What is the Difference Between Termination and Severance Pay in Ontario?

If you are terminated without cause, your employer may owe you termination and severance pay, under the Employee Standards Act, 2000 (ESA).  So, does it mean that termination pay is the same as severance pay? While these two payments are often perceived as the same, they are distinct. Technically, these concepts are used together or interchangeably to reference a type of compensation employers in Ontario owe terminated employees.  This article by Walter Law Group focuses on severance pay vs. termination pay in Ontario under the ESA.  If you work for a federally regulated industry (such as banks, airlines, telecommunications companies or trucking companies), your statutory entitlements are different under the Canada Labour Code.

What’s Considered Termination Pay in Ontario?

What is termination pay, and who is eligible for termination pay? This is the payment your employer must give you in lieu of issuing a notice of your employment termination. Note that the termination pay Ontario is stipulated in the ESA and is the minimum amount you are entitled to.

You may have a written employment contract that says how much notice you should be given upon termination. That means it sets out the amount of compensation you should be given in lieu of that notice.  Your contract must provide that you will be paid at least the amounts provided for by the ESA, and if your employment contract says you will be paid in lieu of notice below the ESA requirements, then the contract is considered void, and ESA requirements will set out the minimum of what your employer owes you.

Keep in mind that the notice period under the ESA differs based on the length of time you have worked for the employer.  For instance, if you have worked for five years or more but fewer than six years, the required notice should be at least 5 weeks. That means your employer should provide a lump sum amount equal to the specific amount you would have been entitled to get during that period of five weeks if the notice had been given on time.

Sometimes, it can be challenging to calculate the amount of termination pay your employer owes you or determine if it has paid below the ESA requirements. Call us at Walter Law Group to make sure you have been paid the correct amount.

In addition to the ESA’s requirements regarding minimum notice periods, you may be entitled to additional notice under the common law.  Note that common law notice is when a court of law can offer an extended notice period above the stipulated ESA minimum requirements. If you need help to understand how much common law notice you are eligible for, call us at Walter Law Group.

How to Calculate Termination Pay in Ontario

Your termination pay in lieu of notice under the ESA will be calculated as follows:

  • If you have worked more than 3 months up to a year – one week;
  • If you have worked more than a year but less than three years – two weeks;
  • After three years, it is one week per entire year of service, up to a maximum of eight weeks.

You are probably wondering, how much termination pay am I entitled to in Ontario? Here are two examples to help you understand how the statutory notice is usually calculated.

Example 1: Termination Pay for a Regular Work Week

Maya worked 35 hours weekly, and her pay was $18 an hour. She also received 4% vacation pay. Because Maya worked for more than three years but less than 4 years, she is eligible for 3 weeks’ pay in lieu of her notice. Here is how termination pay is calculated.

Maya’s regular wages

$18 per hour x 35 hours a week is equivalent to $630 per week.

Her termination pay is $630 x 3 weeks. This is equivalent to $1890.

Then her vacation pay on her termination pay is 4% x $1890, which is equivalent to $75.60.

Finally, Maya’s vacation pay should be added to her termination pay.

That means $75.70 + $1890 which is equivalent to $1965.60.

Maya is entitled to a gross payment (before tax deductions) of $1965.60. Her employer must also ensure continued coverage for all benefits and pension plans applicable to her for 3 weeks.

Example 2: Termination Pay for Irregular Work Week

Samuel has worked at a nursing home for more than four years. He works each week, but the weekly hours varies. When your hours vary, the ESA provides that your employer use the average weekly pay over the 12 weeks prior to your termination.  Samuel’s pay rate is $19 per hour, and he gets a 6% vacation pay. Samuel’s employer eliminated his position and failed to give him a notice of termination. He was ill and off work for two out of the 12 weeks immediately preceding the day his employer terminated his employment. Samuel earned $1,850 in the 12 weeks before the day his employment was terminated.

Samuel is entitled to 4 weeks termination pay based on his four years of service.

His average weekly earnings are calculated as follows:

$1,850 for 10 weeks worked out of the 12 weeks before his termination (Samuel was off sick for two weeks, so these two weeks are not included in the average earnings calculation). So he earned $185 weekly.

Samuel’s termination pay is calculated as follows:

$185 x 4 weeks = $740.

His vacation pay on termination is as follows.

6% of $740, which is equivalent to $44.40.

To determine Samuel’s total pay is $740.00 + $44.40 = $784.40.

Samuel is entitled to a gross payment (before tax deductions) of $784.40. His employer must also ensure coverage for the pension plans and benefits he is entitled to for four weeks.

What’s Considered Severance Pay in Ontario?

Severance pay under the ESA is the amount of compensation that you, an employee, receive in addition to termination pay, if you are eligible. It’s intended to compensate you for your years of service with the employer.

You are probably wondering, is severance pay mandatory in Ontario? How many weeks severance in Ontario, and who is entitled to severance pay?

To be eligible for severance pay under the ESA, you must have worked for your employer for more than 5 years, AND the employer must have a payroll (meaning its pay to all of its employees) of over $2.5 million per year.  If these conditions are met, the eligible employee is owed a week of severance pay for each year of service, up to 26 weeks.

In addition to Termination and Severance pay under the ESA you may be entitled to additional notice under the common law.  Note that common law notice is when a court of law can offer an extended notice period above the stipulated ESA minimum requirements. If you need help to understand how much common law notice you are eligible for, call us at Walter Law Group.

Often, determining whether the severance package you have been offered includes the proper amounts of termination and severance pay as well as common law reasonable notice is a complex process.  If you want your severance package reviewed to ensure you are receiving fair and reasonable compensation on the loss of your job, call us at Walter Law Group.

How is Severance Pay in Ontario Calculated?

To determine the amount of severance pay an employee is entitled to, multiply the worker’s regular wages for the standard week of work by the number of years completed. To determine the severance pay for an incomplete year, multiply the worker’s regular wages by the number of the completed months, then divide by 12.

How much severance pay am I entitled to? This is a common question when you lose your job. Here’s a simple illustration of a severance pay calculation:

Kevin has been employed at XYZ Inc. for 6 years and 6 months and regularly dedicates 40 hours a week to his work, earning $18.50 hourly.  His employer currently has a payroll higher than $2.5 million. Unfortunately, XYZ Inc. has decided to terminate his employment, giving Kevin eight weeks’ notice of employment termination. Kevin will be working up to the end of this notice period for a total service time of 6 years, 8 months. Here’s how much severance pay Kevin is entitled to, according to the ESA.

Kevin worked 6 years, 8 months.  He is entitled to one week per year of service, so take his completed years (6), plus the total number of full months in the incomplete year that Kevin worked at XYZ Inc. and divide it by 12 (8/12 = 0.66).  Kevin’s entitlement is 6.66 weeks of severance pay.

Take Kevin’s weekly wages. Since he works full time, he puts in 40 hours weekly.

So, 40 hours x $18.50 = $740.00

Now multiply Kevin’s weekly wages ($740.00) by 6.66.

So, $740.00 x 6.66 = $4,928.40.

This is the total gross amount Kevin is entitled to as severance pay.

How an Employment Lawyer Can Help You with Severance or Termination Pay in Ontario

So, how do you receive a fair severance package? As mentioned earlier, the process of calculating the amount of termination, severance pay and common law notice in Ontario is complex.  However, with the help of an experienced employment lawyer, you can find out the total amount of termination and severance pay you are legally entitled to and how much additional common law notice you should receive.  Call us at Walter Law Group to find out more.

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