Calculate cpp on bonus pay

Hi there,

I appreciate you reaching out to the Community. I'd be happy to show you how to calculate Canada pension plan and bonus pay in QBO. 

Calculate CPP

With a few exceptions, all employees pay the Canada Pension Plan (CPP) at a rate of 5.10% (matched exactly by the employer) on wages earned between a minimum of $3,500 (called the basic exemption) and a maximum of $57,400 (called wage cap). Here's how to calculate the CPP:

1. Determine the taxable gross pay (all pay types except reimbursement + Registered Retirement Savings Plan (RRSP) company contributions).
2. Subtract the basic exemption for one period (depends on your pay schedule).
3. Multiply by CPP rate: 0.051 (5.10%).

Is CPP not calculating correctly? Things to check:

• Is the employee paid (EE) marked exempt?
• Has the employee reached the annual maximum or wage cap?
• Is the employee too young or too old? (Under 18 or over 70)

Reference pages for CPP:

• Contribution summary 
• Maximum contributions table by year
• Basic Exemption table

For more info, check out this helpful article: How to calculate Canada pension plan and employment insurance. 

There's an article on our blog which shows you how to calculate Employee Taxes Using the Bonus Method. Check it out here. In case you have other questions, feel free to reach out to our support team using this link here. 

Hi @JamesM ,

I have a situation in QB Desktop where Bonus Cheques (unscheduled payroll) were issued on Dec 10/19 and regular pay cheques were issued on Dec 20/19 (scheduled payroll).  Both cheques were covering the same bi-weekly pay period from Dec 1 - 14/19.  However, in doing my year-end checks for CPP calculations, I find that QB has calculated an extra pay period and applied the exemption to one more pay period in the year than it should have (in cases of employees being there for the entire year, it calculated the exemption using 27 pay periods instead of 26, and for employees not there for the entire year, it added one more PP than it should have), thus knocking the CPP calculation for the year out of whack.  The only people on my payroll (50+) who have correct CPP calculations are those who had reached the maximum at some point during the year.  This has caused a huge problem for me as I am about to make my last remittance of the year and have to now make a lot of adjustments to avoid a PIER from CRA.

I have always thought QB would recognize that if two pay cheques are covering the same pay period, that it would not double up the CPP exemption for that period, but it has done exactly that.  Is this normal behavior for QB?  I don't recall ever having a problem with this before, and I have made many bonus payments over the years in the same way as I did for 2019.  Help . . . ?

Hi Rochelley. It's good to hear from you again. The employees with the bonus cheque will have more deductions because even though it's an unscheduled payroll for a bonus cheque, it's still an employee paycheque. This means that the CPP, EI and Federal Tax will be deducted. The program is correct by indicating that it's an extra paycheque because it is, although, it's a bonus cheque. Let me know if this makes sense. 

Hi @JamesM 

No, it doesn't really make sense.  Sorry.  When on a bi-weekly payroll, the program is supposed to calculate a $134.61 CPP exemption for every pay period, which is 26 times a year.  $134.61 x 26 = $3,499.86 = $3,500.00 annual exemption.  If you make two pay cheques in one pay period (which happens sometimes for various reasons), and the program uses the $134.61 exemption again on the extra pay cheque (which it has, in my case), the exemption has now just grown to $3,634.47 annually for that employee ($134.61 x 27).  Since the exemption can only be $3,500.00 in total, this results in an underpayment of CPP for that employee because too much has been exempted.  One pay period is one pay period, no matter how much money a person receives in that period, whether in one cheque or spread over multiple cheques.  The program should be designed to calculate that exemption only 26 times per year for Bi-Weekly payroll, 12 times per monthly, 24 times per semi-monthly, 52 times per weekly, etc.  You get my point.  The exemption should not be calculated based on number of pay cheques but rather, on number of pay periods.  See the CRA document below for basic exemption amounts based on pay periods, not pay cheques.

Basic exemption chart

As it is, I have to manually adjust the CPP deductions after the fact, as the employee paid too little CPP due to the extra exemption.  Had I known the program was not behaving as it should, I would have adjusted the CPP up front.  Now I know for next time.

Having said that, I thought that was the point of QB separating an unscheduled payroll  and a scheduled payroll.  In principle, the unscheduled payroll should not have any CPP exemption built into it, whereas the scheduled payroll, which is only scheduled for the number of pay periods there are in the year, should have the exemption and would then produce accurate CPP calculations for the year, in the case of users creating more paycheques than the number of pay periods.

If I'm missing something big here, please chime in someone.  As always, thanks for listening to my rant, James!

I see where you're coming from. I also want to make sure we're on the same page. For this to happen, it's important you call in. One of our agents will be happy to go over how it works. Here are the contact details. Feel free to ask questions, I got your back.  

