On June 9, Bill 186 – the Ontario Retirement Pension Plan (ORPP) Act – received Royal Assent; unless there is an agreement regarding the expansion of the Canadian Pension Plan (CPP), ORPP in its current design is here to stay.
Most companies are considering and reviewing their options and can see the challenges that implementing the ORPP in its current state will have on their business. These challenges include concern for retirement benefit inequity among employees of companies doing business in more than one province – non-Ontario union workers may request increases in benefit as a result of ORPP, or companies may reduce wages or cut pension for Ontario workers. And employers who operate nationally or internationally may have issues with the basic administration of the plan.
Expatriate workers Global employers routinely have key employees or executives who assume various positions in different countries. These assignments often last for a period between 3 and 5 years. Generally an expatriate on assignment in Canada may be exempt from CPP contributions under the International Social Security Agreements (ISSA) as the expatriate remains part of his/her country of origin’s social security scheme. Similarly, a Canadian expatriate would be exempt from contributing to the social security of the host country if that country is a member of ISSA while the Canadian expatriate maintains his/her active status in CPP.
The ISSA is an agreement between countries. The ORPP is a social security scheme that is enacted on a provincial level that may not recognized by other countries. In fact, the idea of adding ORPP as a separate social security system alongside CPP in ISSA will be very confusing for other countries (how many social security schemes do you need for a country?).
The natural and easiest approach to addressing this would be link the ORPP “possible” exemption with the CPP exemption: once you are exempt under the ISSA, you are deemed exempt for ORPP. At least that would streamline the administration and the application process for companies that rely on their global workforce for the success of their business.
How the CPP exemption works where there is ISSA
A foreign worker assigned to Canada, presents a Certificate of Coverage (“CoC”) to the Canadian entity. The CoC is from the country of origin of the foreign worker or the expatriate. It is the responsibility of the Canadian entity to ensure that the individual is exempt from contributing to CPP. The CoC is kept by the Canadian entity’s payroll system for record-keeping…
Canadian assigned to a foreign assignment, will apply for a CoC directly to the CPP/EI Rulings Division of CRA. Once approved by CRA, the CoC is shared with the employee and the HR of the host country so that the employee is exempt from contributing to the social security scheme of the host country.
It is almost impossible to know how many expatriate workers are in Canada or in a particular province in a giving year. Statistic Canada does not have the data. The number of expatriates working in Canada may not be significant; nevertheless, for companies that use such expatriates, the implementation of ORPP may not be as easy as it may seem.
Canadian non-Ontario workers For companies with a national workforce, the administration of ORPP may be challenging. For non-Ontario employees who are on temporary assignment in Ontario, Ontario employees who are on assignment outside of Ontario, or non-Ontario residents who are deemed Ontario employees based on Canada Revenue Agency (CRA) or Revenue Quebec (RQ) definitions, would there be any kind of inter-provincial exemption for ORPP? ORPP will be the testing ground for these administration challenges. This issue does not exist for CPP/QPP, because both programs are the same except that the administration is assumed by two different entities. The Canadian non-Ontario workers administration is a “migraine” compared to the expatriate workers administration “headache”.
Approximately 40% of the Canadian labor force is located in Ontario. That proportion maybe even higher once the various definitions of “province of Employment” are factored in. How can the administration of the ORPP be implemented on a provincial level while the Canadian workforce is supposed to be borderless within Canada? The administration of ORPP, if the status quo is maintained, will be a nightmare. Let’s hope that when the Ministers of Finance (Federal and Provinces) meet on June 19 and June 20, there will be a consensus on some sort of national plan, say the expansion of CPP, to avoid the “provincialization” of social security.
We can say speculatively that the government of Ontario may be aware of the challenges of the implementation of ORPP, since it remains committed to an expansion of the CPP with a national retirement plan scheme that will supplement the current CPP. Until such agreement is reached with all provinces, employers with no comparable pension plan should prepare for a bumpy ride.
Your turn: What are the biggest challenges for your business in implementing the ORPP? Use the comment box below to share your insights.