Changing jobs - how to avoid CPP/EI overpayment?

[Pat Coghlan]

My employment status recently changed (same employer, but moved to a
different payroll system). It's just as if I've changed employers.

Anyway, my CPP/EI YTD totals were reset, so the new payroll office is
going to deduct a full year's worth of premiums deducted, even though
I've already contributed over $1,000 in combined CPP/EI.

Our payroll folks tell me they can't manually update the YTD amounts to
try and avoid having to overpayment (and wait until next April to get a
refund).

Is this merely a technical problem (in which case, I can chase after the
application support people), or is there a CRA policy which does not
permit this type of manual adjustment of YTD amounts?

It's rather ludicrous to always have to restart CPP/EI contributions
when people change jobs...especially in this employment environment.

[David Smith]

Post by Pat Coghlan
My employment status recently changed (same employer, but moved to a
different payroll system). It's just as if I've changed employers.
Anyway, my CPP/EI YTD totals were reset, so the new payroll office is
going to deduct a full year's worth of premiums deducted, even though I've
already contributed over $1,000 in combined CPP/EI.
Our payroll folks tell me they can't manually update the YTD amounts to
try and avoid having to overpayment (and wait until next April to get a
refund).
Is this merely a technical problem (in which case, I can chase after the
application support people),

Sounds like that is the case, entering YTD information is a feature of even
the most basic computerixed payroll systems.

or is there a CRA policy which does not

Post by Pat Coghlan
permit this type of manual adjustment of YTD amounts?

If the legal entity paying you has changed then the CPP/EI start again at
zero. Even switching to a different corp within a related group of companies
those deduction must start again from zero.

Post by Pat Coghlan
It's rather ludicrous to always have to restart CPP/EI contributions when
people change jobs...especially in this employment environment.

[Mary]

fill out the TD1 stating that you do not wish to pay cpp/ei.

they have to comply.

they don't need ytd information they can simply make you exempt.

If you still have a problem call CRA and ask them for help.

Post by Pat Coghlan
My employment status recently changed (same employer, but moved to a
different payroll system). It's just as if I've changed employers.
Anyway, my CPP/EI YTD totals were reset, so the new payroll office is
going to deduct a full year's worth of premiums deducted, even though
I've already contributed over $1,000 in combined CPP/EI.
Our payroll folks tell me they can't manually update the YTD amounts to
try and avoid having to overpayment (and wait until next April to get a
refund).
Is this merely a technical problem (in which case, I can chase after the
application support people), or is there a CRA policy which does not
permit this type of manual adjustment of YTD amounts?
It's rather ludicrous to always have to restart CPP/EI contributions
when people change jobs...especially in this employment environment.

[Jason]

Post by Mary
fill out the TD1 stating that you do not wish to pay cpp/ei.
they have to comply.
they don't need ytd information they can simply make you exempt.
If you still have a problem call CRA and ask them for help.

The TD1 form relates to the deduction of federal income tax and not CPP
or EI.

One would not pay CPP if he/she was receiving the CPP pension or under
18. One would not pay EI if he/she was self-employed or under 16.

Since this isn't the case for Pat he will have to pay it.

Of course, he could increase his claim on the TD1 so less tax is taken
off as a way to mitigate the CPP/EI overpayment but, as the form states,
"it is a serious offence to make a false return."

Now, I have never heard of anyone actually being prosecuted for this so
I really don't think it would be that big of a deal.

Post by Mary

Post by Pat Coghlan
My employment status recently changed (same employer, but moved to a
different payroll system). It's just as if I've changed employers.
Anyway, my CPP/EI YTD totals were reset, so the new payroll office is
going to deduct a full year's worth of premiums deducted, even though
I've already contributed over $1,000 in combined CPP/EI.
Our payroll folks tell me they can't manually update the YTD amounts to
try and avoid having to overpayment (and wait until next April to get a
refund).
Is this merely a technical problem (in which case, I can chase after the
application support people), or is there a CRA policy which does not
permit this type of manual adjustment of YTD amounts?
It's rather ludicrous to always have to restart CPP/EI contributions
when people change jobs...especially in this employment environment.

[Jason]

Post by Pat Coghlan
My employment status recently changed (same employer, but moved to a
different payroll system). It's just as if I've changed employers.
Anyway, my CPP/EI YTD totals were reset, so the new payroll office is
going to deduct a full year's worth of premiums deducted, even though
I've already contributed over $1,000 in combined CPP/EI.
Our payroll folks tell me they can't manually update the YTD amounts to
try and avoid having to overpayment (and wait until next April to get a
refund).
Is this merely a technical problem (in which case, I can chase after the
application support people), or is there a CRA policy which does not
permit this type of manual adjustment of YTD amounts?
It's rather ludicrous to always have to restart CPP/EI contributions
when people change jobs...especially in this employment environment.

This is the way it has always been. At least you get your overpayment
back at the end of the year. Your employers who chipped in their
portions of EI (at 1.4 times) and CPP don't get their overpayments back
at all.

I believe that there was something in the budget that will fix this but
the documentation probably isn't out yet (I haven't looked for it yet so
it may be out).

[Pat Coghlan]

I checked with the payroll clerk at my old high tech employer. She told
me that they must restart CPP/EI for new employees. No provision for
updating payroll records to reflect previous CPP/EI premiums paid.

I agree that employers should be able to compensate for previous CPP/EI
payments at the previous employer(s). Of course, we all know the
reason: CRA doesn't want to have to come after anyone for amounts owing
at year-end. Having said that, I think the ROE (record of employment)
from a previous employer contains CPP/EI totals, so I don't know why
this can't simply be presented to the next employer to update the
payroll records.

While on the topic, another thing they should fix is the front-end
loading of CPP/EI payments, i.e., if someone earns more than the maximum
insurable amount ($39K or so), they should be able to make <n pay
periods> equal premium payments throughout the year. The solution to
this is simple: forecast the amount of earnings for the rest of the year
and base the CPP/EI calculation on this, rather than the current method
of simply multiplying the earnings for a given pay period by a constant
value.

Doing both of the above would:

a) end most CPP/EI overcontributions for people who change employers; and
b) smooth out after-tax earnings on each paycheque throughout the
calendar year

while still letting CRA double-charge for the employer-portion of
CPP/EI, as is the case currently.

They can't continue to be the only winner in all these scenarios.

