During the busy tax season, the last thing you want to do is respond to a Pensionable and Insurable Earnings Reviews (PIER) assessment from the Canada Revenue Agency (CRA). However, if you can avoid any deficiencies in your CPP and EI remittances, you can survive tax season PIER-free. If you’re a Knit user, there’s even a feature designed to help you avoid PIERs from the CRA by adjusting CPP and EI under-remittances. (And if you're justing considering putting your payroll on autopilot, take a look at our payroll services here.)
But before we deep dive into how to avoid PIER assessments, let’s back up to the beginning. If this is your first payroll rodeo, you’ll probably want to know what is a PIER assessment in the first place, why does the CRA issue them, and how can you avoid having to deal with them. With this beginner guide to PIER reports, you’ll be a payroll pro in no time.
What is a PIER Report?
As stated above, PIER stands for Pensionable and Insurable Earnings Review. This is a report issued by the CRA indicating where they believe this is a discrepancy between what they think an employee/employer should have been assessed for Canada Pension Plan (CPP) or Employment Insurance (EI), and what has been reported on your T4 slips. Put simply, PIER assessments are a means of addressing any EI and CPP shortages
The reason the CRA verifies these calculations is so that your employees or their beneficiaries will receive the correct:
● CPP benefits, in the event that an employee retires, becomes disabled, or dies.
● EI benefits, in the event that an employee becomes unemployed, takes maternity, parental, adoption, or compassionate care leave, leaves to care for or support their critically ill or injured child, or are injured, ill, or on leave without pay.
PIER assessments are particularly tricky because they apply to both the employee and employer portions of any CPP and EI deficiencies. If the employer is unable to explain the deficiencies, the CRA will expect the employer to remit both the employee and the employer portion of the deficiency. Thus, it is important to keep in mind that “You are responsible for remitting the balance due, including your employee's share.” If payment or a response is not received by the reply date included in the PIER report, you may be subject to penalties or interest (or both).
Common Reasons for PIERs
To better understand PIERs, it is important to know the most common situations that result in PIERs:
● If an employee was set up on payroll with the incorrect birth date, or the employee is outside the eligible age range of 18 to 70 for CPP (less than 18 for QPP deductions), it will result in no deductions for CPP/QPP and no pensionable earnings accumulation.
● The employee was not employed for the entire year, or was not eligible for CPP and EI deductions for the entire year.
● The number of payroll cheques issued to the employee is not equal to the number of pay periods.
● You paid bonuses without deducting the required statutory deductions.
● You allowed employees to roll over their entire bonus into an RRSP without deducting the required CPP and EI.
● EI insurable earnings were back-calculated from an incorrect EI deduction amount.
● You updated YTDs for CPP and EI on a year-end adjustment run and did not remit them.
● You updated taxable benefits at Year End without the deductions required for statutory deductions.
● An employee stopped contributing to CPP and EI because they already paid the maximum on another business number or company.
Now that you know what a PIER report is, it’s clear that you don’t want to get one. So now the question becomes, how do you avoid PIER reports? One of the best ways to do this is to calculate any deficiencies before you even submit your T4s. By ensuring your data is correct right from the start, you can save yourself (and the CRA) a lot of time and effort.
How the CRA Calculates Deficiencies
Calculating CPP deficiencies is somewhat complicated because everyone is entitled to an annual exemption. This amount is then prorated across the number of pay periods the employee works, or the number of months the employee is not CPP-exempt. Therefore, to calculate CPP deficiencies the CRA uses the following calculation:
T4 Pensionable Earnings - CPP Basic Annual Exemption x CPP Rate for Year = CPP Contributions
It's important to note here that a “false positive” or other errors can occur if an employee makes less than the exemption in a pay period. These issues should be investigated per pay period.
Calculating EI deficiencies is much simpler and is determined by using the following calculation:
T4 Insurable Earnings x EI Premium Rate for Year = EI Premiums
Note that if an employee is EI or CPP exempt, their insurable or pensionable earnings (as appropriate) must be equal to 0 and entered as such.
Using the above formulas makes it easy to spot any deficiencies that may result in a PIER report and can help you avoid the hassle. If you are a Knit user, you can also use the software to easily adjust any CPP and EI under-remittances (the most common type of error).
Of course, if you do identify these deficiencies before the end of the year, you can usually correct the errors by deducting or paying back extra EI or CPP to your employees.
For more information on PIER assessments and how to check the calculations you made on the T4 slips filed with your T4 Summary, please consult the CRA’s online guide to Pensionable and Insurable Earnings Review.