Before you can add a pension contribution to your employees, you will need to:

An employer pension plan provides your employees with a source of income during their retirement. You and your employees (or just you) regularly contribute money and when your employees retire, they’ll receive an income from the plan.

There are two main types of employer-sponsored pension plans - defined benefit, and defined contribution.

In a defined contribution pension plan, both the employer and the employee know how much they will pay into the plan, but not how much the employee will get when they retire. Usually, an employee contributes a certain percentage of their pay into the plan and the employer matches that contribution up to a fixed percentage limit.

In a defined benefit pension plan, the employer promises to pay their employee a regular income after they retire. The level of income is a function of their salary and years of service multiplied by a factor. Usually both the employer and the employee contribute to the plan.

Read about employer-sponsored pension plans (opens in a new tab).

Your employee can contribute to a plan in their own name and/or spouse/common law partner's name. RRSP contributions can reduce the amount of tax an employee has to pay since any contributions made to a plan reduce taxable income. If any payments are withdrawn from the plan, the taxable income is increased.

Your contributions to an employee's plan will have to be included in their taxable income but a corresponding deduction is also available to them.

To create pension contributions for an employee you will first need to create a pay run. Once the pay run has been created you need to:

You can also add a non-periodic contribution. These are one-off payments the employee wants to contribute to their pension. For example if an employee requests that their bonus is paid directly into the plan.