What Is CPP in Payroll: Rates, Remittance, and Penalties

In Canadian payroll, CPP is the Canada Pension Plan contribution that an employer withholds from an employee’s pay, matches dollar-for-dollar out of its own funds, and remits to the Canada Revenue Agency. For 2026, both the employee and employer contribute 5.95% on pensionable earnings above a $3,500 basic exemption, up to a maximum of $4,230.45 each per year.¹ A second tier called CPP2 adds a 4% contribution on earnings above the first ceiling. Employees who work in Quebec fall under the Quebec Pension Plan instead, not CPP.

What the Contributions Pay For

CPP is social insurance, not an individual savings account. Contributions flow into a national fund managed by CPP Investments, and eligible workers later collect benefits based on how much and how long they contributed. The maximum monthly retirement pension starting at age 65 is $1,507.65 as of January 2026, but the average recipient collects closer to $804 per month because few people contribute at the maximum for a full career.²

The same contributions also fund disability pensions for workers who develop a severe and prolonged disability before age 65, survivor pensions for a spouse or common-law partner, a one-time death benefit, and children’s benefits for dependent children of disabled or deceased contributors.³

Who Has to Contribute

CPP applies to nearly every worker in Canada outside Quebec. Deductions start when an employee turns 18 and continue automatically through age 65.⁴ Between 65 and 70, an employee who is already receiving a CPP or QPP retirement pension can choose to stop contributing by filing Form CPT30 and giving a copy to the employer. A detail payroll teams often miss: the opt-out is only available if the employee is actually drawing pension benefits, not simply because they have turned 65. After age 70, contributions stop regardless.

Self-employed workers pay both halves. For 2026 that means 11.90% on pensionable earnings above the $3,500 exemption, remitted through the annual income tax return rather than through payroll.¹

Quebec is the boundary case. Employees working in Quebec do not contribute to CPP at all; they contribute to the Quebec Pension Plan, administered by Revenu Québec. For 2026, the QPP rate is 6.30%, on the same $74,600 ceiling and $3,500 exemption, with a maximum QPP contribution of $4,479.30 per party.⁵ If an employee moves between Quebec and another province during the year, use CRA Form RC381 to reconcile contributions.

What Earnings Are Pensionable

Not every dollar an employer pays is subject to CPP. The general rule is that if a payment is taxable employment income, it is almost certainly pensionable: regular wages, salary, commissions, bonuses, and taxable benefits.⁶ Employer contributions to a Tax-Free Savings Account on behalf of an employee are pensionable too because they count as a taxable benefit.

Amounts paid before an employee turns 18, earnings during months covered by a CPP disability pension, and earnings after age 70 are outside pensionable income.⁴ One edge case: if a non-cash taxable benefit is the only compensation an employee receives during the year, no CPP is withheld because there is no cash from which to deduct it.

2026 Rates and Limits

The CRA adjusts the ceilings annually based on national wage growth. For 2026:

Year’s Maximum Pensionable Earnings (YMPE): $74,600
Basic exemption: $3,500
Maximum contributory earnings: $71,100
Employee and employer contribution rate: 5.95%
Maximum annual contribution, each: $4,230.45

Once an employee’s year-to-date pensionable earnings reach $74,600, the standard 5.95% deduction stops, and so does the employer match.¹

Calculating CPP Each Pay Period

You do not apply the $3,500 basic exemption in one lump. You prorate it across each pay period. Biweekly, the per-period exemption is $134.61. Monthly, it is $291.66.¹

For each pay period, subtract the prorated exemption from gross pensionable earnings and multiply by 5.95%. An employee earning $4,000 biweekly owes ($4,000 − $134.61) × 5.95% = $229.98 in employee contributions. The employer remits an identical $229.98 on top. Track the year-to-date total against the $4,230.45 annual cap and stop deducting once it is reached.

CPP2 for Higher Earners

Since 2024, a second tier applies to higher earnings. For 2026, earnings between $74,600 and $85,000, called the Year’s Additional Maximum Pensionable Earnings, are subject to 4% from both the employee and the employer.⁷ The maximum CPP2 contribution is $416 per party.

Two things distinguish CPP2 from the base contribution. The 4% rate applies to every dollar in the $74,600 to $85,000 band with no basic exemption. And it only starts once the employee crosses the first ceiling, so for anyone earning under $74,600 in the year, CPP2 never applies. Most payroll software switches to CPP2 automatically at the crossover, but new implementations are worth verifying by hand.

