The federal government just announced that Canada is cutting the Employment Insurance premiums for small and medium businesses. What does this mean for large employers in Canada and should they be screaming for a similar reduction in EI premiums?
The numbers
Canadian employers that pay employees over $48,600 per year (slightly higher than the Canadian average wage) are paying $1,279.15 per employee for EI premiums and collecting $913.68 from their employees. Very few employees realize that their total compensation includes the larger Employer EI payments and employers’ Canada Pension Plan contributions of $2,425.50 (maximum), the exact same as those paid by the employee.
https://www.canada.ca/en/services/benefits/ei.html
http://taxtips.ca/cppandei/cpprates.htm
Employers should communicate these costs, along with the costs of other benefits, to their employees so that they understand the costs that go beyond just their salaries.
Payroll taxes in other countries
How do we stack up compared to other countries when it comes to payroll taxes? Pretty well, as we see payroll cost rise in the United States with the implementation of the Affordable Care Act. The US also has a Social Security Tax that does not top out like the CPP maximum of $2,425.50 we have in Canada. US employers that pay more than 52,500 per year (Canada’s maximum) end up contributing much more than their Canadian counterparts.
http://www.accountingcoach.com/payroll-accounting/explanation/4
http://taxfoundation.org/sites/taxfoundation.org/files/docs/Figure-5.png
What should large employers do?
So it turns out Canada is fairly competitive with the rest of the world when it comes to payroll taxes.
We haven’t answered our question yet: should large employers receive the same EI tax break as small businesses? I would have to say no. Although large employers would be happy with the break, the benefits would be minuscule in comparison to how much it helps small businesses. For example, at Red Seal, this gift to small businesses was just enough to cover a couple of thousands in costs, actually the same as our benefits package costs increase for 2014. So, not a very big difference, but enough to cover some of the payroll expenses.
In any case, it would be wiser to encourage large employers to hire by establishing a tax rebate that kicks in through increases in EI contributions. For example, if an employer increases its IE contributions by 10%, they then could be given a one-time tax rebate of 50% of their premiums for the year. A business that employs 30 people and hires 3 people would mean a rebate of approximately $4500. This employer would not get another rebate until its EI increased by another 10%. In my opinion, this would encourage hiring and reward large employers who can really drive job creation in Canada, as governments should not be expected to create them!