CANADA - Social security in Canada and Quebec
Like many countries, Canada has its own social security system; however, the Province of Quebec has its own unique social security system, which works differently from the rest of Canada. It is therefore necessary to understand how both social security systems work.
Canadian Social Security System (excluding Quebec)
Canada has two components of social security tax:
Canada Pension Plan
The Canada Pension Plan (CPP) provides contributors and their families with partial replacement of earnings in case of retirement, disability or death.
As of 2019, CPP is being gradually enhanced, meaning increased CPP contributions which provides higher benefits to the contributors.
The increase in contributions will be phased in gradually in 2 steps over a 7 year time period.
Step 1: From 2019 to 2023, the contribution rate for employers/employees will gradually increase by 1%.
Step 2: From 2024 to 2025, a higher limit will be introduced. This new limit, known as the second earnings ceiling will be in addition to the first earning ceiling. This new range of earnings will start at the first earnings ceiling and go to the second earnings ceiling which will be 14% higher by 2025. Like the first earnings ceiling, the second will increase each year to reflect wage growth.
Up until 2019, the CPP retirement pension replaced one quarter of the contributor’s average work earnings. With the enhancement, the CPP will begin to grow to replace one third of the contributor’s average work earnings.
Once fully in place, the enhancement will increase the maximum CPP retirement benefit by about 50%; it will also increase the CPP disability pension and CPP survivor’s pension.
Employment Insurance (EI)
Employment Insurance (EI) provides temporary income support to workers when they are unemployed, or when they take time off due to specific life events, e.g. illness, pregnancy, caring for a new born or newly adopted child, a critically ill or injured person, or a family member who is seriously ill with a significant risk of death.
In 2019, EI premium rate has dropped to 1.62% from 1.66% in 2018 for employees.
Quebec Social Security System
The Province of Quebec has three components of social security tax:
Quebec Pension Plan (QPP)
QPP provides Quebec workers with similar benefits to that which CPP provides in the rest of Canada.
The enhancement of QPP also begins to take effect in 2019 and will be fully in place in 2065. The contribution rate has increased by 0.15% in 2019. The new plan will increase the income replacement rate from 25% to 33.33%.
Employment Insurance (EI)
EI for workers in Quebec is administered by the federal government and it does not cover maternity, parental and adoption benefits; as such, Quebec EI premium rates are slightly lower than the rest of Canada. In 2019, Quebec EI premium rate dropped to 1.25% from 1.30% in 2018 for employees.
Quebec Parental Insurance Plan (QPIP)
In the province of Quebec, the maternity, parental and adoption benefits are administered by Revenue Quebec under the Quebec Parental Insurance Plan (QPIP). The government of Quebec has announced a decrease of the QPIP premium rate by 6% as of January 2020.
Due to the continuous change in the Canadian social security system, the employer should be aware of the additional cost of employees’ assignments in Canada. BDO can provide the following services to assist the employers and employees:
- Consultations before the assignment with the employer and employee to help the client familiarise themselves with the Canadian social security system, international social security agreements and the additional tax burden for both the employer and employee.
- Canadian payroll and shadow payroll calculations.