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In my experience, the most feared year-end document is the Pensionable and Insurable Earnings Review (PIER). Unfortunately, that’s because it tends to make payroll professionals or employers feel like they’ve done something wrong.
Don’t worry, the PIER is just a simple review process to understand why there could be differences between the Canada Pension Plan (CPP) contributions or Employment Insurance (EI) premiums expected by Canada Revenue Agency (CRA) compared to what was submitted from the year-end T4 statements.
There are a few common reasons why there could be errors and a few simple things to look for to avoid them.
Getting to know CPP and pensionable earnings.
Pensionable earnings are recorded in box 26 on the T4 slip.
CPP contributions are recorded in boxes 16 and 17 on the T4 slip.
Pensionable earnings are used to calculate the amount of CPP contributions due to the CRA. It’s important to remember that CPP contribution rates, maximums and exemptions are updated annually, so always check with the CRA or, better yet, be sure to use a payroll software like Wagepoint that handles the calculations and compliance for you.
Needless to say, if the pensionable earnings are incorrect, then the CPP contribution calculation will also be incorrect. Let’s review some tips to follow to ensure your pensionable earnings are correct.
Generally, if the earnings are taxable, they’re also pensionable and subject to CPP (when they’re calculated in accordance with the Income Tax Act).
- The value of taxable benefits and allowances is pensionable. (Check out the CRA’s handy Benefits and allowances chart.)
- The majority of wages, salary and other remuneration are pensionable.
- Don’t forget tips and gratuities.(The CRA’s Tips and Gratuities page goes into the rules surrounding this.)
For those in Québec, please see Revenu Québec’s Québec Pension Plan (QPP) page for more information.
Familiarizing yourself with EI and insurable earnings.
Insurable earnings are recorded in box 24 on the T4 slip.
EI premiums are recorded in box 18 on the T4 slip.
Similar to the pensionable earnings, making an error in insurable earnings will also result in incorrect EI premium calculations. Insurable earnings also have EI contribution rates and maximums that change annually, so be sure to be sure to check on those, too.
With insurable earnings, there are a few more exceptions to the general rules in determining them though, so let’s dig in.
Determine if earnings are paid in cash or non-cash.
To determine if earnings are insurable we first need to define how it’s paid: In cash or non-cash.
A benefit is considered non-cash (in kind) when a good or service is provided by the employer. For example, a bus pass would fall under this category. Benefits in kind and non-monetary benefits are considered to be non-cash benefits.
A benefit is considered cash when an employee is reimbursed for the cost of a good or service.
To be considered insurable, the earnings have to be:
- Paid in cash (or convertible to cash).
- If the employee is paid partly in non-cash, only the cash benefit part is insurable.
- Note: Gift certificates and cards don’t factor into insurable earnings since they can’t be converted into cash.
- Paid by the employer.
- Received and used or enjoyed by the person in relation to the employment.
- Examples: Sick pay, wage loss, stand-by pay, signing bonuses and incentive payments.
It’s important to mention that in order for earnings to be insurable, a person must be able to receive the amounts paid. What does this mean? Well, for example, someone who’s died can’t have posthumous insurable earnings.
Exceptions to the insurability of earnings can be found on the CRA’s Pensionable and insurable earnings page.
Top 5 common scenarios that can cause CPP and EI errors.
Now that we understand the importance of pensionable and insurable earnings, let’s take a look at five common scenarios that cause CPP and EI errors and can lead to the dreaded PIER.
1. Incorrectly configured taxable benefits
If taxable benefits aren’t set up and taxed properly during your payroll processing, there can be calculation errors for EI and/or CPP contributions.
Always double check the CRA Benefits and allowances chart to confirm they’re set up right or use the CRA’s T4130 Employers’ Guide – Taxable Benefits and Allowances.
2. There are changes to the number of pay periods or pay cheques
In order to determine the amount of CPP contributions that come off each cheque, the CRA formula uses the number of pay periods (based on pay frequency) that the employee is expected to be paid. From there, the contribution is prorated and spread out on each pay cheque.
This means that if there are any changes to the number of anticipated pay periods or the number of pay cheques the employee actually received that calendar year, there can be a CPP variance.
3. An employee has numerous employers in one year
Every employee with pensionable earnings has a basic CPP exemption that they don’t owe contributions on. If an employee ends up with multiple employers in one year, each will take the basic exemption into account which can potentially equate to underpaying CPP contributions.
Also, if an employee maxes out their CPP or EI contributions at one employer, the other employer is still required to deduct them resulting in an overpayment.
4. Employee age is entered incorrectly or they fall outside of the age bracket
Pensionable earnings are only applicable if you’re between the ages of 18 and 70. If pensionable earnings are recorded outside that age bracket, the CPP contributions and pensionable earnings will need to be fixed.
5. Year-to-date totals entered incorrectly
Pay special attention when porting over or inputting year-to-date totals if you begin using a different payroll system or new software.
If you aren’t using Wagepoint, here are some instructions from the CRA to manually calculate and verify your CPP and EI calculations:
Scream for joy, not from payroll mistakes this year-end.
Eek! I over-deducted EI or CPP from an employee’s pay cheque. Now what?
If at some point during the year, you realize that you’ve mistakenly over-deducted CPP or over-deducted EI from an employee’s payroll, don’t worry. You can adjust it on the employee’s next cheque as long as it’s during the same calendar year as the earnings in question. Just make sure the correction is reflected in both your employee and employer contributions, submitted correctly and on time with your source deductions to the CRA.
If you don’t happen to catch the overpayment during the year that the earnings were paid in, employees will be refunded when they file their income tax and benefit returns. Employers can also apply for a refund of EI and CPP overpayments directly from the CRA by filling out Form PD24, Application for a Refund of Overdeducted CPP Contributions or EI Premiums.
With that said, if you under-deduct either EI or CPP on an employee’s payroll, you as the employer will be liable for both the employee and employer contributions.
Wagepoint customers, have no fear! The only time you need to know if remuneration is pensionable or insurable is when you’re requesting custom income codes. Otherwise, all the built-in income and deduction codes in Wagepoint account for pensionable or insurable earnings as set by CRA.
Sleep tight this year-end, my payroll pretties.
I get it, payroll can be daunting! But when you keep these things in mind, you can avoid a PIER report come year-end and sleep soundly without fear. We recommend adding this blog to your bookmarks so you can easily come back to it.
Also, when you partner with the right software to help you (bonus points for working with a Certified Wagepoint Partner), there’ll be nothing to fear. If you haven’t yet, now’s the perfect time to start with Wagepoint — if you have a minimum of two payrolls run in Wagepoint before the end of year, we’ll handle the T4s, T4 summary and RL-1s for you. Wham! Bam! Thank you, ma’am!
How’s that for a trick and a treat?
Additional resources
- Don’t Be Haunted By Payroll Errors This Year-End
- Setting Your Tax Year Up For Success [Webinar Recap]
