Retain Top Talent, Save On Taxes: DPSPs in Manitoba
Business owners everywhere are having trouble filling their human resource needs. This goes double for smaller businesses, who often can’t afford the benefits to entice top performing talent.
With a DPSP (Deferred Profit Sharing Plan), you can gain an edge in the compensation you offer (including signing-bonuses) while skipping both Federal and Manitoba payroll taxes. They’re also tax-deductible as per usual for expenses.
Here’s how a DPSP works.
What is a DPSP?
A DPSP is a profit sharing plan designed to help employees save for retirement. It’s a great alternative to a pension plan. It functions similarly to an RRSP, though DPSPs are funded by employers directly into employees accounts.
How does a DPSP help you save on taxes in Manitoba?
The money contributed to the DPSP from your company by-passes both Federal and Manitoba payroll taxes. It’s a great way to give annual bonuses to your employees while saving the employer share of CPP and EI contributions. Plus your employee enjoys the full bonus being contributed to their plan without withholding taxes being applied first. Then while the money sits in the DPSP and (hopefully) grows, any gains are also exempt. It is not until it is cashed out by the employee that is taxed, like with an RRSP.
This means double-tax savings, both for you at the payroll tax level and for your employee and the portfolio growth they receive over the duration of the plan.
Are DPSPs complicated to set-up?
The actual set-up is very easy, though there are a couple of constraints to be aware of. For example, contributions can only be made by the employer and you can only do so generally up to 18% of an employees earned income. DPSP contributions also affect your employee’s RRSP contribution room. Lastly, a DPSP cannot be used by a business owner or controlling shareholders. This is a plan that is solely for the benefits of employees.
Can DPSPs be used as hiring bonuses?
Absolutely! As an added bonus, DPSPs can be structured so that the funds don’t vest to the employee until they’ve been a member of the DPSP for 2 years. This means an employer can offer a nice ‘hiring’ bonus, on the condition that if the employee leaves employment before the 2 years, the bonus defaults back to the company. Many Manitoba businesses are using DPSPs in their hiring and recruitment process. Ask us at Corporate Care how you can get started with a DPSP for your company. We’re here to help.
Getting The Very Best,
Saving The Very Most
What do you get when you combine Corporate Care’s PHSP with a DPSP?
Two wordy acronyms and enormous tax savings for your business.