Severance pay?
"Severance pay" is compensation that's paid to a qualified employee who has his or her employment "severed." It compensates an employee for loss of seniority and job-related benefits. It also recognizes an employee's years of service.
Severance pay is not the same as termination pay, which is given in place of the required notice of termination of employment.
Who qualifies to receive severance pay?
An employee qualifies for severance pay when his or her employment is severed and he or she:
has worked for the employer for five or more years (including all time spent by the employee in employment with the employer, whether continuous or not and whether active or not)
and
was employed by an employer who
has a payroll in Ontario of at least $2.5 million
or
severed the employment of 50 or more employees in a six-month period because all or part of the business was permanently discontinued.
Certain employees are not entitled to severance pay under the ESA. For example, employees who are guilty of wilful misconduct, disobedience or wilful neglect of duty that isn't trivial, and has not been condoned by the employer, are not entitled to severance pay. Also, certain construction employees aren't covered, nor are employees who refuse an offer of reasonable alternative employment.
Many of the exemptions from the ESA are complex. Contact the Ministry of Labour for further information.
How much severance pay are employees entitled to?
To calculate the amount of severance pay an employee is entitled to receive, multiply the employee's regular wages for a regular work week* by the sum of:
the number of completed years of employment
and
the number of completed months of employment divided by 12 for a year that is not completed.
The maximum amount of severance pay required to be paid under the ESA 2000 is an amount equal to the employee's regular wages for a regular work week for 26 weeks.
* See regular wages and regular work week
Note: A special method of calculating severance pay applies to employees who don't have a "regular work week" or are paid on a basis other than time worked (e.g., piece-work rate or commission.)