As an international company operating in Canada, you’re well aware of the differences in rules. Payroll is most definitely not the same, and the business taxes you face are also quite different. There may be different regulations for the products or services you offer.
This is also true when it comes to employment legislation and the rules around hiring employees, compensating them for vacation time and leaves, and so much more. Letting an employee go might be another issue. While you hoped never to face it, you now need to terminate someone’s employment with your company.
Severance may be one thing you’re wondering about. How exactly is it handled in Canada?
When Must You Provide Severance?
The first question you’ll need to ask is when you’ll need to provide severance pay. There are quite a few scenarios.
If you dismiss or stop employing the person, they may be entitled to severance pay. If you’ve gone bankrupt or declared insolvency, you cease to employ the person and they’ll be entitled to severance. If you give employees an ultimatum and they decide to resign as a result, they’re entitled to severance.
If you lay off an employee for more than 35 weeks in a 52-week period, their employment is considered terminated. If you decide to close an office or discontinue business at a location, you’re considered to have laid off the employee.
A Mix of Notice and Severance
If you give an employee written notice of their termination and the employee then resigns with two weeks’ notice, you may be required to pay them severance. This situation would come up if the employee was still entitled to termination pay beyond those two weeks.
Other Reasons to Provide Severance
These aren’t the only scenarios when you may be required to or even want to provide severance to employees. If you need to lay off employees, you might offer a severance package immediately. Employees who opted to take it would be free to seek out other employment.
A restructuring activity may also put severance on the table. Some employees may not like the new terms you’re offering them and, since they’re not the terms they were hired under, they have legal grounds to refuse. You can offer these employees severance.
What Are the Rules?
Like virtually everything else in Canada, severance rules differ from province to province. If you operate in Ontario, you’ll need to look at the rules for severance in Ontario. Someone operating in BC will need to look at that province’s legislation.
To fully understand severance pay, you’ll need to look at the employment legislation for each province you operate in.
Compensation for Long Service
Generally speaking, severance pay is awarded to employees who have been with your company for some time. They may be senior employees or they may have a long-service track record. Often, they have seniority in the firm and they may even have specific skill sets and expertise. Severance is designed to compensate them for the loss of employment.
As a result, you may wish to offer severance in other circumstances than those required by law. You’re only bound to provide severance in the cases specified by the law, however.
How Do You Calculate It?
Each province lays out its own rules for calculating severance pay. In Ontario, you add together the number of years of employment plus the number of months of an incomplete year. Take the sum and multiply it by the employee’s regular weekly wages. This will give you their weekly severance pay for a maximum of 26 weeks.
Different provinces use different formulations, of course, so severance pay for an employee in BC can’t be calculated the same way.
If you’re concerned about severance pay or need to calculate what it will cost you, talk to a Canadian EOR and payroll service provider. They can walk you through the steps and help you navigate the nuances.