-Pat

Post by Jason

Post by Pat Coghlan
My employment status recently changed (same employer, but moved to a
different payroll system). It's just as if I've changed employers.
Anyway, my CPP/EI YTD totals were reset, so the new payroll office is
going to deduct a full year's worth of premiums deducted, even though
I've already contributed over $1,000 in combined CPP/EI.
Our payroll folks tell me they can't manually update the YTD amounts
to try and avoid having to overpayment (and wait until next April to
get a refund).
Is this merely a technical problem (in which case, I can chase after
the application support people), or is there a CRA policy which does
not permit this type of manual adjustment of YTD amounts?
It's rather ludicrous to always have to restart CPP/EI contributions
when people change jobs...especially in this employment environment.

This is the way it has always been. At least you get your overpayment
back at the end of the year. Your employers who chipped in their
portions of EI (at 1.4 times) and CPP don't get their overpayments
back at all.
I believe that there was something in the budget that will fix this
but the documentation probably isn't out yet (I haven't looked for it
yet so it may be out).

[Jason]

Post by Pat Coghlan
I checked with the payroll clerk at my old high tech employer. She told
me that they must restart CPP/EI for new employees. No provision for
updating payroll records to reflect previous CPP/EI premiums paid.
I agree that employers should be able to compensate for previous CPP/EI
payments at the previous employer(s). Of course, we all know the
reason: CRA doesn't want to have to come after anyone for amounts owing
at year-end.

To be fair: at year end when T4's are prepared the employer overpayment
can be mitigated and, in most cases, eliminated. Of course, one has to
do the T4's properly and allocate the tax deductions from source
properly between CPP, EI and tax for the employee and CPP and EI as paid
by the employer.

All this means is that the employee gets a bigger tax refund rather than
a refund for cpp/ei overpayment. The employer, presumably he/she also
gets T4'd either regular wages of a year end bonus, also gets a refund
for the employer overpayment of CPP and EI. So, in the end the
government doesn't get much.






Having said that, I think the ROE (record of employment)

Post by Pat Coghlan
from a previous employer contains CPP/EI totals, so I don't know why
this can't simply be presented to the next employer to update the
payroll records.

ROE's only show your insurable hours and insurable earnings for a
particular period of time (and that period of time can be withing two
calendar years).

This is a good idea though.

Post by Pat Coghlan
While on the topic, another thing they should fix is the front-end
loading of CPP/EI payments, i.e., if someone earns more than the maximum
insurable amount ($39K or so), they should be able to make <n pay
periods> equal premium payments throughout the year. The solution to
this is simple: forecast the amount of earnings for the rest of the year
and base the CPP/EI calculation on this, rather than the current method
of simply multiplying the earnings for a given pay period by a constant
value.
a) end most CPP/EI overcontributions for people who change employers; and
b) smooth out after-tax earnings on each paycheque throughout the
calendar year
while still letting CRA double-charge for the employer-portion of
CPP/EI, as is the case currently.
They can't continue to be the only winner in all these scenarios.
-Pat

That is a reasonable solution. It would work in salary permanent full
time scenario's but not for seasonal/part time work.

Frankly, it is easier for most employers to deduct and remit under the
current system and have their accountant reduce any over payments by
properly filing T4's at the end of the year.

[Christopher Browne]

Post by Pat Coghlan
Is this merely a technical problem (in which case, I can chase after
the application support people), or is there a CRA policy which does
not permit this type of manual adjustment of YTD amounts?

Essentially "the clock starts ticking from the beginning" in this
regard.

The individual won't get dramatically hurt by it; if he or she pays
too much in EI/CPP, there will be a refund at the end of the year.

The ones 'hurt' are the employers, as they don't get any such refund
:-(.

I'm not certain that this is CRA policy; it may be the nature of the
legislation passed by Parliament.

[Pat Coghlan]

Although no one may be /dramatically /hurt by it, it represents a total
disregard and lack of respect towards the taxpayer.

What would your response be to /any /service provider that asked you to
kick in an extra $1000 payment for now, with the promise that they'd
give it back to you (without interest) next April?

You would not stand for it.

Post by Christopher Browne

Post by Pat Coghlan
Is this merely a technical problem (in which case, I can chase after
the application support people), or is there a CRA policy which does
not permit this type of manual adjustment of YTD amounts?

Essentially "the clock starts ticking from the beginning" in this
regard.
The individual won't get dramatically hurt by it; if he or she pays
too much in EI/CPP, there will be a refund at the end of the year.
The ones 'hurt' are the employers, as they don't get any such refund
:-(.
I'm not certain that this is CRA policy; it may be the nature of the
legislation passed by Parliament.

[Christopher Browne]

Although no one may be dramatically hurt by it, it represents a
total disregard and lack of respect towards the taxpayer. What
would your response be to any service provider that asked you to
kick in an extra $1000 payment for now, with the promise that they'd
give it back to you (without interest) next April? You would not
stand for it.

The only way that this would occur as an "extra $1000 payment for now"
is if the individual is getting paid some outrageously large lump sum
of on the order of $50,000 upon jumping to a new job.

And my response to a service provider that tells me, "You have moved,
and our policy requires a security deposit" would tend to involve
(somewhat disgruntled) acquiescence, as there is generally little
choice between the paucity of competitors.

If you move around, it is not at all unusual for service providers to
expect security deposits. I have been quite fortunate that way,
between having decent credit and at least one stroke of luck. The
first time I moved to Toronto, Bell would have required me to put down
something like a $300 deposit ($300 that I didn't, at that point in
time, have) to get a phone if it hadn't been that I could document
that I had had my name on a Bell account previously.

But in contrast to your "would not stand for it," people with
questionable credit wind up having to stand for all sorts of
indignities when dealing with service providers.

The "troubles" of someone with such a high income that a job switch
leads to an excess $1000 lump sum payment of CPP/EIC aren't even
barely comparable to that.

And a $50K lump sum has got to be vanishingly unusual. What would
_actually_ happen is for someone to pay $150/month in to-be-returned
CPP/EIC payments, which falls into "grumble" territory for someone
that is clearly making on the order of $100K/year.

They're making big bucks, around four times the national average, so
they can surely afford to wait for the refund.

[Pat Coghlan]

Post by Christopher Browne

Although no one may be dramatically hurt by it, it represents a
total disregard and lack of respect towards the taxpayer. What
would your response be to any service provider that asked you to
kick in an extra $1000 payment for now, with the promise that they'd
give it back to you (without interest) next April? You would not
stand for it.

