# How much in CPP contributions do you pay when you are an independent contractor?

I am trying to figure out how much CPP contributions an IT contractor needs to make as per this CRA guide. It says that for self-employed people, we need to contribute \$4959?

So, if an independent contractor that charges \$80/hr to a client ends up making ~\$150k for the year through his corporation, he will pay only \$4959, as opposed to \$53,600 that would be paid by a full time employee earning \$100k/yr?

And at 65, both will receive the same amount of retirement pension from CPP??

• You are mistaken. Full-time employees do not pay \$53,600 in annual CPP contributions. That is ludicruous. Nov 10 '15 at 21:15
• They pay half of 53,600 and employer pays half, right? Well half of 53,600 is still more than 4959. Nov 10 '15 at 21:34
• Still wrong. See my answer. Nov 11 '15 at 0:44

No, certainly not, with respect to what you wrote about the payroll contributions.

You're misunderstanding calculation and the meaning of the \$53,600 "maximum amount", which is but one input to the calculation that limits the pensionable earnings (salary) amount before a contribution rate is applied to those pensionable earnings to determine contributions.

The employee and the employer each pay a percentage of salary (4.95%) into CPP, on the amount of pensionable earnings exceeding the basic exemption amount (\$3500, constant) and not exceeding the year's maximum pensionable earnings (\$53,600 in 2015, varying each year as it is indexed for average wage growth.)

So, a full-time employee earning \$100K per year will pay `(\$53,600 - \$3,500) * 0.0495 = \$2479.95` in annual CPP contributions, and their employer the same (100% match). The two contributions combined equal what a self-employed individual would pay into CPP for pensionable earnings (salary, but not dividends).

The calculation for employees and self-employed individuals is the same—the principal difference is that somebody who is self-employed must pay both the employee portion (4.95%) and the employer portion (also 4.95%) of the CPP contributions, for a total 9.9% on their pensionable earnings exceeding \$3,500 but not exceeding \$53,600. After all, somebody who works for their own company is both the employee and employer.

Service Canada makes it very clear right at the top of the page you linked to. Quoting:

If you have an employer, you pay half the required contributions and your employer pays the other half. If you are self-employed, you make the whole contribution.

The retirement pension benefit calculation is also identical. Years of self-employment pensionable earnings are not worth any more or any less than years of regular pensionable earnings from employment.

Here's a great article on estimating your CPP benefits: How to calculate your CPP retirement pension. The author of that article worked for Service Canada and is a CPP expert.

Finally, the real (and only) advantage that self-employed individuals that work through their own corporation have with respect to CPP is that they can elect, in any given year, to take more compensation as dividend income instead of as salary.

Dividends aren't subject to CPP contributions, and so less can be paid into CPP than someone who can't structure their compensation that way. Yet, since the CPP retirement pension calculation drops some low earnings years from the earnings history, a self-employed individual who takes lower salaries from time to time (and pays less into CPP in those years) could still end up with an unreduced pension — provided they plan accordingly.