CPP and EI Exemptions: When Payroll Can Stop Deductions
CPP Exempt and EI Exempt are legal payroll classifications, not opt-out choices. This employer-focused guide covers employees whose province of employment uses CPP and explains when each setting applies, what evidence to keep, and when deductions must continue.
Last updated August 2026
At a glance
- Leave both employee settings off by default. An employee cannot choose to opt out of CPP or EI simply because they do not want deductions.
- CPP Exempt can apply because of the employee's age, an accepted CPP disability status, a valid Form CPT30 election, or employment that is not pensionable under the CPP rules.
- EI Exempt applies when the employment is not insurable. EI has no age-based exemption.
- A shareholder who controls more than 40% of a corporation's voting shares is not in insurable employment with that corporation. That rule does not make the employment CPP-exempt.
- Reaching an annual CPP or EI maximum is not an exemption. Payroll should stop the deduction automatically after the maximum is reached with that employer.
- If the facts are uncertain, do not stop deductions based on a guess. The employer or worker can ask the CRA for a formal CPP/EI ruling.
What the employee-level settings mean
When CPP Exempt is selected in Beanflow, payroll stops both regular CPP and CPP2 contributions while the setting applies. When EI Exempt is selected, payroll stops EI premiums while that setting applies. These are broad employee-level instructions, so the basis and effective date must be established before either box is selected.
A single payment can have different CPP or EI treatment without making the employee exempt. For example, a genuine retiring allowance, certain non-cash benefits, and some benefit top-ups have their own deduction rules. Use the correct earning or payment classification for those amounts rather than changing the employee's ongoing exemption status. CRA's T4001 Employers' Guide lists employment, benefits, and payments from which CPP or EI is not deducted.
When CPP Exempt can apply
CRA says employers deduct CPP from pensionable earnings when the employee is in pensionable employment, is not considered disabled under the CPP, and is between 18 and 69 years old. The table below turns those rules into payroll effective dates.
| Situation | When CPP Exempt applies | What to keep or verify |
|---|---|---|
| Employee is under 18 | Keep CPP exempt through pays dated in the month the employee turns 18. Start CPP on the first pay dated in the following month. | Date of birth and the first affected pay date. |
| Employee turns 70 | Continue CPP through the last pay dated in the month the employee turns 70. CPP is exempt for pays dated after that month. | Date of birth and the first exempt pay date. |
| Employee is considered disabled under the CPP | Deduct through the last pay dated in the month the employee becomes, or is considered, disabled. Apply the exemption after that month. | The Service Canada letter and the date on which the employee is considered disabled. A medical condition or disability tax credit alone is not this payroll status. |
| Employee makes a valid Form CPT30 election | The election generally takes effect on the first day of the month after the employee gives the employer the completed and signed form. For a post-dated form, follow CRA's Part C date and post-dated-form guidance; receiving the form early does not accelerate the effective date. | A copy of the completed CPT30, its Part C date, and the date the employer received it. |
| The employment is not pensionable | Apply the exemption only for the period covered by the statutory exclusion, accepted employment-status analysis, certificate, or CRA ruling. | The ruling, certificate, election, contract, or facts supporting the exclusion. |
CRA explains the age, disability, and CPT30 timing in its starting and stopping CPP deductions guidance.
Form CPT30: age 65 alone is not enough
An employee can elect to stop CPP only when all of CRA's CPT30 conditions are met. The employee must be at least 65 but under 70, receive a CPP or QPP retirement pension, and have pensionable employment earnings that would otherwise require CPP contributions. The employee must also not have revoked a prior election during the current calendar year and must not already have a valid election to stop contributing in effect. The employee gives a copy of the completed form to each affected employer and sends the original to the CRA.
Do not stop CPP because someone turned 65 or receives another pension
Employees aged 65 to 69 remain subject to CPP unless the employer has received a valid CPT30. Old Age Security, a workplace pension, or a private retirement plan is not a substitute for the CPT30 conditions. At age 70, CPP stops under the age rule; no CPT30 is required.
