Calculate CPP and EI deductions in Canada | 2025

Did you notice your January 2025 paycheck was slightly lower than what you received in late 2024? This change is primarily due to updated Canada Pension Plan (CPP) and Employment Insurance (EI) contribution rates for 2025.

The Government of Canada determines new contribution limits of CPP, CPP2, and EI every year. These contributions are subtracted out of your paycheck to the extent that they will not exceed the annual limits, after which you are no longer deducted until the end of the year, when you start a new one on the first of January the next year.

If you are a payroll manager, HR professional, accountant, or even a curious employee in Canada, this article will help you in understanding deductions in CPP and EI, enabling you to know more accurately how you will be contributing towards it.

What is the Canada Pension Plan (CPP)?

The Canada Pension Plan (CPP) is a contributory social insurance program that offers retirement, disability, and survivor benefits. Shares of contribution are made equally between employees and employers (except in the case of self-employees).

Key Updates for 2025:

Year’s Maximum Pensionable Earnings (YMPE):

The YMPE for 2025 is set at $71,300, up from $68,500 in 2024. This limit is used to calculate the maximum amount of earnings that CPP is being contributed to.

Basic Exemption Amount:

The basic exemption has not been changed and is still at $3,500. This implies that the CPP's contributions only apply to earnings above this level.

Contribution Rates:

Employees and Employers: The employers and employees each contribute 5.95% of the earnings in the range of $3,500-$71,300.

Self-Employed Individuals: Pay 11.9% of the same range of earnings.

Second Additional CPP Contributions (CPP2):

Introduced in 2025, CPP2 is imposed on incomes between the YMPE ($71,300) and the Year Additional Maximum Pensionable Earnings (YAMPE) of $81,200. The contribution made by employees and employers to earnings in this bracket is an extra 4%, and self-employed persons pay an extra 8%.

Contribution Limits:

Employee/Employer Maximum Contribution: $4,034.10 each.

Maximum Self-Employed: $8,068.20.

Employee/Employer Maximum CPP2 Contribution: $396 each.

Self-Employed Maximum CPP2 Contribution: $792.

Now that we clearly understand CPP in 2025, it is possible to shift to the second essential deduction, i.e., Employment Insurance (EI).

What is Employment Insurance?

Employment Insurance (EI) is temporary income insurance that is offered to some eligible workers when they lose their jobs and special benefits (maternity, parental, sickness, and compassionate care). Employees pay EI premiums (employers pay a greater multiple).

Key Updates for 2025:

Maximum Insurable Earnings (MIE):

MIE 2025 will be fixed at $65,700, deciding the maximum income on which EI premiums are to be calculated.

Employee Premium Rating: $1.64 on every $100 of insurable earnings.

Premium Rate by the Employer: $2.30 on each $100 of insurable earnings.

Maximum Annual Employee Premiums: $1,077.48.

Maximum Annual Employer Premium: $1508.47.

Maximum Weekly Benefits:

Standard Weekly Benefit: $695

Extended Parental Benefit: $417

Note: It is necessary to know these numbers because it will assist employees and employers in forecasting precise payroll deductions by 2025.

How to Calculate Your CPP Deductions

Though most payroll software, such as Dynamics 365 Business Central, is programmed to perform these calculations automatically, it is good to know how to calculate them manually. Here’s how you can,

Calculate CPP deductions step by step:

Find the basic exemption per pay period:

Annual basic exemption = $3,500. Divide by the number of pay periods in the year (e.g., 12 in the case of monthly, 26 for biweekly).

Calculate total pensionable income:

Summate the gross pay of the employees and taxable benefits paid during the pay period.

Subtract the exemption:

Total pensionable income – basic exemption for the period = pensionable earnings.

Apply the 2025 CPP rate:

For 2025, the rate is 5.95% for employees (up to the Year’s Maximum Pensionable Earnings, $71,300).

Employer match:

Employers contribute the same amount as employees. Therefore, the total contribution of CPP = employee contribution × 2.

Example: Given a monthly income of $6,000, an exemption, and a 5.95% rate, a CPP contribution will be deducted until the employee has achieved the CPP and EI maximum deductions of 2025 as per the CRA.

How to Calculate Your EI Deductions

Calculate EI deductions in the following steps:

Determine Insurable Earnings:

This is most of the employment income up to the Maximum Insurable Earnings (MIE) in 2025, which is $65,700.

Find the EI Premium Rate:

In 2025, the rate charged to employees is 1.66% (different from Quebec).

Calculate the Employee Deduction:

Insurable earnings × EI rate = employee EI premium.

