Pursuant to the Employment Standards Act, employers are required to provide severance pay, which is compensation to a qualified employee who has his or her employment "severed". The purpose of severance pay is to compensate an employee for loss of seniority and job-related benefits.
In order to qualify for severance pay, an employee must be employed by the employer for five years or more. Additionally, the employer must have severed the employment of 50 or more employees in a sixmonth period because all or part of the business closed OR the employer must have a payroll in Ontario of $2.5 million or more. Severance pay is in addition to any other amount to which an employee is entitled under the Employment Standards Act or his or her own employment contract.
To determine 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 years of employment the employee has completed AND the number of completed months of employment divided by 12 for a year that is not completed.
It is important to note that only the following set-offs and deductions may be made in calculating severance pay:
- Additional unemployment benefits the employee collects after his or her employment is severed and before the severance pay becomes payable to the employee.
- An amount paid to an employee for loss of employment under a provision of the employment contact if it is based upon length of employment, length of service or seniority.
- Severance pay that was previously paid to the employee under the Employment Standards Act.
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