Providing severance pay?

Based on federal severance pay entitlements, an employee can collect severance pay if they have completed 12 months of consecutive employment. The employee is entitled to 2 days’ regular wages for each full year they worked prior to the end of their employment. The minimum benefit you must provide is 5 days of wages. However, entitlements may differ province-to-province.

You may also choose to offer an employee additional benefits. Severance may refer to a Severance Package, Severance Agreement, or a Retiring Allowance.

Severance Pay is provided based on years of service (otherwise known as an employee’s Period of Employment) and the annual cost of your company’s payroll. Severance Pay is awarded when an employee is terminated without cause. Employees who are terminated with cause are not entitled to severance. When drafting an employment contract, you have the option of including a Termination Clause which can impact the amount of severance an employee is owed.

When providing Severance Pay, you must consider: 

  • Period of employment
  • The amount of notice you must provide based on period of employment
  • Termination pay

Reasons for providing severance pay

Severance Pay is an important entitlement as it acts as a support for employees in cases where you may have to terminate them.

But what types of circumstance may you be required to provide this entitlement?

Severance Pay may be provided if an employee: 

  • Is laid off
  • Resigns due to constructive dismissal
  • Is terminated for reasons other than firing-for-cause

There are specific instances where Severance Pay does not need to be provided.

Such as when:  

  • An employee is laid off but not terminated (e.g., temporary layoffs)
  • The employment contract meets its end date and the contract is not renewed
  • An employee is dismissed for cause
  • The employee quits

The difference between severance pay & termination pay

While often confused, Severance Pay and Termination Pay are separate entitlements with entirely different use cases.

Severance Pay is pay provided based on years of service. While Termination Pay is provided in “lieu of notice”. If an employee is provided Termination Notice, the employer is not required to provide Termination Pay.

Calculating severance

To calculate the amount of severance an employee is owed, you take their: regular week’s wage x (number of completed employment years + number of months of an incomplete year, divided by 12).

Need help providing severance pay? 

If an employee is entitled to Severance Pay, it’s essential you provide it. Failure to do so could result in a Wrongful Dismissal claim and issues with the employment standards branch in your province. If you need help doing so, Employer Line is here to help. Call Employer Line today at 1-833-247-3650 and an expert will be happy to walk you through how to provide and calculate Severance Pay.