The only way that this would occur as an "extra $1000 payment for now"
is if the individual is getting paid some outrageously large lump sum
of on the order of $50,000 upon jumping to a new job.

"Now" is any point in time where you've paid up for the year and have
already overcontributed $X. It doesn't mean you're making the
overcontribution as a lump sum.

Post by Christopher Browne
And a $50K lump sum has got to be vanishingly unusual. What would
_actually_ happen is for someone to pay $150/month in to-be-returned
CPP/EIC payments, which falls into "grumble" territory for someone
that is clearly making on the order of $100K/year.

How about $530/month? Is that "grumble" territory?

CPP/EI premiums are 6.95% of payperiod earnings. Someone earning $100K
would pay about $265 every pay period, or $530 per month...until the
beginning of June, followed by no payments for the rest of the year.

Post by Christopher Browne
They're making big bucks, around four times the national average, so
they can surely afford to wait for the refund.

Someone earning "big bucks" who changes employers after being fully
paid-up in June would then have to pay another $2,600 in overpayments
thru to year-end. I assume you feel this is acceptable since they have
a high income.

Alternatively, CRA could simply permit employers to factor in any CPP/EI
premiums paid in the current calendar year and simply make some effort
to avoid such overpayments. What would be the problem with that?

[SHARX.]

Pat Coghlan wrote:
|| Christopher Browne wrote:
||| Oops! Pat Coghlan <***@sympatico.ca> was seen spray-painting on
||| a wall:
|||
|||| Although no one may be dramatically hurt by it, it represents a
|||| total disregard and lack of respect towards the taxpayer. What
|||| would your response be to any service provider that asked you to
|||| kick in an extra $1000 payment for now, with the promise that
|||| they'd give it back to you (without interest) next April? You
|||| would not stand for it.
|||
|||
||| The only way that this would occur as an "extra $1000 payment for
||| now"
||| is if the individual is getting paid some outrageously large lump
||| sum
||| of on the order of $50,000 upon jumping to a new job.
||
|| "Now" is any point in time where you've paid up for the year and have
|| already overcontributed $X. It doesn't mean you're making the
|| overcontribution as a lump sum.
||
||| And a $50K lump sum has got to be vanishingly unusual. What would
||| _actually_ happen is for someone to pay $150/month in to-be-returned
||| CPP/EIC payments, which falls into "grumble" territory for someone
||| that is clearly making on the order of $100K/year.
||
|| How about $530/month? Is that "grumble" territory?
||
|| CPP/EI premiums are 6.95% of payperiod earnings. Someone earning
|| $100K would pay about $265 every pay period, or $530 per
|| month...until the beginning of June, followed by no payments for the
|| rest of the year.
||
||| They're making big bucks, around four times the national average, so
||| they can surely afford to wait for the refund.
||
|| Someone earning "big bucks" who changes employers after being fully
|| paid-up in June would then have to pay another $2,600 in overpayments
|| thru to year-end. I assume you feel this is acceptable since they
|| have a high income.
||
|| Alternatively, CRA could simply permit employers to factor in any
|| CPP/EI premiums paid in the current calendar year and simply make
|| some effort to avoid such overpayments. What would be the problem
|| with that?

They could modify the TD1 form plus, in Alberta, the TD1AB form, to
accomplish that goal. I find it a greater problem amongst my clients who
have multiple employers who EACH give the client the full personal exemption
because the client hasn't filled out the TD1 properly..if at all.

[Jason]

Post by Christopher Browne

Post by Pat Coghlan
Is this merely a technical problem (in which case, I can chase after
the application support people), or is there a CRA policy which does
not permit this type of manual adjustment of YTD amounts?

Essentially "the clock starts ticking from the beginning" in this
regard.
The individual won't get dramatically hurt by it; if he or she pays
too much in EI/CPP, there will be a refund at the end of the year.
The ones 'hurt' are the employers, as they don't get any such refund
:-(.

See my post above: if the employer files T4's properly then the CPP/EI
overpayment can be reduced or eliminated.

For example, you have a small business owned by employer A and has an
employee B (the business is incorporated).

During the year the employee B has $2,000 deducted off her pay cheque
for CPP (which is obviously wrong since the max is $1,831.50). This is
her only job and only taxable income.

This means the employer deducted off $168.50 too much AND paid in his
portion of $168.50 for a total overpayment of $337.00.

The ideal solution is to report the employee as only having $1,831.50 of
CPP withheld. Then $168.50, which represents the employee's overpayment,
is added to her income tax. Therefore, she will still get that $168.50
back but as a tax refund rather than as a CPP overpayment.

The employer, who is an employee of the corporation, will then add the
employer overpayment of $168.50 to his income tax deducted on his T4.

The end result: The employee gets her CPP overpayment back as a tax
refund and the employer gets the corporate CPP overpayment back as a
refund on his personal tax return. It all flows through.

Accountants have been doing T4's like this for years and, given that the
software, such as Greenpoint's Profile, is reviewed by CRA I assume the
government condones this practice.

[Pat Coghlan]

This post might be inappropriate. Click to display it.

[Jason]

Post by Pat Coghlan
We're not talking about an employee who has too much CPP deducted by
his/her only employer.
- Jean (unisex name) works at company A until June and pays maximum
CPP/EI premiums
- company A has also paid the maximum CPP/EI premiums (employer portion)
- Jean leaves company A to join company B
- company B is required to restart CPP/EI deductions for Jean who, if
earning the same salary as before (or more), will pay the maximum CPP/EI
premiums AGAIN by the end of December
- company B has no information from Jean's previous employer, and will
also pay the maximum CPP/EI premiums
- Jean will get a refund for CPP/EI overpayment
- company B will not get a refund for CPP/EI overpayment
- Jean has paid approximately $5,200 in CPP/EI premiums
- company A has paid ~$2,600
- company B has paid ~$2,600
The government has raked in $10,400 in CPP - $5,200 it is not really
entitled to and would not receive if Jean didn't change employers.
However, the government will only refund $2,600 to Jean. Company B is
forced to bite the bullet.
a) Jean would pay $2,600 at company A
b) Jean would not be required to give the government a $2,600
interest-free loan at company B until April
c) company B would not have to pay $2,600 in CPP/EI
I'd be very surprised if the US system operated with similar disregard
for the contributor(s) when someone changes employers.
I'm also surprised that employers haven't fought tooth and nail against
this. They lobbied (successfully) up to '93 against having to do the
bookkeeping for the PA (pension adjustment) for employees who terminated
their employment. Where's the lobbying effort against having to cough
up as much as $2,600 for employees who may have already paid the maximum
for the year with another employer?