I've had this happen too and when I went to test an unscheduled payroll vs. a scheduled payroll the CPP exemption still applied.  Yes, the question is why is there a scheduled and unscheduled payroll if they are both applying the exemption amount before calculating the CPP amounts?

Hi there Clearwater Bookkeeping and thanks for joining in on this thread to express the issue you're experiencing.

I've run several tests in my test account to try and get to the bottom of this, but each way I run the test I am seeing the correct numbers calculated for CPP. If you could provide me with some more specific details as to how you're calculating the amount or how you're running payroll I'd have a better idea of how to support you on this. You're welcome to reply and share some screenshots, as long as you ensure that any sensitive account or employee details are removed. 

If it's easier, you can also reach out to our team of support experts over the phone who can do a screenshare with you in order to see the exact process that you're following. Here's how you can reach out: 

Phone: Call us from Monday to Friday between the hours of 9 AM and 8 PM EST.
Schedule a Callback or start a Chat: click (?)Help in the upper right > type and enter "Contact support" into the QB Assistant > click Contact Us > explain your situation > click Let's Talk > choose Get a callback or Start a Chat. 
Social Media: Facebook, Twitter, and Instagram.

I'll be here if you want to continue working with me here. Have a great week! 

Hello @Rebecca R ,

The problem happens when you try to run any extra paycheque, i.e. an unscheduled payroll.  As soon as you make more pay cheques for the same person that the system thinks they should get, i.e. 12 monthly, 26 bi-weekly, 24 semi-monthly, etc. it applies the exemption the same on the extra pay cheque as it does for the regular pay cheques.  This results in an underfunding of CPP because the exemption for that person for the year now exceeds the $3,500 exemption, meaning that it calculates a lower amount of CPP than it should.  I think it might be clearer if you read my post above, where I give better examples.

In a nutshell, what we're saying is that if someone runs an "unscheduled" payroll, it means it is a payment over and above the regular period payroll, so no exemption should be calculated whatsoever on the unscheduled payroll.  A CPP calculation of a straight 5.45% on CPP insurable earnings should be calculated, period.  No exemption.  Because QB does not have this functionality built-in, it forces us to do the calculation manually and override the CPP calculation on the unscheduled payroll cheque.

Hi Rochelley. As always, it's great to hear from you, and I appreciate your clarification of what the previous user was talking about. I've read through this thread, and I see what you all are saying now and appreciate how it would seem that an Unscheduled Payroll shouldn't also be contributing to the CPP and other calculations.

In this case, an unscheduled payroll is just a payroll run without using a payroll schedule. It doesn't have any specific settings to it other than that. Quite literally, QuickBooks Desktop's in-product help section says, "Unscheduled Payroll is designed to be used for those times when you need to create a payment for an employee and you don't want to use payroll schedules."

Like I said, I can appreciate how it can be used to add an additional cheque to a period and the idea that the program should then intuitively understand that you don't need those deductions touched again for that timeframe. Because of that, it's a great opportunity to leave feedback. To make sure anyone that comes across this thread has it, feedback for QuickBooks Desktop can be left by going to the Help menu in product and selecting Send Feedback Online. For QuickBooks Online, these are the steps: How do I submit feedback?

Take care!

Hi @LauraAB ,

Thanks for your reply.  I have submitted feedback about this back when I posted the original post.  But just to be clear, it's isn't the CPP deductions that shouldn't be touched when running an additional payroll cheque.  It is the exemption that shouldn't be touched.  CPP should apply in full to the insurable earnings on the extra payment.  What we don't want is another exemption on that extra payment . . . this is what throws off the CPP for the year.

I just think that QB should make it clear that QB Desktop will treat extra payments the same as all other payroll payments regarding the calculation of the CPP exemption so that users are aware that they will need to make a manual CPP entry on the extra cheque.  A lot of users do not realize this is happening and will end up with a PIER review at year-end.

That's my mistake with mixing up the terms. I'm glad to hear that you've submitted feedback about this and hear what you're saying about the transparency of how the unscheduled payroll option works. If you haven't already included that in your feedback, please feel free to send an additional comment now to touch on that for our product team. :)

Do we have a solution on whether QB desktop  would calculate CPP correctly for an extra pay run ?

Hi there Kanch,

Thanks for contacting us about your CPP on payroll. QuickBooks Desktop Payroll is a great tool able to help calculate pay for your employees based on the hours they've worked. I can point you in the right direction for assistance with deductions. 

For assistance with the deduction calculation on bonus pay, I recommend reaching out to the QuickBooks Desktop support team. They'll be able to assist with the calculation to make sure your employees have the correct amount deducted on their bonus. You can reach them using the methods outlined in the QuickBooks Desktop software support policies.

If you have any other questions, feel free to reach out here.