Employment that is not pensionable
Most employment in Canada under an employer-employee relationship is pensionable, but the CPP legislation and regulations contain specific exclusions. Examples in CRA's T4001 guide include truly casual employment that is unrelated to the employer's trade or business, certain short agricultural or event work, specified rescue or election work, some foreign-government or international-organization employment, a narrow spouse or common-law-partner rule when the remuneration cannot be deducted as an expense under the Income Tax Act, and some cases governed by an international social security agreement. The exact conditions matter; a job is not exempt merely because it is short, seasonal, or described as casual.
For casual employment, CRA requires both that the work be unreliable, occasional, and unpredictable, and that it be for a purpose other than the employer's trade or business. Work that benefits the business is generally pensionable even when it happens only once. See CRA's casual-employment test.
Tax-exempt First Nations employment income
Employment income that is exempt from income tax under section 87 of the Indian Act is generally not subject to CPP unless the employer has elected CPP coverage. The exemption turns on the tax status of the employment income, not Indigenous identity by itself. An employer can elect coverage for all affected employees using Form CPT124; when the employer has not elected coverage, an employee may elect to contribute when filing their return using Form CPT20.
This CPP rule does not create an EI exemption. CRA states that the same tax-exempt salary or wages remain insurable and EI premiums must be deducted. See CRA's section 87 tax-exemption guidance.
When EI Exempt can apply
EI premiums apply from the first dollar of insurable earnings up to the annual maximum, and CRA states that there is no age limit. EI Exempt is appropriate only when the employment is not insurable or when a CRA rule excludes that employment.
| Situation | EI treatment | Important boundary |
|---|---|---|
| Employee controls more than 40% of the corporation's voting shares | The employment with that corporation is not insurable. | The threshold is more than 40%, not 40% exactly. This does not by itself exempt CPP. |
| Employer and employee do not deal at arm's length | The employment may be non-insurable. | Being related is not enough by itself. Employment can still be insurable if substantially the same contract would have been made with an arm's-length worker. |
| Private-sector director or office-holder fees | Fees for holding the office are generally not insurable. | If the person also earns a salary as an employee, the salary must be assessed separately and may be insurable. |
| Genuine self-employed contractor | Ordinary self-employment is not insurable employment through payroll. | A contractor should not be turned into an employee record merely to use EI Exempt. Facts, not the label in an agreement, determine status; some occupations are included by regulation. A self-employed worker generally handles CPP through their own tax return. |
| Casual work unrelated to the employer's trade or business | The employment is not insurable when both parts of CRA's test are met. | Short, part-time, temporary, or irregular work for the business is not automatically exempt. |
| Another statutory exclusion or CRA ruling | Apply EI Exempt only for the period and employment covered. | Keep the ruling and the facts or records that support the exclusion. |
CRA's guidance on pensionable and insurable employment includes the more-than-40% voting-share rule and explains why some workers who are not employees can still be insurable. CRA's current EI deduction guidance explains the first-dollar and no-age-limit rules. The Employment Insurance Act also excludes several uncommon categories, including certain foreign-government or international-organization employment, exchange-of-services arrangements, foreign unemployment-insurance coverage, members of religious orders who have taken a vow of poverty, and narrowly defined rescue, event, election, or agricultural work. Use the exact statutory conditions or a CRA ruling rather than a general resemblance to one of these categories.
Family members and non-arm's-length employment
Do not select EI Exempt simply because the employee is an owner or a family member. CRA reviews the remuneration, terms and conditions, duration, and nature and importance of the work. A related person's employment can be treated as insurable when it is reasonable to conclude that the parties would have entered into a substantially similar employment contract at arm's length.
When the conclusion is uncertain, request a ruling instead of deciding from the relationship alone. CRA provides a step-by-step family-member and related-person guide.
