In 2017, the Ontario provincial government will introduce a mandatory provincial pension plan, impacting business’ payroll budgets and employee wages across Ontario. The Liberal provincial government will introduce the Ontario Retirement Pension Plan (ORPP) in reaction to trend of workers not saving enough to maintain their standard of living upon retirement. However, this change to the pension system has significant implications on Ontario’s business economy.
Impacts of the Ontario Pension Plan on the Canadian Workforce
Increasing payroll expenses for employers shifts the available cash flow for human resources. When surveyed by the Canadian Federation of Independent Business (CFIB), 70% of small business owners stated that they would need to freeze or cut salaries, while 53% of respondents plan to cut jobs in order to cope with the added costs. CFIB also anticipates the unemployment rate to increase by 0.5% with a long-term reduction in wages.
Calculate your Ontario Retirement Pension Plan (ORPP) Annual Contribution
The Canadian Federation of Independent Business (CFIB) has released an ORPP Calculator to determine, as an employer or employee, how much the ORPP will require you to pay each year starting in 2017. This amount will be included in the business’ pension payroll. Employees would also see a deduction on their paycheque for the ORPP, as both employers and employees are impacted.
Employers can expect to contribute 1.9% of earnings up to a maximum of $90,000 per employee annually; the first $3,500 of each employee’s earnings will be exempted from this calculation.
Offset ORPP with Ontario Government Grants for Hiring & Training
The ORPP will aim to solve the fact that two thirds of Canadians do not currently have a pension plan, however both employers and employees will need to cope with their increased payroll taxes and paycheque deductions respectively. Fortunately, the Canadian federal and Ontario provincial governments offer funding grants and subsidies to businesses that will help to counterbalance this added expense. In fact, funding programs are available throughout the year specifically for human resources & training.
For example, as part of the Economic Action Pan 2013, $70 million was invested over three years with the intent to provide relevant job opportunities to post-secondary graduates across Canada. The plan aimed to create 5,000 paid internships through wage subsidies and hiring grants including the popular Career Focus Hiring Grant, which offered regional and industry specific wage subsidies up to 50% of wages or $12,000-20,000 for hiring recent post-secondary graduates.
In 2014, the Canada Job Grant launched as a six-year initiative to help provide the Canadian workforce with training opportunities to advance their careers and promote skill development. The Ontario variant, Canada-Ontario Job Grant, will provide $192M per year to businesses carrying out training plans. This grant covers up to 66% of third party training costs up to $10,000 per trainee.
Collaborative R&D internships are also available through multiple programs, including Connect Canada and Mitacs Accelerate. These funding grants allow businesses to tap into post-secondary resources, while hiring a subsidized student on an internship to help solve an R&D challenge.
More programs will be announced throughout the year to assist with these activities, so be sure to subscribe to our Weekly Funding E-Newsletter stay informed of new funding launches. Let Mentor Works help with your cash flow planning by building out a customized funding strategy; the ORPP does not have to negatively impact your growth plans. With the right selection of business grants and loans, government programs can far outweigh the pension tax to accelerate your growth.