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Pensionable and insurable earnings reviews

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A pensionable and insurable earnings review is CRA checking, after the T4s are filed, whether the CPP contributions and EI premiums an employer reported are consistent with the pensionable and insurable earnings they also reported. It is arithmetic run against the employer's own numbers, not an audit and not an accusation, and it is the single most common piece of correspondence in this line. Most discrepancies come from a small set of causes, several of which are entirely legitimate and simply need explaining rather than paying. This tutorial covers what the review compares, why a difference arises, what the employer receives, and how to respond to it — including the case where the review is right and the case where it is not.

How to work through this tutorial

This covers a routine review that employers reliably misread as an accusation: 1. Understand what the review is and what it is not. 2. Learn what it compares, and why the comparison works. 3. Learn the causes of a genuine discrepancy. 4. Learn the causes that look like discrepancies and are correct. 5. Learn what the employer receives and what the deadline is. 6. Learn how a deficiency is paid, and what can be recovered from the employee. 7. Work through an example of a review with two lines on it, one owed and one not. 8. Check your work against the common errors. 9. Verify every specific against CRA's published guidance before relying on it.

What it is

After an employer files its T4 information return, CRA compares, employee by employee, the CPP contributions and EI premiums reported on each slip against what the pensionable and insurable earnings reported on that same slip would produce at the year's rates, exemption and maximums. If those two do not reconcile within tolerance, the employee appears on a report sent to the employer. Three things follow from that description and are worth being explicit about, because employers assume the opposite of each. It uses **the employer's own reported figures**. Nothing external is brought in. A review is the employer's return being checked against itself. It is **not an audit**. No one is examining the books, and receiving one carries no implication of wrongdoing. Employers who have made no error at all receive them. It is **automatic**. It happens as a matter of course each year on returns that do not reconcile, which is why an employer who has just filed for the first time may receive one and be alarmed. The correct tone for a call is therefore unhurried. This is a routine reconciliation with a response deadline, and framing it that way at the start of the conversation saves most of the rest of it.

Why a discrepancy arises

Genuine under-deductions cluster in a few causes, and they are the same causes that appear throughout this line. **Benefits swept in at year end.** A taxable benefit added to employment income in January was never run through payroll, so no CPP was withheld on it. The earnings went up and the contributions did not. **A setup error in the payroll system.** An employee flagged as exempt who is not, a wrong province, a wrong pay frequency — these produce a consistent shortfall across the whole year rather than a one-off difference. **The basic exemption applied wrongly.** The CPP basic exemption is applied per pay period, so the number of pay periods matters. An employer who changed pay frequency mid-year, or who had an extra pay period, can apply too much exemption over the year. **An employee who started or left mid-year**, where the annual maximums and the periodic exemption interact awkwardly. **Reaching the CPP or EI maximum**, where cumulative amounts were not tracked correctly across the year. **Amounts paid outside the ordinary payroll run** — a final payment to a leaver, a correction, a bonus handled manually. The common thread is that almost none of them are arithmetic errors in a single pay period. They are conditions that were true all year and are visible only when the year is totalled.

The differences that are correct

A report line is not proof of an underpayment. Several legitimate situations produce a difference, and an employer who simply pays every line has paid amounts that were never owed. **CPP start and stop.** Contributions begin and cease by reference to the employee's age, and an employee turning the relevant age partway through a year has pensionable earnings for only part of it. An election to stop contributing, where the employee is eligible to make one and has filed the prescribed form, has the same effect. **Employment that is not pensionable or not insurable.** Certain employment is excluded — for EI, employment where the employer and employee do not deal at arm's length can be excluded, which reaches family businesses. That produces insurable earnings and premiums that will not reconcile in the ordinary way. **Non-cash taxable benefits**, which are generally taxable and pensionable but not insurable. An employee with substantial non-cash benefits has insurable earnings lower than their employment income, exactly as intended. **Quebec.** The provincial pension and parental insurance regimes mean the figures on a Quebec employee's slips do not behave like those elsewhere. **A death or disability during the year**, and other circumstances with specific treatment. So the response to a report is a check, not a payment. Where the employer has an explanation, they give it; where the report is right, they pay. Both are ordinary outcomes.

What arrives, and by when

The employer receives a report listing each employee where the figures do not reconcile, showing what was reported and what CRA's calculation produces, with the resulting deficiency in CPP, EI, or both. It carries a date by which the employer must respond. The response can be a payment of the deficiency, or an explanation of why the reported figures are correct, or a correction of the reported figures — often all three across different lines of the same report. The deadline is real. An employer who does not respond can find the deficiency assessed as reported, with interest, and penalties can attach. "I assumed it was informational" is a common and expensive misreading, and the point is worth making early on a call. Where the reported earnings themselves were wrong, correcting them means amending the slips as well as answering the report, and an amended slip changes the employee's own return. Where only the contributions were short, the employer pays the difference and the slips may still need amending to show what was actually contributed. Which of these applies is the substantive question in most of these calls.

