Your payroll remittance is due tomorrow, and the payroll register is off by exactly $396. That is the amount of the Canada Pension Plan (CPP2) contribution for one employee who earned above the maximum pensionable earnings. If you need a Canada Pension Plan CPP2 explained in Canada without jargon, this guide walks through the rates, the second ceiling, and your employer obligations. It also covers what employees see on their pay stubs and T4s, and how to avoid the most common payroll errors that show up at year-end.

If you are new to running payroll, start with our step-by-step guide to running payroll in Canada. For everyone else, here is what has changed and why it matters.

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Canada Pension Plan CPP2 Explained for Employees in Canada

CPP2 is the second additional contribution under the Canada Pension Plan, introduced on January 1, 2024 as part of a broader enhancement. The enhancement started in 2019, when the contribution rate began rising from 4.95 percent to a higher level. The goal was to increase the amount workers receive in retirement benefits. The plan builds in two separate earnings ceilings. The first is the yearly maximum pensionable earnings, or YMPE. The second is a higher ceiling specifically set for the enhanced portion.

For employees, CPP2 only kicks in when their annual pensionable earnings exceed the YMPE. Up to the YMPE, they pay the regular CPP contribution rate. For earnings between the YMPE and the second ceiling, they pay an additional rate. This second layer is what accountants call CPP2, and it is tracked separately in payroll records and on the T4.

Why does this matter for you? If you are an employee with a salary above the YMPE, you will see an extra line on your pay stub. If you run payroll, you need to calculate and remit both parts, and report them separately to the CRA. If you are preparing an employee's file for tax season, you need to know that box 16 and box 26 hold different numbers.

A Canadian payroll platform such as Awditify calculates both CPP and CPP2 automatically, matching the CRA's published rates for each tax year. You can see how the payroll module works on the small business product page.

How CPP2 Is Calculated for Employees

The calculation is straightforward once you separate the two layers. For each pay period, an employee contributes:

  • The base CPP rate on earnings between the $3,500 basic exemption and the YMPE.
  • The enhanced CPP2 rate on earnings above the YMPE, up to the second ceiling.

For 2025, the first ceiling (YMPE) is $71,300, and the second ceiling is $81,200. The base employee contribution rate is 5.95 percent, and the CPP2 rate is 4 percent. These figures are set annually by the federal government, so confirm the current numbers with the CRA's CPP rates page. We are using the 2025 published rates throughout this article, but the same logic applies to any year.

Here is a table that shows the two layers for a 2025 employee:

Earnings band Rate Example on earnings of $80,000
$3,500 to $71,300 5.95% ($71,300 - $3,500) = $67,800 x 0.0595 = $4,034.10
$71,300 to $81,200 4% ($80,000 - $71,300) = $8,700 x 0.04 = $348.00
Total CPP plus CPP2 $4,382.10

The employee's total contribution in this example is $4,382.10, and the employer contributes the same amount. The total CPP remittance for that employee is $8,764.20, not counting source deductions for EI and income tax.

What happens if the employee earns exactly $80,000? They pay CPP2 on $8,700. If they earn $90,000, they pay CPP2 on the full $9,900 between the two ceilings, which is the maximum. That maximum CPP2 contribution for 2025 is $396.00. The maximum base contribution is $4,034.10, so the total maximum employee contribution is $4,430.10.

CPP2 is not a year-end lump sum. It is deducted from each paycheque, just like regular CPP. The calculation uses an annualized approach based on the employee's year-to-date pensionable earnings. Once the employee's cumulative earnings pass the YMPE, the first contribution stops for that year and the second contribution starts. When the employee's cumulative earnings pass the second ceiling, all CPP deductions stop for the year.

Consider a small construction firm in Ontario with 12 employees. Three of them earn more than the YMPE. At year-end, the bookkeeper has to allocate each pay period's contributions between the regular CPP and the CPP2 layer. If the payroll software only tracks one ceiling, the T4 for those employees will be wrong. That is one of the reasons a system that automatically handles both tiers is worth the switch.

For the next year's numbers and what changes, see our guide on CPP changes in Canada for 2026.

CPP2 on Your Pay Stub and T4

Employees will see separate line items on their pay stub. The labels vary by payroll provider, but the totals must match the annual T4 boxes. On the T4, box 16 reports the employee's regular CPP contributions, and box 26 reports CPP2 contributions. Box 18 reports EI contributions. For employees in Quebec, box 17 reports QPP contributions and box 26 does not apply. Revenu Quebec issues its own RL-1 slip with similar codes.

Why do the boxes need to be separate? The CRA uses them to determine whether an employee over-contributed or under-contributed during the year. Employees who work for more than one employer can easily exceed the annual maximum, because each employer withholds independently. The over-contribution is calculated when the employee files their income tax return. The separate box 26 allows the CRA to see how much of the contribution came from the second layer and apply the correct refund or amount owing.

If you are an employee, check your pay stubs to see whether CPP2 is being withheld once your earnings exceed the YMPE. If you are a bookkeeper, make sure your payroll software has a dedicated field for CPP2, not just a combined figure. That separation will save you a lot of chasing at year-end.

