Payroll costs don't often move in the employer's favour, so a rate cut is worth paying attention to. Starting January 1, 2027, the CPP contribution rate drops from 5.95% to 5.75% for both employees and employers, a change announced in the federal government's April 2026 Spring Economic Update.
It's not a dramatic cut, but for a business running payroll across multiple staff, or a self-employed owner covering both sides of the contribution, it's worth factoring into 2027 budgets now rather than discovering it in January. Reviewing what this means for your numbers is a natural fit for payroll services ahead of year-end.
The rate change itself
For 2026, both employees and employers contribute 5.95% on pensionable earnings above the $3,500 basic exemption, up to the Year's Maximum Pensionable Earnings (YMPE), which sits at $74,600 for 2026. Starting in 2027, that rate drops to 5.75% for both sides.
The 2027 YMPE hasn't been announced yet. Since that figure determines the earnings ceiling the new rate applies to, the final dollar impact won't be fully clear until it's released.
Where CPP2 fits in
Above the regular YMPE sits a second tier, CPP2, which applies to earnings between the YMPE and the Year's Additional Maximum Pensionable Earnings (YAMPE). For 2026, that's the band between $74,600 and $85,000, taxed at 4% for both employees and employers.
CPP2's rate isn't changing in 2027, but like the YMPE, the 2027 YAMPE will shift the actual dollar range it applies to, even though the 4% rate itself stays flat.
What the savings actually look like
The federal government estimates an employee earning $70,000 annually would save roughly $133 per year under the new rate, with the employer seeing a comparable saving on their side.
For a single employee, that's modest. For a business with 25 employees earning similar amounts, the employer-side saving could add up to roughly $3,325 annually. That number scales with payroll size rather than mattering much for a one- or two-person operation.
Getting an accurate estimate for your specific team is worth running through proper bookkeeping services and a payroll review rather than ballparking it.
Self-employed owners see a bigger direct benefit
Because self-employed individuals generally pay both the employee and employer portions of CPP themselves, the rate reduction provides a proportionally larger direct saving for them compared to a typical employee, who only feels one side of the cut.
CPP2 remains unchanged for self-employed contributors as well. This is worth factoring into cash flow planning through self-employed tax filing, particularly for sole proprietors and incorporated professionals who've been budgeting around the current 5.95% rate.
What employers actually need to do
There's no application or election required. This isn't an opt-in change. Payroll software and payroll service providers are expected to incorporate the revised 2027 rates automatically, but it's still worth confirming your system has actually been updated before running the first payroll of the new year, rather than assuming it happened silently in the background.
Businesses working with a corporate tax accountant for small businesses ahead of year-end can fold this confirmation into the same conversation as other 2027 budget planning.
A good prompt to review the bigger payroll picture
A roughly 0.2-percentage-point rate cut isn't the headline story on its own. The more useful exercise is using this change as a reason to review CPP, CPP2, EI and other employer payroll obligations together while building out 2027 budgets, rather than treating each one in isolation.
Businesses across Toronto, Mississauga, Brampton and the wider GTA with multiple employees stand to see the most noticeable aggregate impact, and it's a reasonable moment to confirm payroll costs are being tracked accurately heading into the new year. The rate drop itself requires no action, but it's a useful nudge to make sure your payroll systems, budgets and bookkeeping are all aligned before the 2027 numbers actually kick in.
Who can help review payroll costs ahead of the 2027 rate change?
Good Accounting connects Ontario business owners with listed bookkeepers, tax preparers and accounting firms for payroll, bookkeeping and corporate tax. If you're budgeting for 2027, or you'd like your payroll checked before the new CPP rate takes effect, tell us what you need and we'll match you with a listed payroll specialist.
Payroll services for small businesses: Toronto, Pickering, Mississauga, Barrie, Scarborough, Brampton, Markham, Vaughan, Oakville, Richmond Hill
FAQ
What is the new CPP contribution rate starting in 2027?
It drops from 5.95% to 5.75% for both employees and employers, effective January 1, 2027.
Does the CPP2 rate change in 2027?
No. CPP2 stays at 4%, though the dollar thresholds it applies to (the YMPE and YAMPE) will be updated for 2027 once announced.
How much will an employer actually save per employee?
The federal government estimates roughly $133 per year in savings for an employee earning $70,000, with a comparable saving on the employer side.
Do self-employed individuals benefit more from this rate cut?
Yes, proportionally. Since self-employed individuals pay both the employee and employer portions of CPP, the 0.2-percentage-point reduction applies to both sides of their contribution.
Do employers need to apply for the lower CPP rate?
No. There's no application required. Payroll software and providers are expected to apply the updated rate automatically starting with 2027 payrolls.
Has the 2027 YMPE been announced yet?
Not yet. The 2027 Year's Maximum Pensionable Earnings and Year's Additional Maximum Pensionable Earnings will be announced separately and will determine the actual dollar thresholds the new rate applies to.
Should I do anything before my first payroll run of 2027?
It's worth confirming your payroll software or provider has updated to the new 5.75% rate before processing your first 2027 payroll, rather than assuming it happened automatically.
Sources
- Accounting Professional Corporation - Lower CPP Rates in 2027: What Employers Should Know
- Government of Canada - Spring Economic Update 2026, CPP Contribution Rate Reduction
- Canada Revenue Agency - CPP Contribution Rates, Maximums and Exemptions
- Canada Revenue Agency - Second Additional CPP Contributions (CPP2)
Disclaimer: This article is for general informational purposes only and does not constitute professional accounting, tax, or financial advice. Every business situation is different, and tax laws can change. Please consult a licensed accountant in Brampton or the GTA before making any financial or tax decisions based on this content. Good Accounting is a marketing platform that lists payroll and bookkeeping professionals; it is not an accounting firm.
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