Directors can have two different EI treatments
CRA says EI premiums are not deducted from fees paid to private-sector board or committee members for their director role. If the same individual also receives salary as an employee, only the salary portion is tested for insurability. An employee-level EI exemption can therefore be too broad when only the director's fee is excluded. CPP is generally deducted from director fees for duties performed in Canada, subject to the ordinary CPP rules. See CRA's directors' fees guidance.
Common reasons that do not justify an exemption
| Common assumption | Correct payroll treatment |
|---|---|
| The employee reached the CPP or EI maximum with this employer | Leave the exemption setting off. Year-to-date calculations stop the applicable deduction at the annual maximum; the earnings remain pensionable or insurable. |
| The employee reached the maximum at another job | Continue deducting until the employee reaches the maximum in their employment with you. A new employer generally does not use contributions made to another business number. |
| The employee earns less than the CPP basic exemption | Leave CPP Exempt off. The payroll formula allocates the basic exemption by pay period and calculates any required contribution. |
| The employee is 65 or receives a pension | Continue CPP unless a valid CPT30 has taken effect or another CPP exclusion applies. Age or retirement does not stop EI. |
| The employee is a student, part-time, temporary, seasonal, or on probation | These labels do not create an EI exemption. CPP also continues when the employee and employment meet the normal pensionable-employment rules. |
| The employee is related to the owner | Assess the actual employment terms. Do not treat the family relationship as an automatic EI exemption, and generally continue CPP unless a separate CPP rule applies. |
| The employer has an approved EI premium-reduction rate | Use the approved employer rate. The employee still pays EI premiums and is not EI-exempt. |
| One payment is not pensionable or not insurable | Classify that payment correctly. Do not turn off deductions for the employee's other pensionable or insurable earnings. |
What records should the employer keep?
Keep the evidence that supports both the reason and the effective date. Depending on the case, that can include:
- the employee's date of birth and the pay date on which an age rule starts or stops;
- a copy of Form CPT30 and the date the employer received it;
- the Service Canada letter confirming when CPP disability status took effect;
- a CRA CPP/EI ruling and the employment period covered by it;
- corporate voting-share records supporting the more-than-40% EI rule;
- the basis for section 87 tax-exempt employment income and any employer CPP coverage election;
- contracts, work records, certificates, or other facts required by a specialized statutory exclusion.
Review the setting when the underlying facts change. A new CPT30, an end to disability status, a change in voting control, or a material change in employment terms can change the result.
The employee setting is not the T4 Box 28 instruction
Do not copy the employee's current checkbox directly to T4 Box 28. CRA says the CPP or EI exempt indicator is generally used only when no contribution or premium had to be withheld for the entire reporting period. If the employee had pensionable or insurable earnings for part of the period, the year-end indicator is not used merely because deductions later stopped.
CRA also gives special T4 instructions for CPT30 elections: do not use the CPP Box 28 indicator simply because box 26 is zero and the employee gave the employer a completed CPT30. Year-end reporting must be based on the full payroll history, not only the employee's status on the last day of the year. See CRA's current T4 Box 28 instructions.
Employer decision checklist
- Start with the default: keep CPP Exempt and EI Exempt off unless a specific rule applies.
- Decide CPP and EI separately: employment can be pensionable but not insurable, or the reverse.
- Identify the exact authority: age rule, CPT30, Service Canada letter, statutory exclusion, certificate, or CRA ruling.
- Use the correct effective date: do not make a CPT30 or age-based change retroactive based on memory.
- Separate employee status from payment treatment: use an earning classification when only one payment is excluded.
- Request a ruling when facts are unclear: CRA can decide whether the worker is an employee or self-employed and whether the work is pensionable, insurable, or both.
The ruling process is available to both employers and workers through CRA's Request a CPP/EI ruling service.
The practical rule
Do not ask whether the employee wants CPP or EI deducted. Ask whether the employee and the employment meet a documented legal exemption, when that exemption takes effect, and whether it applies to every payment or only a particular earning. If the answer is unclear, keep the ordinary deduction treatment and request a CRA ruling before changing the employee-level setting.