What is Termination Pay and How is it Calculated?

What is Termination Pay and How is it Calculated

Employment termination can happen for a number of reasons. It could be because of workplace misconduct or a significant breach of contract. It could also be because of failure to perform up to the standards set for you by your employer.

Regardless, termination with just cause should be properly upheld by the employer.

In most cases, employers give their employees enough notice for termination. This is to give the employees enough time to prepare or look for another job. Regular pay is still given to employees throughout the period of notice.

But if for any reason your employer has to end your contract immediately, they are required to give you your termination pay in place of the notice. Failure to comply will result in more burdens for your employer.

How to Calculate Termination Pay

So, what is termination pay? Termination pay is equivalent to your weekly wage multiplied by the number of weeks you should have been given the notice of termination.

In essence, you should be given at least a week’s notice for every year you’ve worked for your employer.

For example, if you’ve been working at the company for less than a year, you should have at least one week’s notice of termination. But if you’ve been working for three years in the company, you should be given at least three weeks of notice.

Take note of the words “at least.” Your employer can give you more time than you are entitled to.

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But if your employer cannot give you enough notice, they are mandated by law to give you termination pay instead.

Termination pay is given in lieu of the notice, so the amount should be equivalent to the weekly wages you would’ve gotten for that time period.

Let’s say your weekly wage is $1,500. You’ve been working in the company for four years. If something urgent has come up and your employer cannot give you at least four weeks of notice, they should give you $6,000 as your termination pay.

Termination Pay vs. Severance Pay

A notice of termination cannot be valid when an employee is on approved leave or temporary layoff. It’s only valid when you’re working regular hours in a workweek.

Plus, everyone is entitled to receive termination pay instead of notice of termination for as long as they’ve already worked for their employer for at least three months.

There are some exceptions, though. If you’re working for your employer for only a specific timeframe or on a contractual basis, you are not entitled to receive termination pay from them.

And as for severance pay, fewer people are eligible for it. It’s only given as recognition for a long-term employee’s efforts for the company. Severance pay is more of a benefit than a wage.

To qualify for severance pay, you should have earned at least $2.5 million annually for five or more years.

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Severance pay is calculated by multiplying your weekly wage by the number of years you’ve worked for the company.

If you’ve been working for eight years and your weekly wage is $50,000, your severance pay should be $400,000.

Labour Laws in Canada

Labour laws in Canada protect both employers and employees. But while termination seems like a straightforward topic, there are still instances where employers and employees arrive at a disagreement.

If you feel like you were terminated without just cause or if your employer didn’t give you enough termination pay, you can get in touch with labour lawyers to settle the issue.

Again, here’s how to compute for your termination pay:

  • Compute how long you’ve been working for your employer. Remember: 1 year of employment = 1 week of notice.
  • Calculate how much you earn on a regular week.
  • Multiply your weekly wage by the number of weeks you should have gotten the termination notice.
  • The resulting amount is how much your termination pay should be.

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