What 2025 CPP Changes Mean for Employers

As we head into 2025, employers across Canada need to be prepared for changes to the Canada Pension Plan (CPP). While these adjustments will provide stronger retirement benefits for employees down the line, they’ll also increase payroll costs for employers.

What’s Changing?

The Year’s Maximum Pensionable Earnings (YMPE) is the maximum income amount on which employees and employers pay CPP contributions. The YMPE will rise from $68,500 in 2024 to $71,300 in 2025. This means employees who earn above this amount won’t have to pay CPP contributions on the portion of their income that exceeds the YMPE.

In 2024, a second earnings ceiling called the Year’s Additional Maximum Pensionable Earnings (YAMPE) was introduced. This new threshold applies to the expanded portion of the CPP, known as CPP2. In 2025, the YAMPE will be set at $81,200, up from $73,200 in 2024.

What Does This Mean for Employers?

The combined changes in the YMPE and YAMPE mean that both standard CPP contributions and CPP2 contributions will rise.

• Increased CPP Contributions: The maximum total CPP contribution for both employees and employers will rise to $4,034.10 in 2025, up from $3,867.50 in 2024. This includes both the employee’s portion and the employer’s share of the contribution. The employee and employer contribution rate for the standard CPP remains at 5.95%.
• For employees: If an employee’s income is below the YMPE of $71,300, they will pay 5.95% on their entire income, up to this threshold.
• For employers: You will match the 5.95% contribution up to the same amount for each employee.

• New CPP2 Contributions: With the introduction of the YAMPE, employers will also need to contribute to CPP2, which applies to income between the YMPE and the YAMPE. The maximum CPP2 contribution for both employees and employers will be $396 in 2025, up from $188 in 2024. The CPP2 contribution rate will remain at 4.00%.
• For employees: If they earn between $71,300 and $81,200 in 2025, they will contribute 4% on this portion of their income.
• For employers: You’ll also need to match the 4% CPP2 contribution for each employee.

Your employees may notice a change in their take-home pay once the new CPP rates kick in. Be upfront with them about the increase in contributions and explain how these changes will benefit them in the long term. You can use this as an opportunity to remind employees about the value of their CPP benefits and how this fits into their overall retirement planning.

Why This Matters for Employees

While these changes may increase payroll costs in the short term, they also have important benefits for employees in the long run, including stronger retirement benefits. The goal of the CPP expansion is to provide employees with more money when they retire. With higher contributions now, employees will receive higher CPP payouts in the future. A good retirement plan is also one of the benefits employees care about most, particularly since saving for retirement is tougher today than ever before.

Consider reviewing your overall benefits package to ensure it aligns with your employees’ expectations. We can help you understand how these changes could impact your organization and your team. Contact us today so we can work together to create strategies that work best for you.

Suggested Reading

3 Ways to Make Retirement Benefits Work for Your Team

Bridging the Retirement Readiness Gap with Pension Plans

Additional Resources

Canada Revenue Agency announces maximum pensionable earnings and contributions for 2025