I largely agree that the system is unfair to employers in this
situation. As I have written earlier, I believe the government is
attempting to address this issue in the current budget but I have not
seen any documentation yet.

As for the employee: it sucks but since the employee gets the money back
within a reasonable period of time (and, if the employer is willing to
go along with it, can fudge the amount of tax withheld to mitigate the
overpayment) I don't really consider it to be a large issue. In fact, I
think it is making a mountain out of an ant hill.

[Pat Coghlan]

Wouldn't you agree that CPP/EI should work essentially the way income
tax does, namely:

Shell logo

By forecasting the amount of income for the remainder of the calendar
year (as is done for your salary for collecting income taxes), this
achieves two things:

1) Spreads CPP/EI premiums out into equal payments for the year
2) Avoids overpayment of premiums

Of course, this does not work for seasonal/contract workers or many
self-employed individuals who may make quarterly payments etc., so why
attempt to treat everyone the same way when it comes to CPP/EI?

It's simple, and it's the way income taxes are collected from salaried
employees, so why the hell doesn't CPP/EI work this way?

You may think it's a non-issue, but for those of us who live
paycheque-to-paycheque supporting kids and stay-at-home spouses, it
makes a BIG difference if there weren't big fluctuations in take-home
pay throughout the year as we try to balance monthly budgets, especially
in January.

If the government can't make these kinds of simple changes to the
system, what are we paying their salaries for?

Post by Jason

Post by Pat Coghlan
We're not talking about an employee who has too much CPP deducted by
his/her only employer.
- Jean (unisex name) works at company A until June and pays maximum
CPP/EI premiums
- company A has also paid the maximum CPP/EI premiums (employer portion)
- Jean leaves company A to join company B
- company B is required to restart CPP/EI deductions for Jean who, if
earning the same salary as before (or more), will pay the maximum
CPP/EI premiums AGAIN by the end of December
- company B has no information from Jean's previous employer, and
will also pay the maximum CPP/EI premiums
- Jean will get a refund for CPP/EI overpayment
- company B will not get a refund for CPP/EI overpayment
- Jean has paid approximately $5,200 in CPP/EI premiums
- company A has paid ~$2,600
- company B has paid ~$2,600
The government has raked in $10,400 in CPP - $5,200 it is not really
entitled to and would not receive if Jean didn't change employers.
However, the government will only refund $2,600 to Jean. Company B
is forced to bite the bullet.
a) Jean would pay $2,600 at company A
b) Jean would not be required to give the government a $2,600
interest-free loan at company B until April
c) company B would not have to pay $2,600 in CPP/EI
I'd be very surprised if the US system operated with similar
disregard for the contributor(s) when someone changes employers.
I'm also surprised that employers haven't fought tooth and nail
against this. They lobbied (successfully) up to '93 against having
to do the bookkeeping for the PA (pension adjustment) for employees
who terminated their employment. Where's the lobbying effort against
having to cough up as much as $2,600 for employees who may have
already paid the maximum for the year with another employer?

I largely agree that the system is unfair to employers in this
situation. As I have written earlier, I believe the government is
attempting to address this issue in the current budget but I have not
seen any documentation yet.
As for the employee: it sucks but since the employee gets the money
back within a reasonable period of time (and, if the employer is
willing to go along with it, can fudge the amount of tax withheld to
mitigate the overpayment) I don't really consider it to be a large
issue. In fact, I think it is making a mountain out of an ant hill.

[Jason]

Post by Pat Coghlan
Wouldn't you agree that CPP/EI should work essentially the way income
Shell logo
By forecasting the amount of income for the remainder of the calendar
year (as is done for your salary for collecting income taxes), this

This is not the way it is done for income tax (IT). Look at any payroll
table and it is clear that income tax is deducted based on the gross
earnings, ei/cpp tax credit, and an appropriate amount of tax credits.

Post by Pat Coghlan
1) Spreads CPP/EI premiums out into equal payments for the year
2) Avoids overpayment of premiums
Of course, this does not work for seasonal/contract workers or many
self-employed individuals who may make quarterly payments etc., so why
attempt to treat everyone the same way when it comes to CPP/EI?
It's simple, and it's the way income taxes are collected from salaried
employees, so why the hell doesn't CPP/EI work this way?
You may think it's a non-issue, but for those of us who live
paycheque-to-paycheque supporting kids and stay-at-home spouses, it
makes a BIG difference if there weren't big fluctuations in take-home
pay throughout the year as we try to balance monthly budgets, especially
in January.

There are better ways to do it. I would prefer if the CPP basic
exemption of $3,500 was eliminated. Then eliminate the maximum EI and
CPP amounts and reduce the rates accordingly to make it revenue neutral.

This would be a simpler solution than the one you have proposed. Of
course, it would also mean you would pay more in CPP and EI than you do
now.

You forget about the importance of liability in business. An employer is
liable for the deductions that are made or not made. The idea of putting
year to date CPP and EI earnings and deductions on a ROE is a good one
since the new employer would not be liable for not taking CPP/EI since
the new employer can rely on the ROE to cover his ass.

Post by Pat Coghlan
If the government can't make these kinds of simple changes to the
system, what are we paying their salaries for?

This has little to do with government workers so I don't see the point
of your snide remark. This is a legislative issue.

I have done enough payrolls (and reconciled them at year end to T4's) to
know that the current system works reasonably well 99% of the time.

The only problem with the current system is that employers lose out.
Unlike employees there is no mechanism to recover over payments of
CPP/EI in certain circumstances. This should be corrected which would
likely have the benefit of improving the timing of your CPP/EI refund
from April of next year to the pay periods of this year.

As I have stated before: this is an issue which for employees is
immaterial. Unless interest rates were more than 10% I don't see why the
government should be concerned about you getting your CPP/EI overpayment
refund in April 2006.

[Pat Coghlan]

Post by Jason
This is not the way it is done for income tax (IT). Look at any
payroll table and it is clear that income tax is deducted based on the
gross earnings, ei/cpp tax credit, and an appropriate amount of tax
credits.

Different tables are used for taxes and CPP/EI.

