What You Need to Know (Before Payroll Hits Like a Brick Wall!)

Ah, CPP—the thing we all contribute to, but we hope we won’t have to think about it for decades. Well, whether you like it or not, 2025 is bringing some significant CPP changes, and if you’re an employee, employer, or self-employed entrepreneur, these updates will affect your paycheck and payroll costs in a big way.
So, grab a coffee (or something more substantial), and let’s break it down—no complicated tax jargon, just real talk about what this means for your wallet, your business, and your financial future.

Wait… More CPP Changes? Why?

The Canada Pension Plan has been around since 1966, ensuring that hardworking Canadians have some financial stability in retirement. Over the years, the government realized that people are living longer (hooray for modern medicine!) and that pension plans need to keep up.

In response, the government introduced gradual CPP enhancements starting in 2019 to boost retirement benefits for future generations. Now, in 2025, the final phase of these enhancements is rolling out, which means:

• Higher contribution rates (less take-home pay but better future benefits)
• New maximum earnings thresholds (higher-income earners contribute more)
• More payroll costs for employers (business owners, take note!)

It’s great news for your future self, as these changes are designed to enhance your retirement benefits. While it may require some budgeting adjustments, the potential benefits are worth it.

What’s Changing in 2025?

1. CPP Contribution Rates (Yep, Your Paycheque Will Shrink a Bit)

• If you’re an employee, your CPP contribution remains at 5.95% of your earnings.
• Employers? You match that, so payroll costs are staying high.
• Self-employed individuals? You’re covering both portions—a solid 11.9% contribution. (Yes, that’s double. Ouch.)

So, while the contribution rates themselves aren’t increasing in 2025, they are being applied to a larger portion of earnings—meaning higher overall contributions.

2. Higher Maximum Pensionable Earnings (YMPE & YAMPE—More Acronyms to Love!)

• The Year’s Maximum Pensionable Earnings (YMPE) will increase to $71,300 (up from $68,500 in 2024).
• The Year’s Additional Maximum Pensionable Earnings (YAMPE) will jump to $81,200.
• Translation? More contributions—but also bigger future payouts.

3. Say Hello to CPP2 Contributions (A New Payroll Headache)

• Earnings between the YMPE ($71,300) and YAMPE ($81,200) will be subject to an extra 4% CPP contribution (this is called CPP2).
• Self-employed individuals? You’ll be covering 8% on that extra income.

Bottom Line?

• More CPP contributions today = Bigger retirement benefits later
• Less take-home pay now = More budgeting headaches for employees & businesses.

What Employers Need to Know

Increased Payroll Costs

More contributions mean businesses need to adjust their payroll budgets to account for higher CPP contributions. This could mean reevaluating wages, hiring budgets, and overall expenses—especially for small businesses trying to manage costs.

Pro Tip: The CRA loves to issue PIER reports (basically their way of saying, “Oops, you miscalculated payroll deductions!”). Make sure your payroll is set up correctly! And your payroll tax tables are updated every January and July.

Every January, employees should fill out new TD1 forms (federal and provincial) to ensure the right amount of tax is deducted from their pay. This quick update helps prevent surprise tax bills, maximizes eligible deductions, and keeps the CRA off your back. If you’ve started a new job, got a raise, or have multiple employers, reviewing your TD1 is a must! It only takes a few minutes but can save you a headache later.

A TD1 form is your personal tax roadmap for your employer—it tells them how much tax to deduct from your pay based on your income, tax credits, and deductions. There are two versions: one for federal taxes and one for your province. If you don’t fill it out (or update it when needed), your employer assumes you’re claiming the basic amount, which could mean paying too much or too little in tax.

A Short To-Do List (Employers)

Payroll System Updates—A Must!

If your payroll system isn’t updated for the new CPP rates, you could underpay or overpay contributions, leading to penalties and a big CRA headache. Get ahead of this now!

Turn CPP Enhancements Into a Hiring Perk

Use these higher retirement benefits as part of your employee value proposition. “Look at us! We help you save for retirement!” This can be a great selling point when recruiting talent.

What If You’re Self-Employed? (Spoiler: It’s Expensive!)

Being self-employed means wearing all the hats—CEO, marketing, HR, and… payroll manager. That also means:

• You pay both the employee and employer portions of CPP (11.9% total).
• You’ll contribute 8% on any earnings between $71,300 and $81,200.
• You must factor this into your quarterly or annual tax planning.

Pro Tip: Don’t wait until tax time to deal with this. Set aside your CPP contributions throughout the year.

How to Prepare for the 2025 CPP Changes

1. Employers: Update Payroll Systems

• Make sure your payroll software is updated with the 2025 rates.
• Double-check CPP deductions to avoid PIER reports from the CRA.
• Budget for higher employer contributions.

2. Employees: Expect a Slightly Smaller Paycheque

• Your CPP contributions are increasing, so adjust your budget accordingly.
• If you’re close to the YMPE/YAMPE thresholds, you’ll see more deductions.
• Consider boosting your RRSP or TFSA contributions to balance things out.

• 3. Self-Employed? Plan for Bigger Contributions
• Remember, you’re covering both portions (11.9% up to YMPE, 8% up to YAMPE).
• Set aside enough funds throughout the year to avoid a tax-time shock.
• Work with a bookkeeper (like me!) to ensure you’re making the most of tax deductions.

Final Thoughts (aka, What Now?)

If you’re a business owner, employee, or self-employed, these CPP changes will impact your finances in 2025. But don’t stress—we are here to help you navigate it all (and hopefully keep some of your sanity intact).

• Need payroll updates? I’ve got you covered.
• Want a review of your CRA compliance? Let’s chat.
• Feeling overwhelmed? Take a deep breath and reach out.

Connect with me on LinkedIn or email me at hello@kineticbooks.ca. Let’s make sure you’re ready for these changes before they impact your bottom line!

You might be interested in reading Stay Ahead: 2025 New Tax Rules and Deadlines