As you all know, anyone who works for a company has to pay EI – employment insurance premiums and CPP – Canada Pension Plan premiums on every paycheck. The maximum amount you can pay for CPP in 2007 is $1989.90 which is based on a salary of $42,100. The maximum EI contribution is $720 which is based on a salary of $40,000
The problem is that the deduction rates are calculated so that the premiums are all deducted during the portion of your salary within the annual maximum. For example EI is calculated at $1.80 per $100 of earning up to $40k in earnings. That’s fine if you earn $40k per year and the deductions will be constant throughout the year. But what if you make say $65k per year? Then the EI contributions will only be deducted for the first 7.5 months or until the middle of August, when you’ll see a significant raise. In that case the CPP will be deducted until the end of August. The more you make, the higher the deductions are per paycheque and the earlier in the year you get your “raise”.
This drives me nuts because as much as I like to get a raise during the year, I find it difficult in January to go back to the “old” paycheque at a time when heating bills are higher. Why can’t the government mandate that the annual maximum contributions be prorated over the entire year so that there is no “raise” and “pay cut” because of this dumb policy?