The tax table looks at projected gross earnings, while CPP/EI does not.
Ditto for ensuring that the correct amount of deductions for the year
are collected in equal payments during each of the remaining pay
periods. This is not what happens with CPP/EI.

Post by Jason
1) Spreads CPP/EI premiums out into equal payments for the year
There are better ways to do it. I would prefer if the CPP basic
exemption of $3,500 was eliminated. Then eliminate the maximum EI and
CPP amounts and reduce the rates accordingly to make it revenue neutral.

Are you going to increase the EI and CPP benefits as well??? If you're
going to cap benefits, you have to cap the premiums.

Post by Jason
This would be a simpler solution than the one you have proposed. Of
course, it would also mean you would pay more in CPP and EI than you
do now.

I'm only tossing out one possible solution. I'll take ANY solution
offered, as long as I can make 26 equal CPP/EI premiums during a
calendar year, regardless of my income level, and avoid having to
continue CPP/EI if I change jobs after already having contributed the
maximum for the year.

Post by Jason
You forget about the importance of liability in business. An employer
is liable for the deductions that are made or not made. The idea of
putting year to date CPP and EI earnings and deductions on a ROE is a
good one since the new employer would not be liable for not taking
CPP/EI since the new employer can rely on the ROE to cover his ass.

Agreed. This proposal makes too much sense to ignore.

Post by Jason
If the government can't make these kinds of simple changes to the
system, what are we paying their salaries for?
This has little to do with government workers so I don't see the point
of your snide remark. This is a legislative issue.

I don't think this is a legislative issue. Nowhere in the ITA (income
tax act) does it say that CPP/EI premiums must be collected as a flat %
of pay period earnings. I think CRA simply provides the algorithm for
employers to use - table or software methods.

I said government, not government workers, needs to do more to make the
system taxpayer-friendly. What are the policy-makers being paid for if
not to continuously improve the system?

Post by Jason
I have done enough payrolls (and reconciled them at year end to T4's)
to know that the current system works reasonably well 99% of the time.

Depends on your definition of "reasonably well". In my previous job in
the telecom sector, I paid $400-$500 in monthly CPP/EI premiums from
January thru to May, followed by zero payments for the rest of the
year. If I changed employers, I had to start paying all over again.
Heck, I had to start paying all over again even after changing jobs with
the same employer.

This is simply unacceptable for someone continuously employed during a
calendar year. CPP/EI premium payments, like income taxes, should be
spread out equally in each pay period.

Post by Jason
The only problem with the current system is that employers lose out.
Unlike employees there is no mechanism to recover over payments of
CPP/EI in certain circumstances. This should be corrected which would
likely have the benefit of improving the timing of your CPP/EI refund
from April of next year to the pay periods of this year.

You lost me on this one. If this problem (2nd employer being able to
adjust payroll records for CPP/EI amounts already paid by employee),
then the employee also won't have to overcontribute and won't NEED a refund.

Post by Jason
As I have stated before: this is an issue which for employees is
immaterial. Unless interest rates were more than 10% I don't see why
the government should be concerned about you getting your CPP/EI
overpayment refund in April 2006.

Why does virtually *every* service provider (hydro, gas, insurance,
public transit, municipality) have a provision for equal billing
then??? Answer: So that customers have monthly payments that don't
fluctuate wildly during the year. This enables families to budget and
not incur extraordinary payments for services. Even income tax follows
this model - except for overtime, which is usually taxed at the highest
marginal rate.

The only holdouts are CPP/EI.

[Jason]

Post by Pat Coghlan

Post by Jason
This is not the way it is done for income tax (IT). Look at any
payroll table and it is clear that income tax is deducted based on the
gross earnings, ei/cpp tax credit, and an appropriate amount of tax
credits.

Different tables are used for taxes and CPP/EI.
The tax table looks at projected gross earnings, while CPP/EI does not.
Ditto for ensuring that the correct amount of deductions for the year
are collected in equal payments during each of the remaining pay
periods. This is not what happens with CPP/EI.

The tax tables, and payroll programs, factor into the equation the tax
credit for EI/CPP premiums and the appropriate tax credits such as the
basic exemption ($8,148 for 2005 at the federal level), age amount,
etc... per the TD1.

The tax tables work extremely well for salaried employees since the
variations inherent to the tax tables are small. They work fairly well
for employees with varying gross income.

Nevertheless, the tax tables and calculations screw up when I do a year
end bonus for a client who doesn't have any other income. The tables
always take off too much tax in this case (but since I do tax plans
before declaring the bonus it doesn't matter since I can deduct the
proper amount of tax -- the one exception is when the client uses a
payroll service like Ceridian where they take the tax off per the tables).

Of course, this is the point of filing a tax return: to do the math
correctly at the end of the year and finalize the numbers as they should
properly be.

Post by Pat Coghlan

Post by Jason
1) Spreads CPP/EI premiums out into equal payments for the year
There are better ways to do it. I would prefer if the CPP basic
exemption of $3,500 was eliminated. Then eliminate the maximum EI and
CPP amounts and reduce the rates accordingly to make it revenue neutral.

Are you going to increase the EI and CPP benefits as well??? If you're
going to cap benefits, you have to cap the premiums.

There is no need to increase the benefits. The link between the maximum
amounts and the amount of CPP or EI are tenuous at best. The politicians
have always played with the numbers to ensure adequate revenue and
sustainable programs (the only quibble is whether the politicians are
short-sighted or far-sighted).

Post by Pat Coghlan

Post by Jason
This would be a simpler solution than the one you have proposed. Of
course, it would also mean you would pay more in CPP and EI than you
do now.

I'm only tossing out one possible solution. I'll take ANY solution
offered, as long as I can make 26 equal CPP/EI premiums during a
calendar year, regardless of my income level, and avoid having to
continue CPP/EI if I change jobs after already having contributed the
maximum for the year.

Post by Jason
You forget about the importance of liability in business. An employer
is liable for the deductions that are made or not made. The idea of
putting year to date CPP and EI earnings and deductions on a ROE is a
good one since the new employer would not be liable for not taking
CPP/EI since the new employer can rely on the ROE to cover his ass.

Agreed. This proposal makes too much sense to ignore.

Post by Jason
If the government can't make these kinds of simple changes to the
system, what are we paying their salaries for?
This has little to do with government workers so I don't see the point
of your snide remark. This is a legislative issue.

