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How to Match Employee Retirement Contributions

A great benefit to offer your employees is a group retirement plan that allows them to save for their future. In Canada, most people are a part of a group registered retirement savings plan (GRRSP). This plan has its own set of advantages and disadvantages over other retirement plans, but it does allow employers to match their employees’ contributions. This extra benefit helps attract and keep employees, and it also gives your business a tax deduction for the years you match contributions.

Helping Attract and Keep Employees

Matching employee retirement contributions helps attract new employees to your company and encourages existing employees to stay. From an employee’s perspective, this contribution seems like free money towards their retirement if they can afford to contribute to the plan. The key to getting the most out of the match comes down to providing an attractive percentage that’s cost effective from a business perspective.

Example of Matching an Employee Contribution

Businesses typically match at least 5 percent of an employee’s salary if they want to stay competitive or attract new talent. In this scenario, if an employee contributes to the Group RRSP from their paycheque, the maximum amount you have to match is 5% of their salary. If an employee makes $100,000 and contributes $10,000 (or 10%) into the GRRSP, you only contribute $5,000. If that same employee only contributed $3,000 (or 3%) of their salary, your business only needs to match $3,000. Businesses don’t have to contribute to employees who don’t participate. So if an employee contributed nothing to the plan, your business doesn’t have to match anything.

Matching Contributions Based on Time With Your Company

You can also use a matching program to incentive employees to stay with your company based on a variety of factors, including their length of service, sales performance, or senior status. If you grade matching percentages based on length of service, you can match half a percent per year up to 5 years and then add 1 percent for every year thereafter. Alternatively you can match percentages with sales performance. For example, if an employee increased their sales goal by $100,000, you could match them 1% for every increment. Matching also proves a nice reward for senior status, allowing you to provide experienced employees with bonuses that help you both in the long run.

Tax Benefits: What Does a Company Get for Contributing to Employee RRSP?

Matching employee contributions lets your business claim a tax deduction, depending on the tax situation of your company. Also, since the company contribution comes out of the employee’s paycheque, you don’t have to withhold the payroll tax. Although the benefit is taxable and you have to report it on a T4 slip, you don’t have to deduct income tax on the contributions you make to an employee’s RRSPs if you have reasonable grounds to believe the employee can deduct the contribution for the year. To report the benefit, put the taxable amount in box 14 under Employment Income and in the Other Information area under code 40 at the bottom of the T4 slip.

Matching retirement contributions has lots of benefits for both you and your employees. It encourages them to plan ahead for retirement and gives you deductions that can lower your tax burden, which can in turn help your business grow and thrive. 4.3 million customers use QuickBooks. Join them today to help your business thrive for free.

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