Severance Pay Ontario
Losing a job can be a terrifying experience. It can leave you scrambling to find a new position, figuring out how you’ll pay your bills and manage life as you know it. While severance pay can’t take away the stress of being laid off, it does provide some relief by providing you with money to cover your expenses for a few months. In addition, a Toronto severance package lawyer can help you enforce your rights when companies offer packages that fall short of what’s fair and reasonable.
When an employer terminates an employee, they must provide them with sufficient notice to allow them to find a new job or search for work in the meantime. If they don’t, the employee is owed severance pay. There are many different factors that determine the amount of severance pay Ontario an employee can expect to receive upon being let go from a company.
Severance pay is a specific payment that employers must provide to employees who are terminated as per Ontario’s Employment Standards Act (ESA). This type of severance package typically consists of 1 week of regular pay for every year of employment up to a maximum of 26 weeks. This type of severance package is only required for larger employers with a payroll of $2.5M or more.
Factors That Determine Severance Pay Ontario
While the ESA stipulates the minimums, some employers will go above and beyond by offering severance packages with additional compensation that’s not mandated under the law. This is usually done to acknowledge the years of service an employee has provided to a company and also to make sure the former employees are not left without any income when they are let go.
The more time an employee has spent working for a company, the greater the likelihood that they’ll be eligible for a large severance package. Similarly, those who’ve held senior positions in the company may be eligible for a substantial severance package.
Some of the other factors that influence severance package size include how long an employee has been with a company, whether or not they have a union and the reason for being terminated. If an employee was fired for misconduct, the company may be able to dismiss them with cause and avoid paying severance, but this is often rare and requires a high standard of misconduct that’s almost impossible to meet.
Another consideration is whether or not the severance package is taxable. Since severance pay is a lump sum, it’s likely that the employer will deduct income tax from it. In addition to Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) contributions, the severance package may also be subject to Employer Insurance premiums.
If you’re receiving a severance package from your current employer, be sure to set aside enough money to cover your income taxes. Your severance package may also be subjected to capital gains taxes, which can be substantial depending on how much your severance package is worth. Alternatively, your employer may be able to transfer the lump sum to an RRSP or RRIF.