I don't think this is a legislative issue. Nowhere in the ITA (income
tax act) does it say that CPP/EI premiums must be collected as a flat %
of pay period earnings. I think CRA simply provides the algorithm for
employers to use - table or software methods.

It most certainly is a legislative issue. There is more to legislation
in Canada than the ITA and Criminal Code. There is CPP legislation and a
variety of other legislation that is behind the government's
administrative positions.

For example, in the 2004 budget it was announced that the government is
going to correct employer over payments of CPP/EI in certain situations
(almagamations/restructurings) so that the employer does not have to
deduct EI/CPP on an employee's earnings where the employee has crossed
the maximum threshold under the predecessor company.

Here is a sample of the news release:



Proposed Clarification
The proposed changes will deem such employees to have had continuous
employment with the "restructured" employer.
The Canada Revenue Agency Bulletin IT474R, Amalgamations of Canadian
Corporations provides that a statutory amalgamation under the laws of
Canada or any of the provinces does not result in the new corporation
being treated as a new employer for the purposes of the Canada Pension Plan.
Therefore, where there has been such an amalgamation at some point in
the calendar year, the bulletin provides that the contributions by
employees and by the predecessor corporations before the amalgamation
should be taken into account in determining the required contribution to
be made after the amalgamation. For instance, where the year's maximum
contribution in respect of an employee had been made prior to the
amalgamation by both the employee and the predecessor corporation that
employed the employee, the new amalgamated company is not required to
make further contributions for that employee.
The proposed changes would also expressly incorporate this
interpretation into the CPP legislation and extend it to other forms of
business restructuring.
In particular, when an employer is restructured as a result of a
winding-up and immediate reconstitution under a different legal
structure or the acquisition of all, substantially all or a distinct
division of the employer's property by another employer, employees with
uninterrupted employment with the employer will be deemed to have
continuous employment with the successor employer for the purposes of
the CPP.
The Quebec Pension Plan legislation has had similar provisions in place
since 1981. On December 12, 2003, the government of Quebec announced
clarifications to these provisions in light of the Agpro decision.
The changes to the corresponding CPP provisions are proposed to be
effective as of January 1, 2004.





So clearly there is legislation in place as well as administrative
positions.

Post by Pat Coghlan
I said government, not government workers, needs to do more to make the
system taxpayer-friendly. What are the policy-makers being paid for if
not to continuously improve the system?

Post by Jason
I have done enough payrolls (and reconciled them at year end to T4's)
to know that the current system works reasonably well 99% of the time.

Depends on your definition of "reasonably well". In my previous job in
the telecom sector, I paid $400-$500 in monthly CPP/EI premiums from
January thru to May, followed by zero payments for the rest of the
year. If I changed employers, I had to start paying all over again.
Heck, I had to start paying all over again even after changing jobs with
the same employer.

You are rare. Given that only a small percentage of people make the
maximum in employment earnings each year and even fewer switch jobs
where the EI/CPP overpayment could even be consider a burden, the fact
remains that the mechanism in place right now is not onerous on employees.

Post by Pat Coghlan
This is simply unacceptable for someone continuously employed during a
calendar year. CPP/EI premium payments, like income taxes, should be
spread out equally in each pay period.

Post by Jason
The only problem with the current system is that employers lose out.
Unlike employees there is no mechanism to recover over payments of
CPP/EI in certain circumstances. This should be corrected which would
likely have the benefit of improving the timing of your CPP/EI refund
from April of next year to the pay periods of this year.

You lost me on this one. If this problem (2nd employer being able to
adjust payroll records for CPP/EI amounts already paid by employee),
then the employee also won't have to overcontribute and won't NEED a refund.

That is what I'm saying: the system is only unfair to employers since
they don't get a refund of any over payments in certain circumstances.

For this reason I wouldn't mind a change in policy if a practical
solution can be found that balances employees privacy with employers
liability protection.

Post by Pat Coghlan

Post by Jason
As I have stated before: this is an issue which for employees is
immaterial. Unless interest rates were more than 10% I don't see why
the government should be concerned about you getting your CPP/EI
overpayment refund in April 2006.

Why does virtually *every* service provider (hydro, gas, insurance,
public transit, municipality) have a provision for equal billing
then??? Answer: So that customers have monthly payments that don't
fluctuate wildly during the year. This enables families to budget and
not incur extraordinary payments for services. Even income tax follows
this model - except for overtime, which is usually taxed at the highest
marginal rate.
The only holdouts are CPP/EI.

Once again: if CPP/EI over payments were material then I would agree.
The fact remains that for the vast majority of people CPP/EI over
payments are not material.

The system works well most of the time and, therefore, there is little
incentive to change it. Get over it.

[Pat Coghlan]

Post by Jason
The tax tables, and payroll programs, factor into the equation the tax
credit for EI/CPP premiums and the appropriate tax credits such as the
basic exemption ($8,148 for 2005 at the federal level), age amount,
etc... per the TD1.

That's because you get a credit for CPP/EI against your taxes owing.

CPP comes right off your pay period earnings (minus the basic
exemption). See
http://www.cra-arc.gc.ca/E/pub/tg/t4001/t4001-03-e.html#P484_44962.

Post by Jason
The tax tables work extremely well for salaried employees since the
variations inherent to the tax tables are small. They work fairly well
for employees with varying gross income.

Yeah, but we're not talking about taxes, just CPP/EI.

I've said all along that CPP/EI should work *like* taxes: equal
deductions every pay period throughout the year. Currently, they don't
(well, for people that make more than $49K anyway).

Post by Jason

Post by Pat Coghlan
Are you going to increase the EI and CPP benefits as well??? If
you're going to cap benefits, you have to cap the premiums.

There is no need to increase the benefits. The link between the
maximum amounts and the amount of CPP or EI are tenuous at best. The
politicians have always played with the numbers to ensure adequate
revenue and sustainable programs (the only quibble is whether the
politicians are short-sighted or far-sighted).

Always the former.

Post by Jason
It most certainly is a legislative issue. There is more to legislation
in Canada than the ITA and Criminal Code. There is CPP legislation and
a variety of other legislation that is behind the government's
administrative positions.

Yes, but show me an example of legislation that deals with how much to
deduct from each paycheque. I think CRA has a free hand w.r.t. this.

That's why I say no legislation is required to equalize CPP/EI premium
payments throughout the year. Since employers are on the hook for the
employer contribution even for employees that are fully paid up, a
legislative change might be required.

