Lower Employer CPP Contributions Will Reduce Payroll Costs Next Year
Canadian employers will pay a lower base Canada Pension Plan contribution rate beginning in 2027. The saving is relatively small for one employee, but for a business with multiple workers it can add up across the payroll.
The combined base CPP contribution rate will fall from 9.9% to 9.5% in 2027. Because employees and employers split base CPP contributions equally, the employer rate falls from 4.95% to 4.75%. The federal government’s example shows an employer saving about $133 a year on an employee earning $70,000.
What’s Changing for Employers?
Canadian employers generally have to match the CPP contributions deducted from their employees’ pensionable earnings.
Beginning in 2027, the base CPP contribution rate paid by employers will decrease from 4.95% to 4.75%.
Employees receive the same reduction on their side of the contribution.
| Base CPP Contribution | Current Rate | 2027 Rate |
|---|---|---|
| Employee | 4.95% | 4.75% |
| Employer | 4.95% | 4.75% |
| Combined | 9.9% | 9.5% |
How Much Could a Small Business Save?
The Department of Finance provides an example based on an employee earning $70,000 annually.
At that income, the government estimates that the employee will save approximately $133 per year in base CPP contributions.
Because the employer pays a matching base contribution, the employer saves approximately the same amount.
Employee salary: $70,000
Employee saving: approximately $133/year
Employer saving: approximately $133/year
What Could That Mean Across Your Payroll?
The exact saving depends on the pensionable earnings of each employee, so there is no single amount that applies to every business.
But the government’s $133 example illustrates how a small reduction can become more noticeable across multiple employees.
| Employees | Illustrative Annual Employer Saving |
|---|---|
| 1 | $133 |
| 5 | $665 |
| 10 | $1,330 |
| 25 | $3,325 |
These figures are simple illustrations assuming each employee produced the same $133 saving as the government’s $70,000-income example. Actual savings will vary according to employee earnings and annual CPP limits.
Why Is the CPP Rate Being Reduced?
The reduction follows actuarial analysis of the Canada Pension Plan.
According to the federal government, the base CPP remains financially sustainable at the lower contribution rate.
The change was included in legislation implementing measures from the federal government’s 2026 Spring Economic Update.
This Doesn’t Eliminate CPP2
Employers should be careful not to interpret the new 4.75% rate as the only CPP calculation they may encounter.
Canada’s CPP enhancement introduced additional contributions, including second additional CPP contributions commonly known as CPP2.
CPP2 applies to pensionable earnings above the first annual earnings ceiling and up to a second earnings ceiling.
The reduction to the base contribution rate does not eliminate those additional CPP requirements.
What About Self-Employed Business Owners?
Self-employed Canadians generally pay both the employee and employer portions of CPP.
As a result, a self-employed person with sufficient pensionable earnings can benefit from both sides of the reduction in the base contribution rate.
The actual amount will depend on net self-employment income and the CPP contribution limits applicable for the year.
Do Employers Need to Change Payroll Now?
Not yet.
The lower base CPP rate takes effect in 2027. Employers should continue using the applicable 2026 CRA payroll rates for the remainder of this year.
Before processing 2027 payroll, businesses should make sure their payroll software or payroll provider has incorporated the new CPP rates and annual contribution limits published by the Canada Revenue Agency.
The Bottom Line
The 2027 CPP reduction is not a huge windfall for Canadian businesses, but it is a genuine reduction in payroll costs.
The base employer contribution rate falls from 4.95% to 4.75%.
Using the federal government’s example, an employer saves approximately $133 annually for an employee earning $70,000.
For a small business with several employees, those savings can accumulate across the payroll — without the employer having to apply for a rebate or government program.
Department of Finance Canada — 2027 CPP Contribution Rate Change
VIPNews explains Canadian government changes in plain English. This article provides general information and is not tax, accounting or payroll advice.