Blog Photos

Severance Pay Upon Termination

If an employer terminates an employee without cause, they may be required to compensate employees with severance pay. This type of pay is different than termination or notice pay. Severance pay is offered to long-term employees who have their employment “severed.” This practice compensates an employee for losses, such as loss of seniority. An employer can provide severance pay upon termination of employment instead of the necessary termination notice.

Do All Employers Have to Pay Their Employees Severance Pay Upon Termination?

Not all employers are required to give their employees severance pay, and small business employers are not required to provide employees with severance pay. An employer must retain a global payroll of at least $2.5 million before they are required to provide severance pay to their employees. However, an employer can retain a global payroll of less than $2.5 million and still be responsible for severance pay if they have severed employment of at least 50 employees within six months due to permanent closure of all or part of the business.

Even if an employer meets the monetary threshold to provide severance pay, they are not required to provide it to all terminated employees. An employee must be employed for at least five years to receive severance pay upon termination.

How to Calculate Severance Pay

To calculate severance pay upon termination an employer must provide an employee, they must multiply the employee’s regular wages for a typical workweek by the total number of complete years of employment and the number of whole months of work divided by 12 for an incomplete year.

Under the Employment Standards Act, 2000 (the “Act“), an employee who qualifies for severance is entitled to receive a minimum of one week’s pay per year of employment. An employee’s contract may provide more severance pay than the minimum amount required under the Act, but it may not offer less. If an employee signs an employment contract that provides a lesser entitlement to severance pay than set out in the Act, it will not be enforceable.

The maximum amount of severance pay an employer must pay an employee under the Act is equivalent to the employee’s regular wages for a workweek for 26 weeks.

Can Severance Pay be Combined with Termination/Notice Pay?

No, an employer cannot combine severance pay with termination/notice pay. The minimum severance pay an employee is entitled to is in addition to termination/notice pay in the Act or the employee’s contract. As an employer, it is essential to be aware of this distinction.

An employee has the choice to receive their severance pay upon termination as a lump sum or in installments. An employer cannot pay an employee’s severance pay in installments without the employee’s consent. If an employee agrees to receive their severance pay in installments, the installments of this pay must not exceed three years.

Contact Us 

If you are an employer or employee requiring assistance with severance pay upon termination or an employee who believes you have been constructively dismissed, our team of experienced employment and human rights lawyers at Achkar Law can help. Contact us by phone toll-free at +1 (800) 771-7882 or email us at [email protected], and we would be happy to assist.

If you are a small or medium-sized company looking for full-service support with a same-day response, visit our CLO Program page for our strategic solutions.

Disclaimer: This blog is not intended to serve as or should be construed as legal advice and is only to provide general information. It is in no way particular to your case and should not be relied on in any way. No portion or use of this blog will establish a lawyer-client relationship with the author or any related party. Should you require legal advice for your particular situation, fill out the contact form, call (800) 771-7882 or email [email protected]