Payroll taxes weigh on small businesses and cut take-home income for workers
Toronto, September 14, 2023 – Payroll taxes have increased in most Canadian provinces since 2019, further driving up the cost of doing business for employers and diminishing workers’ take-home income, according to a new report by the Canadian Federation of Independent Business (CFIB).
“Payroll taxes are taking a major bite out of both employers’ and employees’ earnings, at a time when we are all under immense inflationary pressure. Canada Pension Plan (CPP) and Employment Insurance (EI) premiums both went up earlier this year, and more increases are coming,” said Christina Santini, CFIB’s director of national affairs. “Ottawa needs to let business owners and their employees keep more of their money to face current economic pressures. It is not just about employers and employees having to pay higher premiums. It can also affect future wage increases.”
Nearly three-quarters (71%) of small businesses said payroll taxes, out of all taxes, stunt their business growth the most.
To put things into perspective, on top of a typical $50,000 salary, nationally an employer pays an effective payroll tax rate of 10.1% (or $5,067). Depending on the province, employers may pay between $4,538 in Alberta to $6,632 in Quebec, bringing the total cost of that salary to as much as $56,632.
Moreover, for employees earning $50,000, the take-home income is cut by 7% nationally, leaving them with $46,418. This means that $3,582 is absorbed by the government in all provinces except Quebec, where the rate is higher at 7.7% or $3,858.
Except for Manitoba and New Brunswick, the overall effective payroll tax rates for small business in all provinces have risen since 2019, on average by 3%.
Although some of the provinces have made positive moves to ease the burden on small businesses, either by decreasing their workers’ compensation premium rates or increasing the exemption payroll tax threshold, it hasn’t been enough to offset the impacts of the federal premium increases.
To enhance small business growth and competitiveness, CFIB recommends that the federal and/or provincial governments:
- Work together expeditiously to delay the introduction of the second CPP/QPP earnings threshold
- Implement a 50:50 split in EI premiums between employers and employees, or a lower rate or credit for small businesses
- Gradually phase out provincial payroll taxes where they apply, at least for small businesses
CFIB also sent a letter to Minister of Finance Chrystia Freeland and Minister of Employment, Workforce Development and Official Languages Randy Boissonnault, asking the government to keep EI rates at the current level as projected in the most recent budget.
“Payroll taxes are paid regardless of if an employer is making any profit. That’s not a fair and sensible approach and makes the current tough economic times even harder. Businesses who can’t afford to absorb the costs may resort to raising prices, which in turn can result in lost sales. High payroll taxes also put their ability to grow and hire new staff at risk,” said Francesca Basta, bilingual research assistant and co-author of the snapshot. “The government should be reviewing the impacts of recent rate increases on taxpayers and the economy before implementing any future hikes.”
Read The Weight of Payroll Taxes report here.
Business owners can visit CFIB’s website for more information on payroll tax deductions.
For media enquiries or interviews, please contact:
Dariya Baiguzhiyeva, CFIB
The Canadian Federation of Independent Business (CFIB) is Canada’s largest association of small and medium-sized businesses with 97,000 members across every industry and region. CFIB is dedicated to increasing business owners’ chances of success by driving policy change at all levels of government, providing expert advice and tools, and negotiating exclusive savings. Learn more at cfib.ca.