Enhancements to the Canada Pension Plan (CPP) began in 2019, and phase two of these enhancements begins January 1, 2024. Once fully implemented, the maximum CPP could potentially increase by up to 50% for younger workers just starting out.

Both employees and business owners are required to contribute to the CPP based on pensionable earnings of the individual. For 2024, employee and employer CPP contribution rates will remain at 5.95%, with the “yearly maximum pensionable earnings (YMPE)” increasing to $68,500 and a basic exemption amount of $3,500.

This means the 2024 maximum CPP contribution will be $3,867.50 for each of the employee and employer portions. The self-employed CPP contribution rate remains at 11.9%, or $7,735.

This YMPE amount is referred to as the “first earnings ceiling” in light of the upcoming enhancements.

Starting January 1, 2024, a second CPP contribution rate and earnings ceiling is being introduced that will be called the “year’s additional maximum pensionable earnings (YAMPE)”. It will only affect workers whose incomes are above the first earnings ceiling.

For 2024, the second earnings ceiling was set at an amount that is 7% higher than the first earnings ceiling, meaning pensionable earnings between $68,500 and $73,200 will be subject to “second CPP contributions” (CPP2). The employee/employer contribution rate will be 4%, with a maximum contribution of $188 each. The self-employed CPP2 contribution rate will be 8%, or $376.

For 2025, the second earnings ceiling will be set at an amount that’s 14% higher than the first earnings ceiling.

Not everyone will fully benefit from the CPP enhancements. How much each worker’s CPP benefits increase will depend on how much they contribute to the enhancements and for how long. An important consideration for those who are self employed, when making compensation decisions in paying a salary versus dividends.