On a pay stub, the line item for CPP2 may appear as CPP2 or CPP (enhanced). If an employee does not see that line even after earning above the YMPE, they should ask their payroll administrator to verify the ceiling is set correctly. Employees can also check their year-to-date totals on the pay stub to see whether the second contribution has started.

Employer Obligations: Withholding, Remitting, and Reporting

Employers are responsible for deducting both CPP and CPP2 from each employee's pay, matching the amount, and remitting the total to the CRA along with other source deductions.

The remittance deadline depends on the employer's remitter type, which the CRA determines based on the average monthly withholding amount. Most small businesses fall into the monthly remitter category. That means they must remit by the 15th day of the following month. For example, deductions for March are due by April 15. If the average monthly withholding is under $1,000, the employer may qualify for quarterly remittance, with payments due by the 15th of April, July, October, and January.

The table below summarizes the typical remittance schedule for CPP, CPP2, EI, and income tax:

Remitter type Average withheld monthly Payment due date
Quarterly Under $1,000 15th of the month after the quarter ends
Monthly $1,000 or more 15th of the following month
Accelerated threshold 1 Over $25,000 More frequent, see CRA guide
Accelerated threshold 2 Over $100,000 More frequent, see CRA guide

That is a simplified version. The CRA business remittance guide explains when accelerated remittance applies. What matters is that CPP2 is included in the same remittance as CPP, so missing the deadline affects both.

Employers also have to file the T4 summary and T4 slips by the end of February following the calendar year. The T4 must show gross pensionable earnings, CPP contributions, and CPP2 contributions. The CRA needs accurate box 26 numbers to match the amounts deducted from each employee.

If you are using payroll software, check that the reports break out CPP and CPP2 separately. The help center's payroll employees guide shows how to set up employees and validate the deduction balances. That guide walks through the actual screens, not just the theory.

CPP2 contributions are part of the same source deduction remittance as regular CPP, EI, and income tax. That means you do not send a separate payment for CPP2. The CRA expects one monthly remittance that covers all employee deductions and the employer share. When you complete your T4 summary, you report the total CPP and CPP2 contributions for each employee, but the remittance itself is not broken out by contribution type.

CPP2 and QPP2: The Quebec Difference

Employees in Quebec do not pay into the CPP. They pay into the Quebec Pension Plan (QPP), which follows a separate contribution schedule set by Revenu Quebec. QPP has its own second plan, often called QPP2, with rates and ceilings that are similar to CPP but not identical.

For employers, the difference is important. If you have employees in Quebec, you must deduct QPP and QPP2, not CPP and CPP2. The T4 reporting still uses box 17 for QPP, but there is no box 26 for QPP2. Instead, the RL-1 slip has its own codes.

The CRA's payroll remittance rules still apply, but the amounts go to Revenu Quebec for Quebec source deductions. Small businesses operating in multiple provinces need to be careful not to apply the same rate to all employees. Provincial pension plan differences are one of the reasons payroll is not a set-and-forget task.

Common CPP2 Payroll Mistakes to Watch For

After two years of CPP2, the mistakes are now predictable. Here are the ones I see in client files:

  • Stopping CPP at the first ceiling instead of switching to CPP2. Some payroll systems are still configured with only one ceiling. They correctly deduct CPP up to the YMPE, then stop. That results in under-withholding for employees who earn between the YMPE and the second ceiling.
  • Applying CPP2 from the first dollar. Another error is taking the 4 percent rate on all pensionable earnings, rather than only on earnings above the YMPE. That overstates the employee deduction and creates a T4 mismatch.
  • Forgetting the $3,500 basic exemption. The base CPP calculation only applies to pensionable earnings above the basic exemption. If you forget it, you overstate the regular CPP.
  • Mixing up CPP and CPP2 on the T4. Box 16 and box 26 are separate, and the amounts must match the payroll register. Even an experienced bookkeeper can transpose the two when the software lumps them together.
  • Ignoring multiple employers. An employee who works two jobs will likely over-contribute to CPP and CPP2 across both employers. The CRA reconciles on the employee's tax return, but the employer still needs to deduct correctly from each pay.

A concrete scenario: a 12-person roofing company in Ontario has three employees who pass the YMPE near the end of October. The payroll software used to have a single ceiling, so those three employees stopped contributing to CPP in November and December. At year-end, the bookkeeper discovered that no CPP2 had been withheld, and the employer had to adjust and remit the shortfall plus interest. This was a costly lesson, and the fix was updating the payroll system to track both ceilings.

The manual workflow difference is obvious when you compare it to an automated one. If you calculate CPP2 manually, you have to track each employee's year-to-date pensionable earnings, know the exact date they cross the YMPE, and remember to change the deduction rate. With a payroll system that handles both tiers, the software stops base CPP and starts CPP2 on the correct pay period, then stops everything at the second ceiling. No spreadsheet formulas, no year-end reconciliation of individual pay periods.

What makes these mistakes costly is that the CRA sees payroll data at year-end. When a T4 does not match the payroll register, the employer gets a letter asking for a breakdown. Even a small discrepancy can trigger a full review of all source deductions, which means pulling bank statements, payroll journals, and prior remittances. For a busy firm, that is hours of work.

