What Is Salary Continuance?
When someone is dismissed from a position at their workplace without cause, their employer may choose to offer them either reasonable working notice or payment in lieu of notice. In most cases, an employer will choose to go the route of payment in lieu of notice to avoid potential awkward encounters or poor work performance. Thus an employer may choose to simply provide the employee in question with a severance package.
When an employee receives a severance package, they may be told that they are receiving their payment in lieu of notice in a few different formats, including salary continuance.
What is a salaried continuance? And is it better than the other options available to you? Should you be asking for it instead of another option presented? This article will give an overview of salary continuance compared to other severance package options.
Salary Continuance Explained
A salary continuance is when an employer offers a terminated employee their payment in lieu of notice as a continued salary until the end of the notice period. For example, if someone is terminated and should receive four months of notice, then the employer will promise to pay that employee their regular salary and benefits for that four-month period, even though the employee is no longer working for them.
After the period is over, the employer will stop paying that employee, and their relationship will be finished.
What Are the Other Options for Payment in Lieu of Notice?
Sometimes, instead of offering a salary continuance, an employer will offer the same amount of money to their employee as a lump sum payment. In other situations, an employer may choose to blend components of a lump sum payment and a salary continuance. For example, if an employee is supposed to receive four months of notice, their employer may choose to give them two months as a lump sum payment and two months as salary continuance.
What each employee is offered will depend on the severance package put together by their employer.
Which Option is Better?
While both lump sum payments and salary continuances have benefits and drawbacks, it will depend on your situation and preference to determine which is the better option for you.
Some people prefer to receive their payments as a lump sum so that they can budget their own expenses and focus on moving forward, while others prefer to have their salary continue so that they do not have to worry about managing their money as a large sum.
If you already have a new job lined up with a salary that will begin before the notice period is over, you may choose to ask for a lump sum payment so that you can put that money aside for future use and try to shelter it in the form of a contribution to your RRSP.
Indeed, taxes are always a first-order consideration in deciding between lump sum and continuance. If, for example, receiving a substantial lump sum would put you into the top income bracket and subject you to the highest marginal rate of tax (more than 50%), you may want to have the payments divided over a number of years. Another way to make the most of a lump sum payment is to ask that it be paid out as a retirement allowance, as this will help you retain more of the money paid to you.
What Do I Do if My Employer Presents an Offer I Don’t Like?
If you have been told that you will be terminated from your position, make sure that you carefully read over the documents that you’re given by your former employer. Take time to think through the severance offer that you’ve been given. It is always a good idea to hire a lawyer to read through everything with you to make sure that you’re getting what you deserve after your service to your company.
If you do not like the severance package offer that you were given by your employer, you can have a lawyer write a demand letter to let your employer know that you are expecting more payment, or that you would like that payment in a different format. You may choose to ask for it as a lump sum or a salary continuance.
If you are terminated, make sure to have a lawyer read over the documents that your employer gives you as soon as possible. A lawyer can help you determine what the best options for your situation are, and they can help you get the best outcome from the situation.
If you are an employer or an employee with questions about severance packages and salary continuances, our team of experienced workplace lawyers at Achkar Law can help.
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