Statutory vs. common-law severance
In each province and territory, there are statutory minimal funds that you’re entitled to obtain as an worker whose employment is terminated. That is referred to as termination pay. This typically applies after three months of steady employment and is supposed to offer a security web after you might be let go with out trigger. Termination pay is mostly a sure variety of weeks of wage per 12 months of service as much as a most.
Past this minimal cost, employers may provide severance pay. This compensation is past the statutory minimal and primarily based on common-law entitlements—mainly, what you may get in case you went to courtroom. Each workers and employers want non-litigious options to a termination, and so might agree on a cost that’s someplace in between the statutory minimal termination pay and the common-law severance quantity.
Severance pay shouldn’t be a particular components, as a result of the potential entitlement will be primarily based on issues like somebody’s size of service, the kind of place they maintain, their age, and different components.
When an employer gives a severance package deal, the worker shouldn’t be obligated to take it. They will search recommendation from an employment lawyer to grasp the provide and whether or not they need to be asking for any variations.
Do you have to take a lump sum or wage continuance?
Some employers provide a lump-sum severance cost that’s payable , whereas others provide wage continuance the place payroll deposits proceed all through the severance.
You probably have the choice to obtain a lump sum, you might be eligible to defer some or all of it to a subsequent calendar 12 months. This can be advantageous, particularly whether it is late within the 12 months, to keep away from having a big cost taxed at a excessive tax price. Attributable to Canada’s progressive tax system, you might pay much less tax to have the cost deferred and taxed in a subsequent 12 months than added to your present 12 months’s revenue.
You probably have registered retirement financial savings plan (RRSP) room, you may select to direct some or the entire cost to your RRSP. On this case, it is going to be deposited pre-tax, in order that the gross quantity goes straight into your RRSP. Which means you’ll not get a big tax refund if you file your tax return, as you’d had been you employed the entire time. It’s as in case you acquired the tax refund up-front since no tax was withheld from the revenue deposited to the RRSP within the first place.
Evaluate the very best RRSP charges in Canada
New EI guidelines may help
When an worker is terminated, they’re typically eligible to gather Employment Insurance coverage (EI) advantages. The federal authorities launched a brief change to EI for brand spanking new claims in March 2025 in response to the U.S. authorities’s tariffs on a number of overseas international locations, together with Canada. The momentary measure was meant to finish on October 11, 2025, however has been prolonged to April 11, 2026.
There may be usually a one-week ready interval after wage continuance ends. For lump-sum separation earnings like severance pay, trip pay, or sick-leave credit, there’s usually an extra delay to use. However beneath the momentary EI measures, a terminated worker can apply for EI advantages instantly.
Common EI advantages are typically capped at 45 weeks, however beneath the momentary measures, a recipient could also be entitled to a further 20 weeks if they’re a long-tenured employee. To be thought of a long-tenured employee, the candidates will need to have met two situations:
- Obtained fewer than 36 weeks of normal or fishing advantages within the three years earlier than the beginning of a declare
- Paid at the very least 30% of the annual most EI premiums for at the very least seven of the ten years earlier than the 12 months {that a} declare begins (the EI most for 2025 is $695 per week)
Are you continue to entitled to advantages?
In case you had advantages like life, incapacity, or medical insurance coverage, a termination will typically finish this protection. Life insurance coverage is usually prolonged primarily based on the variety of weeks of wage you might be paid out. Incapacity insurance coverage typically ends in your final day of labor.
Some group life insurance coverage insurance policies help you convert your protection to a private coverage. This can be advisable in case your well being is poor, as you might be able to keep it with out having to offer well being data to the insurer.
You should purchase your personal life insurance coverage coverage from an insurer, and this can be preferable in case your well being is nice. Incapacity insurance coverage is extra sophisticated to interchange, as a result of in case you are not working, you shouldn’t have an revenue to interchange.
Though the lack of medical protection could also be worrisome, it is probably not needed to interchange it. Medical insurance shouldn’t be meant to create a windfall the place you obtain extra again from the insurance coverage firm than you pay in premiums. On the contrary, the insurer makes a revenue when the typical policyholder pays extra in premiums than they obtain again in reimbursements. Because of this, speeding to interchange protection is probably not advantageous in comparison with simply paying for health-care prices out of pocket when your protection ends.
Coping with pensions and group RRSPs
You probably have a outlined profit (DB) pension, you will have the choice to take a lump-sum payout, some or all of which can be eligible to switch on a tax-deferred foundation to a locked-in retirement account (LIRA). Whenever you forgo your future month-to-month pension, it’s good to make investments the proceeds to supply a retirement revenue. Not all pensions help you take a commuted worth switch, nevertheless, and a few restrict the choice primarily based in your age (e.g., solely beneath age 55).
When rates of interest are decrease, the lump sums paid out are greater; when rates of interest are greater, the payouts are decrease. These finest suited to think about a lump sum are buyers with a excessive danger tolerance or a brief life expectancy.
