Severance Pay in Ontario
Keeping track of termination requirements across multiple countries and regions can be challenging for companies with large global workforces. With a variety of just-cause considerations, probationary periods and severance pay laws, it’s difficult to keep on top of employment rights for employees who may work anywhere in the world. A solution is to partner with an expert employer of record (EOR) that monitors termination rules and pays severance according to local labor laws.
The minimum statutory everance pay Ontario an employee is entitled to receive is set by the Employment Standards Act (ESA) and amounts to one week’s pay for each year of service, up to a maximum of 26 weeks. Despite this being the minimum, common law considerations still play a significant role in determining the overall size of a severance package.
A severance pay package may include any type of compensation the employee was receiving at the time of their departure from the company, including but not limited to salary, overtime, car allowance and commissions. The final amount of severance pay an employee is eligible to receive may also be affected by the length of their contract, a union contract and any other agreements between the employer and employee.
Severance Pay in Ontario – How Does it Differ by Country?
The ESA stipulates that a company must provide severance pay if it has a payroll in the province of more than $2.5 million. Earlier, the policy stated that this payroll condition applied to the company’s Ontario-based payroll only, but a recent court decision has clarified that the policy applies to the employer’s global payroll.
Severance pay can be provided in a lump sum or as an ongoing paycheck for the duration of the notice period. An employer may be required to deduct income taxes from lump-sum payments. The amount of tax deducted will depend on the employee’s residency and if the severance payment is being transferred to an RRSP or RRIF.
In addition to severance pay, an employer is also expected to provide a letter of resignation and return any company property. The letter should clearly state the date of termination and the reasons for the dismissal. An employee can then use this as evidence in case of a dispute or claim against the company.
An employer may also attempt to limit the amount of severance pay they must provide an employee through the use of a properly worded termination clause. However, most employers fail to create these clauses correctly or do not update them when the law changes.
In a case like this, the employee is required to contact the Ministry of Labour to ensure they receive the full amount of severance pay they are entitled to under the law. If they don’t, the employee could sue the company for breach of contract and unpaid severance pay. If they are unable to secure the full amount from their former employer, they can file an application for judicial review with the divisional court. This process can take up to a year and a half.