Post by Jason
For example, in the 2004 budget it was announced that the government
is going to correct employer over payments of CPP/EI in certain
situations (almagamations/restructurings) so that the employer does
not have to deduct EI/CPP on an employee's earnings where the employee
has crossed the maximum threshold under the predecessor company.

See above.

Post by Jason

Post by Pat Coghlan
I have done enough payrolls (and reconciled them at year end to T4's)
to know that the current system works reasonably well 99% of the time.
Depends on your definition of "reasonably well". In my previous job
in the telecom sector, I paid $400-$500 in monthly CPP/EI premiums
from January thru to May, followed by zero payments for the rest of
the year. If I changed employers, I had to start paying all over
again. Heck, I had to start paying all over again even after
changing jobs with the same employer.

You are rare. Given that only a small percentage of people make the
maximum in employment earnings each year and even fewer switch jobs
where the EI/CPP overpayment could even be consider a burden, the fact
remains that the mechanism in place right now is not onerous on employees.

Oh, I didn't realize that people who earn more than $39K in this country
have a right to be treated fairly.

Post by Jason

Post by Pat Coghlan

Post by Jason
As I have stated before: this is an issue which for employees is
immaterial. Unless interest rates were more than 10% I don't see why
the government should be concerned about you getting your CPP/EI
overpayment refund in April 2006.

Why does virtually *every* service provider (hydro, gas, insurance,
public transit, municipality) have a provision for equal billing
then??? Answer: So that customers have monthly payments that don't
fluctuate wildly during the year. This enables families to budget
and not incur extraordinary payments for services. Even income tax
follows this model - except for overtime, which is usually taxed at
the highest marginal rate.
The only holdouts are CPP/EI.

Once again: if CPP/EI over payments were material then I would agree.
The fact remains that for the vast majority of people CPP/EI over
payments are not material.
The system works well most of the time and, therefore, there is little
incentive to change it. Get over it.

The issue is not just overpayments, but that premiums are not spread
equally throughout the year the way income tax deductions are.

Since those of us who earn more than $39K don't matter, we'll just have
to wait for employers (who, in your books, *matter*) to lobby for a fix
to the overpayment problem.

Perhaps the employers might also not be too fond of the way CPP/EI
premiums are front-end loaded for anyone earning more than $39K, so
perhaps we can count on their lobbying efforts to fix that problem as well.

Time will tell.

[Jason]

This post might be inappropriate. Click to display it.

[Pat Coghlan]

Post by Jason

Post by Pat Coghlan

Post by Jason
The tax tables work extremely well for salaried employees since the
variations inherent to the tax tables are small. They work fairly
well for employees with varying gross income.

Yeah, but we're not talking about taxes, just CPP/EI.

The CPP/EI tables also work reasonable well. Of course, for the vast
majority of employees CPP/EI errors can be corrected on the T4 as I
have explained elsewhere in this thread.

Yes, for errors such as too much CPP/EI being deducted by the employer.
The CRA website has instructions for employers who need to make such
adjustments.

Post by Jason

Post by Pat Coghlan

Post by Jason
You are rare. Given that only a small percentage of people make the
maximum in employment earnings each year and even fewer switch jobs
where the EI/CPP overpayment could even be consider a burden, the
fact remains that the mechanism in place right now is not onerous on
employees.

The median income for families in Canada with two working spouses is
over $80K, so that means in at least 50% of such families, at least one
wage earner has a salary above $40K

We can at least say that more people are subject to the front-end
loading of CPP/EI than over-contributing, but even if only 5% of
individuals are subject to either of these problems, it should be fixed.

MPs don't pay EI. If they did, the front-end loading problem might get
addressed sooner.

Post by Jason

Post by Pat Coghlan
Oh, I didn't realize that people who earn more than $39K in this
country have a right to be treated fairly.

They are being treated fairly. Sure, you may whine about the "time
value of money" as my old finance professor used to say but the
reality remains that you get the money back within a reasonable period
of time and interest rates are low enough that the monetary time value
is immaterial.

If I may ask a personal question, do you have a family and live
paycheque-to-paycheque?

The hardship is not caused by the time value of money. I don't care
about the 3% interest on the up to $2,600 I might have to loan the
government for free until April. I care about my monthly take-home pay
dropping by $400-$500 in January when CPP/EI starts to kick in again,
and having to wait until June for deductions to end so I'm not in the
red every month.

At least, that was the situation I was in when I worked in the telecomm
sector in my previous job. My premiums aren't as extreme now, but
they're still front-end loaded. In addition, since my status changed
mid-year with my current employer, the cessation in premiums that I was
looking forward to in June won't happen now, as I've started to pay all
over again.

Post by Jason
Once again: get over it. It doesn't bother me any that I pay more
CPP/EI sooner rather than later and I'm an accountant who is
allegedly anal retentive.
You would make me appear to be easy going and have personality by
comparison. Say, are you an engineer by any chance? :-)

Software guy.

Post by Jason

Post by Pat Coghlan
The issue is not just overpayments, but that premiums are not spread
equally throughout the year the way income tax deductions are.
Since those of us who earn more than $39K don't matter, we'll just
have to wait for employers (who, in your books, *matter*) to lobby
for a fix to the overpayment problem.

There is no problem for employees since they get overpayments back. It
is those employers who overpay AND DO NOT get a refund that have the
problem.

It's a problem for employers *and* employees.

The process of continuous improvement should apply everywhere, including
the collection of CPP/EI.

Post by Jason

Post by Pat Coghlan
Time will tell.

Perhaps the employers might also not be too fond of the way CPP/EI
premiums are front-end loaded for anyone earning more than $39K, so
perhaps we can count on their lobbying efforts to fix that problem as well.
This has been a problem for so long and very few employers whine about
it so why would the government legislate any changes? I hope they do
one day for the employers sake.

Although tens of thousands of jobs were lost each year since 2000, there
was no massive re-hiring. Perhaps if there had been, we might have seen
more of a lobbying effort from employers.

[Jason]

Post by Pat Coghlan

Post by Jason

Post by Pat Coghlan

Post by Jason
The tax tables work extremely well for salaried employees since the
variations inherent to the tax tables are small. They work fairly
well for employees with varying gross income.

Yeah, but we're not talking about taxes, just CPP/EI.

The CPP/EI tables also work reasonable well. Of course, for the vast
majority of employees CPP/EI errors can be corrected on the T4 as I
have explained elsewhere in this thread.

