How to calculate Canada Pension Plan in QuickBooks Online Payroll

This article explains how to calculate Canada Pension Plan (CPP), as well as what to check for when it isn't calculating correctly.

What are CPP contributions?

The Canada Pension Plan (CPP) retirement pension is a monthly, taxable benefit that replaces part of your income when you retire. If you qualify, you’ll receive the CPP retirement pension for the rest of your life. 

If you are older than 17 but younger than 70, employed in pensionable employment, and don't receive a CPP retirement or disability pension, an employer will deduct CPP contributions from your pay. With a few exceptions, all employees pay CPP at a rate outlined by the CRA here.

How does QuickBooks Online Payroll calculate CPP contributions?

Quickbooks Online Payroll uses the general CPP formula to calculate CPP which is:

CPP Rate x [Pensionable Earnings - (Annual Exemption / Pay Periods per Year)]

1. Determine the year-to-date pensionable pay up to and including the paycheque being created:
   
   • This includes all pay types except the Reimbursement pay type.
   • This also includes Registered Retirement Savings Plan (RRSP) company contributions.
2. Calculate the basic pay-period exemption:
   1. Annual exemption is $3,500.
   2. Divide the annual exemption amount by the number of pay periods in the employee's pay frequency:
      • Weekly = 52
      • Biweekly (every other week) = 26
      • Semi-monthly (twice a month) = 24
      • Monthly = 12
3. Deduct the amount calculated in step 2 from the amount in step 1.
4. Multiply the difference from Step 3 by the CPP rate found in the T4127. The result is the amount of contributions you should deduct from the employee.

Is CPP not calculating correctly? Check the following:

• Is the employee being paid marked as CPP exempt?
• Has the employee reached the annual maximum contribution (refer to the T4127)?
  • The annual maximum contribution is prorated in the years a person turns 18 or 70.
• Is the employee’s age correct in their profile?
  • Employees won't start contributing until the pay date is after the month they turn 18 years of age.
  • Employees will stop contributing when the pay date is after the month they turn 70.

Year-end CPP audit

The CRA recommends checking the amount of CPP deducted from employees prior to the end of each year. This ensures you have additional paycheques left in the year on which to enter any adjustments needed.

To review CPP amounts:

1. Navigate to the Payroll Tax Centre, select the Filings tab, then select Preview on the T4 slips.
2. Utilize the information found in Chapter 4 of the T4001 or the Verify CPP contributions and EI premiums area of the CRA’s PDOC tool. The tool is to be updated mid-December with 2024 rates.
3. Confirm that the employer and employee CPP amounts match by reviewing the Payroll Summary by Employee report.

Any adjustments needed can be added to future paycheques dated in 2024.

Reference Information

You can review the following reference pages for CPP information:

• Maximum contributions table by year
• Basic Exemption table
• Manual calculation for CPP
• CRA Payroll Deductions Online Calculator