Paying it, and who bears it

A deficiency is paid by the employer, and the amount includes both portions — the employee's and the employer's. That is the part employers do not expect. The employer failed to withhold the employee's share at the time, and the obligation to withhold was the employer's, so the liability for the whole amount is the employer's now. Recovery of the employee's portion from the employee is limited, in amount and in time, by CRA's rules, and in the ordinary case of a review landing months after year end the practical answer is often that it cannot be recovered. It is worse where the employee has left, since there is no later pay to recover from. Interest runs on the deficiency from when the amounts should have been remitted, not from the date of the report — which is why a review arriving in the summer about the previous calendar year carries more interest than employers anticipate. There is a consequence for the employee too, and it points the other way. Their CPP contributions for the year go up, which affects their contributory period and eventual entitlement, and their T4 may need amending to show it. An employee who was under-contributed is not advantaged by the error going uncorrected.

A worked example: two lines, one bill

Teaching example. The figures below are invented to show the method. They are not CRA figures, and no amount here should be used for a real taxpayer.

The figures in this example are invented for teaching. They are not real rates, exemptions or maximums, and nothing here should be used to check a real review. Suppose Fennimore Landscaping files T4s for six employees and receives a review report in the summer listing two of them. **Line one — Priya.** The report shows a CPP deficiency of, say, $340. Checking, the employer finds the cause: Priya has a company phone and parking, and both were swept into her employment income at year end. Her pensionable earnings rose accordingly and no CPP was ever withheld on them. The report is right. The employer owes the $340 — which is both portions, Priya's and its own — plus interest from when it should have been remitted. Priya left in April, so nothing is recoverable from her. **Line two — Bernard.** The report shows an EI deficiency of, say, $210. Bernard is the owner's brother and the employer determined years ago that his employment is not insurable because the parties do not deal at arm's length. Nothing was withheld and nothing was owed. The employer's response to this line is an explanation, not a payment, and it should reference the determination. One report, two lines, two entirely different answers. The employer's instinct is to pay the total on the report and move on; that would pay $210 that was never owed, and would also implicitly contradict a determination the employer relies on every year. The habit for the call: go line by line, and for each one ask whether the figures reported were right before asking whether the contributions were.

Common errors

Describing a review as an audit, or letting an employer believe they are suspected of something. It is an automatic reconciliation of the employer's own reported figures. Treating the report as informational. It has a response deadline, and missing it can lead to an assessment with interest. Paying every line on the report without checking. Several legitimate situations produce a difference. Forgetting that the employer pays both portions of a deficiency. Telling an employer they can recover the employee portion from later pay. Recovery is limited in amount and time, and often impossible once the employee has left. Assuming interest runs from the date of the report. It runs from when the amounts should have been remitted. Treating insurable earnings as necessarily equal to pensionable earnings. Non-cash benefits are pensionable and generally not insurable. Overlooking CPP starting or ceasing by age during the year, or a valid election to stop contributing. Overlooking non-arm's-length employment in an EI discrepancy. It reaches family businesses routinely. Applying the CPP basic exemption per year rather than per pay period, or mishandling it where pay frequency changed. Answering the report without amending the slips where the reported earnings themselves were wrong. Assuming the Quebec figures behave like those elsewhere.

What to verify this tutorial against

This was drafted without a source document. The mechanics of the review, the exclusions from pensionable and insurable employment, and the recovery limits are all published. CRA's guidance on pensionable and insurable earnings reviews is the primary reference for what is compared, what the report contains, the response deadline and the consequences of not responding. Confirm the current page and the deadline it states. CRA's employers' guide to payroll deductions and remittances is the reference for the CPP basic exemption applied per pay period, the annual maximums, and the employer's liability for both portions of an under-deduction. CRA's guidance on when CPP contributions start and stop by reference to age, and on the election available to eligible employees, sets out the conditions and the prescribed form. Take the ages and the form number from the page; this tutorial deliberately gives neither. CRA's guidance on pensionable employment and on insurable employment carries the exclusions referred to here, including the non-arm's-length exclusion for EI and the circumstances in which CRA may nonetheless treat such employment as insurable. CRA's benefits and allowances chart states, benefit by benefit, whether an amount is pensionable and whether it is insurable, and it is the practical reference for the divergence described here. CRA's guidance on recovering amounts an employer failed to deduct sets out the limits on recovering an employee portion. Revenu Québec's material governs the Quebec pension and parental insurance regimes; do not describe them from the federal pages. This line's level 2 tutorials on benefits and on year end are where the causes listed here originate, and the three should be kept consistent.

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