The country’s industry group flags risks to independent business growth and long-term economic progress
The Canadian Federation of Independent Business (CFIB) has warned that planned increases federal payroll taxes, coupled with health and education payroll taxes at the provincial level, will aggravate an already severe situation faced by employers and employees alike.
“With CPP and QPP set to increase by at least 20 per cent over the next seven years, payroll taxes will be taking an even bigger chunk out of salaries and profit margins, putting small firms' ability to grow, hire new staff and compete at risk,” said CFIB Senior Director of National Research Simon Gaudreault said in a statement.
A new report from CFIB found 77% of small business owners citing payroll taxes as the form of taxation that most severely impedes their growth, comfortably ahead of corporate income taxes (55%) and sales taxes (49%). Depending on where a business is domiciled, employers can face up to seven payroll taxes, including CPP/QOO, EI, and worker’s compensation.
An inter-provincial comparison showed that employers in Quebec shoulder the largest burden; faced with seven forms of payroll tax, an employer in the province reportedly pays a $6,488 contribution for a $50,000 salary. In Ontario, the same salary would leave an employer on the hook for $5,114 in payroll taxes.
Taxes also have ramifications for employees. An employee in Quebec with a $50,000 salary would see $3,469 of it withheld as their share of payroll taxes; a worker in Ontario with the same salary would lose $3,182 in take-home pay to such taxes.
“Governments need to move away from payroll taxes if they want to avoid suffocating small businesses and the labour market,” said Marvin Cruz, Senior Research Analyst at CFIB and the named author of the report.
Cruz said that employers typically raise prices or cut back on hiring as a short-term offset to payroll tax costs, but that would ripple more broadly throughout the economy in the long run as employees with lower wages have less purchasing power to wield. Labour shortages can also present a challenge, as payroll taxes take away from funds that employers would need to attract employees to fill the gaps in their workforce.
“Payroll taxes … impose a heavy administrative burden and are not scaled up or down depending on how profitable a business is,” Gaudreault noted. In its report, CFIB also said that small business, which are more labour-intensive, take a disproportionate hit from payroll taxes. Adding to the headache for entrepreneurs is the time and effort spent on reporting and remitting payroll taxes rather than running their business.
With the federal election on the way, CFIB asked all stakeholders concerned to address the payroll tax burden. They urged commitment on several courses of action, including:
- Halting or slowing down additional CPP increases after 2019;
- Implementing an EI credit which effectively lowers the rate for small businesses;
- Introducing an EI holiday for hiring youth aged 15 to 24;
- Eliminating provincial payroll taxes, possibly through a 10-year phase-out period; and
- Offseting incoming CPP/QPP contribution hikes with other measures
“At a minimum, governments and their agencies need to be more accountable for the cumulative burden of the different payroll taxes they impose on employers in their jurisdictions," Gaudreault said. "Betting heavily on this form of taxation is simply not sustainable in the long run."