Business group urges Ottawa to delay hikes to EI and CPP rates but economists say it’s necessary

Canadian workers could see up to $305 less in take-home pay next year due to the increase in payroll deductions set to kick in on Jan. 1.

The Canadian Pension Plan (CPP) employee and employer contribution rates for 2023 will be 5.95 per cent up from 5.70 per cent in 2022.

Employment Insurance (EI) contribution rates will also increase. Employee contributions will go up by 1.63 per cent while employers will pay 1.4 times more than the employee. This 5.2 per cent increase in employer contributions means businesses will pay an additional $325 per employee over the course of 2023.

It's a hit to the pocket books of employees and businesses alike and the Canadian Federation of Independent Business (CFIB) argues the government should postpone the benefit cost hikes.

Payroll tax increases will hit Canadians at a time when most are already seeing their cost of living quickly increase," said CFIB president Dan Kelly in a statement.

It may not seem like a lot," said Kelly, but he added that $300 can cover the cost of family's groceries, transportation and/or utility bills.

The hikes will also affect small businesses," said Kelly. With rising input costs, staggering labour shortages and a potential recession, the economy is already in bad shape. At minimum, government should be pressing pause until inflation is under control."

The federation is concerned that businesses already struggling from pandemic losses will be unable to accommodate the higher contributions or offer wage increases to help employees accommodate the benefits bump.

More than half of small businesses across Canada have not returned to normal levels of revenue and 58 per cent are carrying pandemic-related debt averaging more than $114,000, according to the CFIB.

Robert Maich, owner of the hair salon chain The Golden Razor, in Windsor, said the bump in EI and CPP contributions will hurt his business, as labour accounts for two-thirds of overall costs.

Any movement on labour costs is difficult for us to cope with because of the market we're in, it's not like the GTA," said Maich. We're not able to move up prices in the same way as the big cities."

Maich said he will have to cut employee hours to offset the higher pension and EI premium costs. He certainly won't be hiring more staff.

While the increase appears to be ill-timed, the benefit increase isn't significantly higher than previous years, said David Macdonald, senior economist with the Canadian Centre for Policy Alternatives.

Over the past five years, CPP maximum annual increases have ranged from a low of $149 in 2020 to a high of $333 in 2022. The EI increase is quite low" and similar to 2019 levels, he said.

Every year prior to 2019 the EI rate increase was higher, so at this point the rate we're seeing is a bargain," Macdonald said. When looking at the aggregate costs for a business this is pretty minor."

The burden of EI payments could be lessened for employers and employees if the federal government chipped in, Macdonald said. For example, employees, employers, and the federal government could each contribute a third of the total payment.

Another way to reduce EI payments would be to cut the percentage of people who have access to the benefit. Currently 40 per cent of unemployed workers can access EI, but if it's cut to 35 per cent, then fewer EI contributions would be needed (as a smaller population is served), he said, adding I think it's a terrible idea, because then when another recession hits - which will be very soon - fewer people have access to any wage support."

The government is also raising pension contributions because many employees aren't offered a company pension plan, meaning CPP is all they have in retirement, Macdonald said.

Jim Stanford, the director of the Centre for Future Work agrees that pension and EI benefits should be increased, adding CPP is the biggest and safest" retirement pension plan for Canadians.

The annual pension hikes are tied to a 2016 agreement between the federal and provincial government to increase the scale of CPP benefits from one-quarter to two-thirds of pre-retirement earnings giving greater retirement security, he explained.

A benefit contribution increase comes every year, it shouldn't be a surprise to employers," Stanford said.

Still, the CFIB wants the federal government to work with the provinces to freeze or offset the upcoming 2023 CPP hikes and EI increases or introduce a refundable credit - similar to the 2015-16 Small Business Job Credit - to offset the rate increases for small businesses.

While the CFIB acknowledges that the benefit increases are nominal compared to previous years, employees and employers are being asked to pay more out of pocket in the midst of high inflation that is already eating into everyone's budgets.

But Macdonald said benefits must increase to keep up with inflation - which is 6.9 per cent, according to the latest Statistics Canada report.

Inflation has been hardest" on low income workers who need the protection of EI in case of layoffs, adds Stanford. Deferring money from a paycheque for retirement reduces inflationary pressures, he said.

Inflation is caused in part by consumers spending too much which increases demand, pushing the cost of goods and services higher. Deferring current wages through CPP and EI contributions is one factor that helps get inflation under control.

It actually helps to pay these increased premiums in the long run for your own security when you retire or are laid off, but it also helps during high inflationary periods. It's an essential benefit for employees and businesses," Stanford said.

Clarrie Feinstein is a Toronto-based business reporter for the Star. Reach Clarrie via email: clarriefeinstein@torstar.ca