Yes, for errors such as too much CPP/EI being deducted by the employer.
The CRA website has instructions for employers who need to make such
adjustments.

Post by Jason

Post by Pat Coghlan

Post by Jason
You are rare. Given that only a small percentage of people make the
maximum in employment earnings each year and even fewer switch jobs
where the EI/CPP overpayment could even be consider a burden, the
fact remains that the mechanism in place right now is not onerous on
employees.

The median income for families in Canada with two working spouses is
over $80K, so that means in at least 50% of such families, at least one
wage earner has a salary above $40K
We can at least say that more people are subject to the front-end
loading of CPP/EI than over-contributing, but even if only 5% of
individuals are subject to either of these problems, it should be fixed.
MPs don't pay EI. If they did, the front-end loading problem might get
addressed sooner.

I don't think it would really matter. The maximum EI is something like
$760 for 2005. Once again, does it really matter if I pay that within
the first 7 months of the year versus spread out over the entire year?
Yeah, sure my ING account would be a little bigger but I'm not goint to
lose sleep over it.

Post by Pat Coghlan

Post by Jason

Post by Pat Coghlan
Oh, I didn't realize that people who earn more than $39K in this
country have a right to be treated fairly.

They are being treated fairly. Sure, you may whine about the "time
value of money" as my old finance professor used to say but the
reality remains that you get the money back within a reasonable period
of time and interest rates are low enough that the monetary time value
is immaterial.

If I may ask a personal question, do you have a family and live
paycheque-to-paycheque?

I have a wife and no, I don't live paycheque to paycheque because I have
structured my life to be this way. I structured my life years ago to ne
this way when my wife and I were making a fraction of the income you
make. Of course, since then we now make a modest amount of money.

As my old boss used to say: it's not what you make, it's how you spend
it. I agree although I always made sure he paid me properly.

Post by Pat Coghlan
The hardship is not caused by the time value of money. I don't care
about the 3% interest on the up to $2,600 I might have to loan the
government for free until April. I care about my monthly take-home pay
dropping by $400-$500 in January when CPP/EI starts to kick in again,
and having to wait until June for deductions to end so I'm not in the
red every month.

Sure it's hard and I do have some sympathy for your postion. But hey, at
least you can look forward to that CPP/EI refund coming in March or
April, right?

Post by Pat Coghlan
At least, that was the situation I was in when I worked in the telecomm
sector in my previous job. My premiums aren't as extreme now, but
they're still front-end loaded. In addition, since my status changed
mid-year with my current employer, the cessation in premiums that I was
looking forward to in June won't happen now, as I've started to pay all
over again.

Post by Jason
Once again: get over it. It doesn't bother me any that I pay more
CPP/EI sooner rather than later and I'm an accountant who is
allegedly anal retentive.
You would make me appear to be easy going and have personality by
comparison. Say, are you an engineer by any chance? :-)

Software guy.

Ha, ha, ha. Now that is funny!

[Pat Coghlan]

Post by Jason
I don't think it would really matter. The maximum EI is something like
$760 for 2005. Once again, does it really matter if I pay that within
the first 7 months of the year versus spread out over the entire year?
Yeah, sure my ING account would be a little bigger but I'm not goint
to lose sleep over it.

Depends whether you prefer paying $370/month for 7 months, and then zero
for 5 months, or $216 each month throughout the year.

In my case, I'd like to have the extra $154 of disposable income during
Jan-Jul.

Post by Jason

Post by Pat Coghlan
If I may ask a personal question, do you have a family and live
paycheque-to-paycheque?

I have a wife and no, I don't live paycheque to paycheque because I
have structured my life to be this way. I structured my life years ago
to ne this way when my wife and I were making a fraction of the income
you make. Of course, since then we now make a modest amount of money.
As my old boss used to say: it's not what you make, it's how you spend
it. I agree although I always made sure he paid me properly.

Well, be aware that we live in a very tax-unfriendly country for
families which have one spouse earning most or all of the income.
Families such as mine (5 kids) can't afford to have up to $2,600 sitting
needlessly in government coffers until next April.

Post by Jason
The hardship is not caused by the time value of money. I don't care
about the 3% interest on the up to $2,600 I might have to loan the
government for free until April. I care about my monthly take-home
pay dropping by $400-$500 in January when CPP/EI starts to kick in
again, and having to wait until June for deductions to end so I'm not
in the red every month.
Sure it's hard and I do have some sympathy for your postion. But hey,
at least you can look forward to that CPP/EI refund coming in March or
April, right?

Not much consolation when, in the meantime, I have to dip into the PLC
to make ends meet.

Post by Jason
At least, that was the situation I was in when I worked in the
telecomm sector in my previous job. My premiums aren't as extreme
now, but they're still front-end loaded. In addition, since my status
changed mid-year with my current employer, the cessation in premiums
that I was looking forward to in June won't happen now, as I've
started to pay all over again.
Ha, ha, ha. Now that is funny!

I have a different word for it.

[Jason]

Post by Pat Coghlan
Yes, but show me an example of legislation that deals with how much to
deduct from each paycheque. I think CRA has a free hand w.r.t. this.
That's why I say no legislation is required to equalize CPP/EI premium
payments throughout the year. Since employers are on the hook for the
employer contribution even for employees that are fully paid up, a
legislative change might be required.

See section 8


http://laws.justice.gc.ca/en/C-8/index.html

It is typical legalese though.

[Pat Coghlan]

I looked quickly, but the legislation doesn't get into software
algorithms or tables, from what I can see - only the annual contribution
amounts.

Again, I think CRA directs employers in this regard, depending on how
they (CRA) interpret the various pieces of legislation.

Post by Jason

Post by Pat Coghlan
Yes, but show me an example of legislation that deals with how much
to deduct from each paycheque. I think CRA has a free hand w.r.t. this.
That's why I say no legislation is required to equalize CPP/EI
premium payments throughout the year. Since employers are on the
hook for the employer contribution even for employees that are fully
paid up, a legislative change might be required.

See section 8
http://laws.justice.gc.ca/en/C-8/index.html
It is typical legalese though.

[Jason]

Post by Pat Coghlan
I looked quickly, but the legislation doesn't get into software
algorithms or tables, from what I can see - only the annual contribution
amounts.

I believe it can be found in the Regulations but I haven't had a
thorough look yet:

http://laws.justice.gc.ca/en/C-8/index.html