Payroll taxes weigh on Alberta small businesses and cut take-home income for workers

Payroll taxes have increased in most Canadian provinces since 2019, further driving up the cost of doing business for employers and diminishing workers’ take-home income, according to a new report by the Canadian Federation of Independent Business (CFIB).

“Payroll taxes are taking a major bite out of both employers’ and employees’ earnings, at a time when we are all under immense inflationary pressure,” said Andrew Sennyah, CFIB’s Alberta senior policy analyst. Canada Pension Plan (CPP) and Employment Insurance (EI) premiums both went up earlier this year, and more increases are coming. While most of these costs are driven by federal government increases, the Alberta government can offset these costs by reducing the provincial small business tax rate.”

Three-quarters (75%) of Alberta small businesses said payroll taxes, out of all taxes, hurt the operation of their business. To put things into perspective: on top of a typical $50,000 salary, nationally an employer pays an effective payroll tax rate of 10.1% (or $5,067). In Alberta, employers may pay up to $4,538 bringing the total cost of that salary to as much as $54,538.

Moreover, for employees earning $50,000, the take-home income is cut by 7% nationally, leaving them with $46,418. This means that $3,582 is absorbed by the government in all provinces except Quebec, where the rate is higher at 7.7% or $3,858.

Although some of the provinces have made positive moves to ease the burden on small businesses, either by subsidizing their workers’ compensation premium rates or increasing the exemption payroll tax threshold, it hasn’t been enough to offset the impacts of federal premium increases.

To enhance small business growth and competitiveness, CFIB recommends that the federal and/or provincial governments: • Work together expeditiously to delay the introduction of the

second CPP/QPP earnings threshold.

• Implement a 50:50 split in EI premiums between employers and employees, or a lower rate or credit for small businesses.

• Keep Alberta Workers Compensation Board premiums stable through rate smoothing.

CFIB also sent a letter to Minister of Finance Chrystia Freeland and Minister of Employment, Workforce Development and Official Languages Randy Boissonnault, asking the government to keep EI rates at the current level as projected in the most recent budget.

“Payroll taxes are paid regardless of if an employer is making any profit. That’s not a fair and sensible approach and makes the current tough economic times even harder. Businesses who can’t afford to absorb the costs may resort to raising prices, which in turn can result in lost sales. High payroll taxes also put their ability to grow and hire new staff at risk,” said Francesca Basta, bilingual research assistant and co-author of the snapshot. “All governments should be reviewing the impacts of recent rate increases on taxpayers and the economy before implementing any future hikes.”

Business owners can visit CFIB’s website for more information on payroll tax deductions.