Apply the Employer Share:

The contribution made by employers is 1.4 times higher than the employee contribution.

For example, with monthly earnings of $6000, first multiply by 1.66% to calculate the employee's portion and then by 1.4 to calculate the employer's portion; repeat this process until you reach the CPP and EI maximum deduction amounts for 2025.

After calculating your CPP and EI deductions, the next step is to determine your net payroll—the actual amount employees receive after all statutory and voluntary deductions. 

How to Calculate Net Payroll

To calculate net payroll, you can follow the formula below 

Net Pay = Gross Pay – (CPP + EI + Income Tax + Other Deductions) 

This ensures accurate take-home pay and helps maintain compliance with CRA requirements throughout the 2025 payroll year. 

For detailed analysis, you can also check out our latest resources on net payroll.

How Business Central Can Help with CPP and EI Deductions (2025)

Modern ERPs, like Business Central, can make CPP and EI deductions much easier, faster, and less prone to mistakes by using a payroll extension or integration.

The ways it assists are listed below:

Automation of Deduction Calculations

BC (with the right payroll module or third-party add-on) can automatically figure out the CPP and EI rates for each pay period, ensuring the correct rates, exemptions, limits, and other contributions (like CPP2) are used. This reduces manual errors and minimizes mistakes, ensuring consistency with the 2025 CPP and EI maximum deductions.

Year-To-Date Tracking

The system keeps cumulative (YTD) pensionable and insurable earnings, which have been cumulatively recorded as total CPP/EI already deducted, to be aware of when maximums are attained and to prevent additional deductions accordingly, which is a critical provision under the rules of CRA.

Multiple Deduction Tiers

BC extensions can figure out how base CPP and CPP2 contributions affect earnings between YMPE and YAMPE. They are also able to address provincial/territorial differences, when necessary.

General Ledger and Reporting Integration

The amounts of deduction (employee vs. employer shares) are recorded automatically in the financial ledger. BC has the potential to assist in the creation of reports (payroll register, summaries of deductions, preparation of T4) and harmonization of entries in HR, finance, and compliance.

Compliance & Updates

Payroll extensions or certified integrations give updates when the CRA changes deduction rates, thresholds, or rules (e.g., new YMPE, new rates); thus, you do not necessarily need to manually adjust rates annually.

Multi-Jurisdiction/Multi-Province Support

In the case of companies with workplaces in more than one province (e.g., Ontario, Quebec), BC with payroll add-ons can use appropriate local rules (e.g., QPP, Quebec EI differences) based on the location of employees.

Self-Service and Audit Trail

Pay slips, deduction breakdowns, etc., are made available to the employees; the system logs versioning and audit trails, which is useful for legal or tax audit compliance.

How Dynamics Square helps

Being a Microsoft Dynamics 365 Partner, Dynamics Square establishes best practices in terms of the implementation of BC rules. We have been dealing with federal and provincial payroll regulations, including Ontario/Toronto. That involves the knowledge of the CPP and EI deductions Ontario could deviate or interact with provincial requirements.

In addition, we record your rates, assumptions, and pay-period calculations so that you can see them clearly (useful in audits or other stakeholder perusal). At Dynamics Square, we do not just do the setup but also ensure that you have assistance during payroll cycles and make sure that your payroll is within the 2025 CPP and EI maximum deductions thresholds.

Make payroll simple and compliant with Dynamics 365 Business Central.

Call us at +1 778 381 5388 or mail us at info@dynamicssquare.ca to get expert assistance from Dynamics Square.

People Also Ask: 

1. How much CPP and EI are deducted from Alberta/BC/Ontario?

The amounts deducted for CPP and EI are the same in all provinces (except Quebec for EI adjustments) because CPP and EI are federal programs.

For 2025:

CPP (Canada Pension Plan):

 • Employee rate: 5.95% on “pensionable earnings” (after the basic exemption)

 • There is an additional CPP2 on earnings above the regular ceiling, at 4.00%.

 • Maximum regular pensionable earnings (YMPE) for 2025: $71,300

 • Basic exemption: $3,500 of earnings are exempt before applying CPP

 • Maximum employee contribution (regular portion): $4,034.10

 • For earnings between $71,300 and $81,200, CPP2 applies; maximum CPP2 employee contribution is $396.00

EI (Employment Insurance):

 • Employee rate: 1.64% of insurable earnings (for provinces outside Quebec)

 • Maximum insurable earnings for 2025: $65,700

 • Maximum employee EI premium: $1,077.48

 • Employer’s EI contribution: 1.4 × what the employee pays (i.e., 2.296%)