CPP2 And QPP2 Explained. The Second Pension Ceiling That Changed Canadian Payroll
Canada has a second ceiling on pension contributions known as CPP2 (and QPP2 in Québec). This was the most significant change to Canadian Payroll in decades.
Many international employers were caught off guard because the change added a new layer of deductions that did not exist before. If you employ anyone in Canada earning above the first pension ceiling, this affects your payroll.
What Changed?
Before 2024, CPP contributions were calculated on earnings between a basic exemption ($3,500) and a single annual maximum. In 2024, Canada introduced a second, higher ceiling, creating two tiers of pensionable earnings.
How CPP2 Works (All Provinces Except Québec)
- First Ceiling (YMPE – Year’s Maximum Pensionable Earnings) – Contributions are calculated at 5.95% on earnings between $3,500 and $74,600.
- Second Ceiling (YAMPE – Year’s Additional Maximum Pensionable Earnings) – $85,000 for 2026. CPP2 contributions are calculated at 4% on earnings between the first and second ceilings.
- Both Employee And Employer Contribute To CPP2 – The employer matches the employee’s CPP2 contribution.
- Maximum Annual CPP2 Contribution (Employee Portion) – Set annually.
- CPP2 Contributions Are In Addition To Regular CPP Contributions – They do not replace them.
How QPP2 Works (Québec Only)
- Québec implemented the same two-tier structure but under the Québec Pension Plan.
- QPP base contribution rate as of 2026 is 6.40% (higher than CPP’s 5.95%).
- QPP2 rate is 4% on earnings between the first and second ceilings, matching the CPP2 rate.
- QPP2 contributions are remitted to Revenu Québec, not the CRA.
- Because QPP base rates are already higher than CPP, total pension contributions for Québec employees are the highest in Canada.
What This Means For Employers
- Higher total employer cost. For 2026, the maximum employer CPP2/QPP2 amount is $416 per affected employee. This was a new cost that did not exist before 2024.
- Payroll systems must calculate two tiers. Your payroll must correctly identify when an employee’s earnings cross the first ceiling and begin deducting at the CPP2 / QPP2 rate. At year end, both tiers must reconcile.
- T4 reporting changed. T4 slips now include separate boxes for CPP / QPP (RL-1 in Québec) and CPP2 / QPP2 contributions. Incorrect reporting creates reconciliation issues with the CRA.
- Mid year hires and leavers require careful year-to-date tracking. If an employee starts or leaves mid year, the limits must be prorated correctly.
Why This Caught Employers Off Guard
CPP2 was announced as part of the CPP enhancement that began in 2019, but the second ceiling only took effect in 2024.
Many international employers, particularly those using global payroll platforms that treat Canada as a single jurisdiction, were not prepared for the change. Payroll systems that did not update in time either over deducted (creating employee complaints and refund obligations) or under deducted (creating employer liability to the CRA).
For 2025 and 2026, the second ceiling continues to rise. Employers who do not have their Canadian Payroll configured correctly will face the same issues annually.
How We Handle It
Our payroll system was updated for CPP2 and QPP2 before the changes took effect.
Every pay run correctly identifies the earnings tier, applies the right contribution rate, and tracks cumulative contributions against both ceilings. Year-end T4 and Relevé 1 slips report the two tiers separately. When the ceilings adjust each January, we update payroll settings accordingly.
You do not need to understand the mechanics. We handle it.
Need Year End Payroll Handled For You?
Book a call.
We’ll make sure your Canadian Payroll reflects every pension change accurately.