVID-19 pandemic devastated the Canadian economy, and the lingering economic downturn does not appear to be going anywhere, anytime soon.”
“Many employers and employees alike hope for a pause in this program, seeing as the economy has not yet bounced back. While most recognize that this program’s attempt to address future inflation is valid, the sentiment for many over the past few years, has been a resounding ‘Not now,’” he says.
The Canadian Federation of Independent Business (CFIB) recently asked the government to hold off on implementing these changes.
Cutting staff, embracing AI to cut costs
In order to be able to afford the rising rates, employers may have to make some tough choices, according to Minken.
“One is laying off or terminating employees; the other is turn to AI. Another is an increase in the price of products and services and lastly, scaling back workplace pension plans. These are going to be some of the more popular responses.”
Cutting staff is often a popular choice for many employers when faced with increased costs of doing business, but market realities may compel employers to look to other methods, he says.
“The employer may be reluctant to take this approach because there is a labour shortage in many industries [and] one lifeline is employers, unfortunately, turning towards the open arms of artificial intelligence,” says Minken.
By turning to non-human workforce, this will have a devastating effect on many workers.
“While AI is not yet ready to perform every job, increasing cost and business will almost certainly force employers to explore what AI is capable of, and what comes next is an assessment of which duties or even entire roles employers can eliminate, eventually allowing employees to reduce their staff and overall expenses. And once again, the average Canadian will get the short end of the stick with less jobs to occupy and increasingly obsolete skills,” says Minken.
Downside for pay packages
Another potential way employers may make some changes is by cutting pension contributions, according to Minken but this will also be seen as a negative for employee paycheques.
“It can often be difficult to convince employees that the compensation is remaining virtually identical, when there is a perception that something has been taken away. I think people are not aware of this. However, people are not stupid and when they see less money in their pay, of course they’re going to realize that there’s something funny going on here.
The changes are coming, he says, but many organizations haven’t fully realized the impact.
“I would say very few employers are aware and also it’s not sold to the public as being a tax. However, it’s more money that gets taken away from employers, and it goes to the government so in my mind, it’s a tax; it’s an increased expense.
“Same thing with employees. It’s something that, at this time right now, post-pandemic, employers definitely do not need.”