Remitting CPP to the CRA

After withholding CPP and matching it, the employer sends the combined amount to the CRA along with income tax and Employment Insurance remittances. How often you remit depends on average monthly withholding over the two preceding calendar years:⁸

Quarterly for new small employers: monthly withholding under $1,000 with a clean compliance history, available in the first year of a new payroll account.
Quarterly for existing small employers: average monthly withholding under $3,000 with a clean compliance history.
Regular monthly: average monthly withholding under $25,000, due by the 15th of the following month.
Accelerated Threshold 1: average monthly withholding of $25,000 to $99,999.99, remitted twice a month.
Accelerated Threshold 2: average monthly withholding of $100,000 or more, remitted within three business days of the end of each pay period grouping.

Most employers pay through the CRA’s My Business Account portal or their financial institution. The CRA assigns your remitter type and communicates it on your statement of account; as your withholding grows, the CRA moves you to a faster schedule.

Penalties for Getting It Wrong

The CRA treats late remittance and failure to deduct as separate problems, with separate penalties.

Late Remittance

If you deducted the right amount but paid it in late, the penalty scales with delay:⁹

1 to 3 days late: 3% of the amount due
4 to 5 days late: 5%
6 to 7 days late: 7%
More than 7 days late: 10%
Second or later failure in the same calendar year, if made knowingly or with gross negligence: 20%

The late-remittance penalty does not apply to amounts under $500 unless the failure was deliberate or grossly negligent.¹⁰

Failing to Deduct at All

If you should have withheld CPP but did not, the penalty is 10% of the amount you failed to deduct. A second or later failure in the same year that involved gross negligence carries a 20% penalty.¹¹ The CRA also assesses the employer for both the employee’s and employer’s share, plus interest. You cannot take the missed employee portion out of a later paycheck without the employee’s written agreement.

Director Liability

Corporate directors are jointly and severally liable for unremitted payroll deductions, including CPP. If the corporation can’t pay, the CRA can pursue directors personally for the full amount plus penalties and interest. The only defence is showing that you exercised the care and diligence a reasonably prudent person would have used to prevent the failure.¹⁰

The Contractor Trap

The costliest CPP mistake is not a late payment. It is treating an employee as an independent contractor and never deducting in the first place. When the CRA reclassifies a contractor as an employee, the employer owes both sides of the contribution for the whole period, plus the 10% failure-to-deduct penalty and interest.

The CRA weighs several factors when classifying a worker: who controls how and when the work gets done, who supplies tools and equipment, whether the worker can subcontract, the degree of financial risk, and the opportunity for profit or loss.¹² No single factor decides it. The parties’ stated intent counts only when actual working conditions back it up. If you are unsure, you can request a CPP/EI ruling from the CRA before an audit forces the question, which is almost always cheaper than defending a reclassification after the fact.

Year-End T4 Reporting

After each calendar year, the employer prepares a T4 slip for every employee showing total earnings and deductions, including CPP. Slips and a T4 Summary reconciling the totals across all employees must be filed with the CRA and given to employees by the last day of February following the tax year.¹³ The Summary tallies the number of slips filed and aggregate CPP contributions for CRA verification.¹⁴

When an employee works for more than one employer in the same year, each employer deducts CPP based on its own payroll, so the employee’s total contributions often exceed the annual maximum. The employee claims the overpayment on their personal tax return; the employer does not get a refund of its matching share, and no employer action is required beyond accurate T4 reporting.¹⁵

Keeping the Records

Payroll records, including records of CPP deductions, remittance confirmations, and T4 filings, must be kept for six years from the end of the last tax year they relate to.¹⁶ Destroying them earlier requires written permission from the CRA. During an audit, the CRA can ask for any payroll documentation within that window, and the burden of proof falls on the employer who cannot produce it.

1
Canada Revenue Agency. CPP Contribution Rates, Maximums and Exemptions
2
Government of Canada. How Much You Could Receive
3
Government of Canada. Canada Pension Plan Disability Benefits
4
Canada Revenue Agency. Pensionable and Insurable Earnings
5
Revenu Québec. Maximum Pensionable Earnings and Quebec Pension Plan Contribution Rate
6
Canada Revenue Agency. Employers’ Guide – Taxable Benefits and Allowances
7
Canada Revenue Agency. Canada Pension Plan (CPP) and the CPP Enhancement
8
Canada Revenue Agency. Types of Remitters
9
Canada Revenue Agency. When to Remit (Pay)
10
Canada Revenue Agency. Income Tax Audit Manual Chapter 28 – Penalties
11
Canada Revenue Agency. Employers’ Guide – Payroll Deductions and Remittances
12
Canada Revenue Agency. Employee or Self-Employed
13
Canada Revenue Agency. Employers’ Guide – Filing the T4 Slip and Summary
14
Canada Revenue Agency. T4 Summary – Information for Employers
15
Canada Revenue Agency. Line 44800 – CPP or QPP Overpayment
16
Government of Canada. Where to Keep Your Records, for How Long and How to Request the Permission to Destroy Them Early