How Small Businesses Can Stay on Top of CPP2

The first thing to do is verify that your payroll system supports both contributions. Many legacy accounting tools were built before the enhancement, and the provider may have patched CPP2 into an old calculation engine. If you are not confident, test a pay run with an employee who earns more than the YMPE and check the numbers against the CRA's rates.

The second thing is to separate CPP and CPP2 in your reports. When you reconcile payroll to the balance sheet, you should see two liability accounts: one for the current CPP amount and one for CPP2. That makes monthly remittances easier to audit. It also reduces the year-end scramble when you have to produce a client's file for tax.

The third thing is to use the CRA's remittance schedule in your calendar. Set a reminder a few days before the 15th. If you are a bookkeeper managing multiple clients, use a practice management dashboard to see all the upcoming deadlines in one place. Awditify for accounting firms gives you a client-level view of payroll tasks, including the ones you need to complete before the CRA payment date.

The best payroll workflow is one where the numbers flow from the pay run to the liability report and then to the remittance without any manual re-entry. If you have to type a number into a banking portal, you have already introduced a step where a digit can be dropped or transposed. A system that records the remittance transaction in the ledger at the same time as it files the payments keeps the audit trail intact.

For small businesses, payroll errors are rarely intentional, but they are still expensive. The hourly cost of fixing a T4 or a missed remittance can wipe out several months of bookkeeping fees. Taking the time now to confirm your payroll setup will save you far more than the minutes it takes.

CPP2 on the Employee Tax Return

For most employees, nothing extra has to be done on their tax return. The employer reports the CPP and CPP2 contributions on the T4 or RL-1, and the tax software transfers the numbers to the return. The CRA compares the contributions to the maximum for the year. If the employee over-contributed, the CRA calculates a refund. If they under-contributed, because they left Canada or worked without proper deductions, they may have to pay the difference.

Employees with multiple employers are the most likely to over-contribute. For example, an employee who worked at two part-time jobs and earned $50,000 at each would have CPP and CPP2 deducted by both employers even though the combined income exceeds the YMPE and possibly the second ceiling. The overpaid amount is automatically returned after the tax return is assessed. The employee does not need to submit a separate claim.

If you are preparing your own return, check the tax summary to see whether the CPP and CPP2 amounts match the maximum for the year. If you are a bookkeeper, allocate CPP2 correctly in the payroll records so the T4 matches the remittance filed with the CRA. Otherwise, you will spend time explaining discrepancies to a CRA review.

Frequently Asked Questions About CPP2

These are questions I hear from employees and from the people who run payroll for them.

What is CPP2 exactly?

CPP2 is the second additional contribution under the Canada Pension Plan, introduced in 2024. It applies to earnings between the year's maximum pensionable earnings and a higher second earnings ceiling. Employees and employers both contribute at the CPP2 rate, which is lower than the base rate. The money is intended to fund a higher retirement benefit over time.

Is CPP2 a new tax?

No, CPP2 is not a tax. It is a pension contribution that goes into the Canada Pension Plan. Like regular CPP, it is matched by the employer and the amount you pay builds toward your future pension. Because it is a new layer, it is tracked separately in payroll and on the T4, but it still behaves like the rest of CPP.

How much will I pay in CPP2 in 2025?

For 2025, the YMPE is $71,300 and the second ceiling is $81,200. The CPP2 contribution rate is 4 percent on earnings between those two amounts. The maximum CPP2 contribution for an employee is $396.00, which occurs when the employee earns at least $81,200. Your employer calculates the deduction per pay period based on your year-to-date income.

Do I have to do anything on my tax return for CPP2?

Usually nothing. Your employer reports the CPP and CPP2 amounts on your T4 or RL-1, and the amounts transfer to your tax return. If you worked for multiple employers and over-contributed, the CRA includes the refund in your assessment. You only need to reconcile if the amounts on your T4 look wrong.

Which payroll software handles CPP2 automatically?

A Canadian payroll tool should handle CPP and CPP2 by default. Awditify's payroll module calculates both contributions in real time, tracks the two ceilings, and includes the amounts in the T4 reports. It also syncs the payroll liability accounts to the general ledger, so the bookkeeping matches the payroll records. You can see how it works by booking a demo with the Awditify team.

What to Do Next

The most important thing is not the rate itself but the payroll configuration behind it. Check that your payroll system applies the right rate to the right earnings band, stops CPP at the YMPE, and starts CPP2 automatically. If you are still doing this on spreadsheets, the chance of a wrong T4 is too high.

At a minimum, run a year-to-date payroll report for an employee above the second ceiling and confirm that the CPP and CPP2 amounts match the CRA's published maximums. Then review your remittance schedule so the 15th does not catch you off guard.

A Canadian payroll solution takes the guesswork out of this calculation. Awditify's payroll module was built specifically for Canadian deductions, including CPP2, EI, and income tax. It keeps the payroll journal, the bank feed, and the general ledger in sync, so the month-end close is faster. If you want to compare your options after reading this, continue with our Canadian payroll guide for small businesses, which covers CPP, EI, and income tax together.