MEMORANDUM TO: All employees
SUBJECT: Changes to the Net Pay Amount Commencing January 2003
At the start of each new year, employees ask the Compensation Community about changes in their net pay from the previous pay period – the last pay in December. This is due to the fact that many employees resume paying CPP/QPP and EI premiums in the new year after having reached the annual maximum during the course of the previous taxation year. Additionally, changes to federal and provincial income tax rates are announced in time for the new year. This memorandum outlines the factors that may affect an employee’s net pay.
There will be 26 pay cheques in 2003. Please note there will be two months with three pay cheques each: July and December 2003. The first cheque in each of the months is a Pay Period “Plus”. In order to ascertain what your net pay will be during the year, the cheque which will be dated January 15, 2003 will be the one to use for this purpose.
Federal Tax Brackets and Rates changes effective January 1, 2003
The federal tax rates have not changed for 2003 however the federal tax brackets have been indexed by 1.6%. For further information on these changes and Provincial and Territorial Tax Bracket and Rate Changes please access the following web site: www.pwgsc.gc.ca/compensation/cd/cd-2002-033-notice-e.html
1.) Public Service Superannuation Plan (PSSP) Contributions
Each year, there is a maximum contribution level for the low rate Public Service Superannuation Plan (PSSP) contributions. Once this maximum level is attained, the employee contributes at a higher rate of PSSP. Beginning with the new year, PSSP contributions recommence at the low rate, until such time as they reach the maximum level of the contributions for the low rate. This year the low rate is $1,596 (was $1,564 for 2002 taxation year).
Therefore, if employees who are contributors under the PSSP compare their last pay in December with their first regular pay in January, many of them will see that they have paid a larger amount of PSSP in December than in January.
PSSP contributions will remain at 4% on all pensionable earnings below the Yearly Maximum Pensionable Earnings (YMPE) ($39,900 for the 2003 taxation year) and at 7.5% on all pensionable earnings over the YMPE.
Contributions to PSSP have a direct bearing on the income tax deducted at source since these contributions are deducted from the gross pay before determining the tax rate. Once the contributions reach the maximum PSSP low level, the contributions to PSSP will increase from 4% to 7.5%. The larger the PSSP contribution, the less income tax withheld from the employee’s pay.
1.1) CPP/QPP Contributions
The Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) rates, effective January”1, 2003, have increased to 4.95% from 4.7% of pensionable earnings. The maximum CPP/QPP contribution has increased to $1,801.80 (previously $1,673.20).
Many employees reach their maximum level of CPP/QPP contributions sometime during the year. When this happens, the employee will see an increase in the amount of his net pay as there will no longer be CPP/QPP deductions withheld. Beginning with the new year, employees recommence paying CPP/QPP contributions until such time as they reach the maximum CPP/QPP contribution level again.
Employment Insurance (EI) Premiums
The employee’s rate of EI premiums for the 2003 taxation year has decreased from 2.2% to 2.1%. The annual maximum insurable earnings remain at $39,000. Employees will recommence paying EI premiums in the new year until the maximum premium level is reached. Once the employee reaches the annual maximum premium deduction of $819.00 (previously $858.00), the employee will see an increase in the amount of his net pay as there will no longer be EI deductions withheld.
1.) Disability Insurance (DI), Long Term Disability (LTD)
Effective January 2003 premium rates for both the DI plan and the LTD insurance portion of the Public Service Management Insurance Plan (PSMIP) will increase.
This increase is required because of a greater number of beneficiaries and general increases in costs.
1.1) DI premium
Effective January 2003, plan members will note that the DI premium has increased from $1.08 to $1.61 per $1000 of adjusted annual salary.
Premium cost-sharing arrangements will not change. Employees will pay 15% of the premium ($0.2415 per $1000 of adjusted insured salary) and the employer will contribute 85% ($1.3685).
This is the first change in premium rate since 1993.
1.2) LTD premium
Plan members with LTD coverage will note that the monthly premium has increased from $0.70 to $1.12.
Premium cost-sharing arrangements will not change. Eligible employees will pay 15% of the premium ($0.168 per $1,000 of insured salary) and the employer will contribute 85% ($0.952).
It is important to note that each employee’s tax situation is quite unique. Many factors contribute to the deductions which affect bi-weekly net pay during the course of a taxation year, such as:
The receipt of supplementary payments during the year, such as overtime, acting pay and other payments also influence your bi-weekly net pay as these payments reduce the time required to reach the annual maximum contributions for CPP/QPP and EI premiums.
Any inquiries concerning this memorandum should be directed to your Compensation Advisor.