RRSP contribution - company and employee

Providing Registered Retirement Savings Plan (RRSP) contributions to your staff as part of their payroll is an easy and convenient way to help them save for retirement. A little setup up-front will ensure that you are accurately recording the contributions and taking full advantage of the tax benefits provided by this federal program.

Create a company-paid RRSP contribution (employee does not contribute)

If you would like to provide your employees a company-paid contribution to their RRSPs you should setup a custom pay rule. Payroll pay rules are a powerful way to customize your payroll to fit your business (to learn more, see our help article on custom pay rules).

Let's assume that you want to provide members of your staff a $50 contribution to their RRSPs. Typically, these types of contributions cannot be immediately withdrawn by the employee, so we'll make that assumption in this example. Here's how to setup the rule:

  1. Login to your payroll account (you'll need to be the company administrator with the admin permission level to do this)
  2. Go to settings  settings-icon-gear.PNG  and click on PAY RULES
  3. Navigate to the BENEFITS tab. You'll be creating a new benefit rule - give it a descriptive name like "Company RRSP contribution". This is how we'll be showing the company providing the funds to the employee for the purpose of the RRSP contribution.
  4. Modify the rule as follows: CPP is ON, EI is OFF, TAX is ON for Federal and Provincial. The T4 Box is 40 and Non-Cash is ON. Here's what it should look like:
    BENEFIT-RRSP-company-contribution.PNG
    This means we are creating a rule that will add funds to the employee's pensionable earnings, their taxable gross earnings, it will be taxed both provincially and federally, and the amounts will be reported on their year-end tax form (T4) in box 40. It will not affect their insurable earnings. 
  5. Now create a custom deduction by going to the DEDUCTIONS tab. We'll now need to reduce the taxable gross for the employee as the contribution is going directly to the RRSP. Modify the rule as follows: Reduce Taxable Gross is ON, Reduce Pensionable Gross is OFF, Reduce Insurable Gross is OFF, Non-Cash is ON. Give it a descriptive name like "Company RRSP deduction".
    DEDUCTION-RRSP-Non-Cash.PNG
  6. Save the rule and navigate to the EMPLOYEES area and edit the employee you wish to provide this RRSP contribution to. In their profile, go to the BENEFITS tab and add the "Company RRSP contribution" rule we created. SAVE the profile when done.
    EMPLOYEE-BENEFIT-RRSP-company-paid.png
  7. Now on the same employee profile, go to the DEDUCTIONS tab and add the "Company RRSP deduction" rule we created. SAVE the profile when done.
    EMPLOYEE-DEDUCTION-RRSP-company-paid.png
  8. Repeat steps 6 and 7 for any other employees you will be providing this contribution to.
  9. Now when you perform a payrun, $50 will get added to the employee's taxable gross and $50 will be deducted. The net effect will look like no change in the taxable gross but the employee will incur the taxable benefit of having the company contribute to their RRSP.
    EMPLOYEE-RRSP-company-contribution-only.png

Note: In this example we used a fixed dollar amount per pay run but you can adjust your pay rules if needed to use a percentage of the employee's gross pay instead - just chose % when adding the rule in the employee profile. 

 

Create an employee-paid contribution to RRSP (company does not contribute)

If your employees would like to contribute directly to an RRSP through their payroll, you can set up a custom rule to calculate the contribution.

Let's assume your employees would like to contribute $50 to an RRSP as part of their payroll. There are many third-party RRSP providers that will manage the funds for your employees, but setting up the rule will help you collect the funds accurately for deposit with the RRSP manager.

Here's how to setup the rule:

  1. Login to your payroll account (you'll need to be the company administrator with the admin permission level to do this)
  2. Go to settings  settings-icon-gear.PNG  and click on PAY RULES
  3. You will be creating a custom deduction to track the RRSP contributions your employees will be making. Go to the DEDUCTIONS tab and create a new rule as follows: Reduce taxable gross is ON, Reduce pensionable gross is OFF, Reduce Insurable gross is OFF, Non-Cash is OFF. Save the rule
    DEDUCTION-RRSP-employee.PNG
  4. Now go to EMPLOYEES and edit the employee you wish to participate in this RRSP contribution program. In the employee profile, go to the DEDUCTIONS tab and add the "Company RRSP deduction" rule we created. SAVE the profile when done.

    EMPLOYEE-DEDUCTION-RRSP-employee-paid.png

  5. Repeat step 4 for any other employees who wish to contribute to the RRSP program

  6. Now when you perform a payrun, your employees will have their taxable gross reduced by $50 (this is the tax benefit of contributing to an RRSP - it reduces your taxable gross income) and they will see a deduction for $50 for contribution to the RRSP

    EMPLOYEE-RRSP-employee-contribution-only.png

Note: in this example we used a fixed amount per payrun but you can make this a percentage of the employee's gross pay by selecting % when adding the rule to the employee profile.

 

Create a combined RRSP rule - company contributes and employee contributes

You can combine both scenarios above to create a company RRSP that receives contributions from both the employer and employee. Use the examples above to create a set of rules for the company contribution and another set of rules for the employee contribution.

Let's assume we want the company to contribute $50 and the employee wants to contribute $100. We set up our rules as above with exception of adjusting the employee-only contribution to $100.

Here's what DEDUCTION rules will look like:

DEDUCTION-RRSP-employee-and-company.PNG

Here's what the BENEFIT rule will look like:

BENEFIT-RRSP-company-contribution.PNG

 

The employee's BENEFIT tab

EMPLOYEE-BENEFIT-RRSP-company-paid.png

 

The employee's DEDUCTION tab

EMPLOYEE-DEDUCTION-RRSP-company-and-employee-paid.png

 

And finally, here's how the employee's pay will look

EMPLOYEE-RRSP-company-and-employee-contribution.png

In this example, the company has contributed $50 to the RRSP and the employee has contributed $100. The employee's taxable income increased by $50 (to account for the company-provided benefit of $50 toward the RRSP) and decreased by $150 (the tax benefit of the employee contributing to their own RRSP and the company portion combined). The appropriate deductions were taken and the employee's net pay is properly reflected.

 

Summary

Contributing to an RRSP can be easy through the use of custom pay rules. These rules can be adjusted to fit many scenarios to ensure you are paying your staff the way your company wants to. Simple, easy and fully customizable - the power of custom pay rules.

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