Suppose you are the general manager of a company with approximately 100 employees and the government has just announced its new rates for contributions to the Canada Pension Plan and Employment Insurance. With respect to employee contributions, assume that the CPP rate is increasing from 5% to 5.5% and the EI rate is increasing from 1.5% to 2%. Also assume that the company's required contribution for CPP is rising from being equal to the employees' contributions to being 1.1 times the employees' contributions, and the company's contribution for EI is increasing from being 1.4 times the employees' contributions to being 1.5 times the employees' contributions.
Required:
a. Assuming that gross wages amount to $6 million per year, calculate the financial impact that these changes will have on (1) the employees' net pay, and (2) the company's payroll costs.
b. Suggest some actions that the company could take to reduce the impact of these rate changes.