Canadian companies, especially small- and medium-sized employers, are facing unprecedented challenges in attracting and retaining skilled and motivated talent.
According to a recent survey by Robert Half Canada Inc., 42 per cent of Canadian employees have already started searching for a new job or are planning to do so in the first six months of 2024. It also found 90 per cent of employers expressed concern about the retention of top talent and 87 per cent said they’re worried about maintaining a high level of motivation and engagement.
There are many options to address this issue, including increasing benefits, vacations and salaries, but one of the most powerful options that employers can use is a retirement plan.
Read: Survey finds half of employers hiring for new permanent roles in first half of 2023
A 2021 survey conducted by Maru Public Opinion on behalf of the Healthcare of Ontario Pension Plan found more than eight in 10 companies said retirement benefits are very or extremely important for attracting applicants (83 per cent) and retaining current employees (86 per cent).
In addition, the HOOPP’s 2023 Canadian retirement survey found more than two-thirds (69 per cent) of employees said they’d prefer a slightly lower salary and any (or a better) pension than a higher salary and no (or a worse) pension.
Retirement benefits are usually provided through registered pension plans, group registered retirement savings plans or deferred profit-sharing plans — and the latter is particularly effective for SMEs.
A DPSP is governed mostly by Section 147 of the Income Tax Act. Employers are allowed to make contributions to a trust fund on behalf of plan members and treat them as deductible expenses. These payments and any earnings or capital gains by the trust aren’t taxable to the employee until they’re withdrawn, usually at retirement.
Read: Survey finds 44% of Canadian pre-retirees have less than $5,000 in savings
The Act places limits on the size of the employer’s contributions to the DPSP, limiting both the total payments of the trust and the total payments by an employer. The maximum contribution to a DPSP for 2024 is $16,425 or 18 per cent of the employee’s earnings, whichever is lesser.
DPSPs have many advantages. They can provide retirement income and are simpler to operate than registered pension plans. In addition, contributions are tax deductible for the employer and can vary with profitability.
Unlike a group RRSP, employer contributions to DPSPs don’t require payroll taxes for employment insurance and Canada Pension Plan premiums. As well, vesting can be as high as two years, thus supporting retention of talent.
Read: How LifeLabs redesigned its RRSP-DPSP to maximize employee engagement
David Tyson is a Toronto-based human resources consultant. He’s the author of HR Manager’s Guide to Profit Sharing in Canada and The Canadian Compensation Handbook.