What Is Termination Pay and How Does It Differ From Severance Pay?

What is termination pay, and what is the difference between it and severance pay? Many people get confused by these terms and consider them the same. Articles often use them as synonyms, and they are entirely different. 

Today, we’re helping break down termination vs. severance pay and how they affect both the employer and the employee.

What is Termination Pay?

Termination pay is a form of compensation offered to employees who are laid off from their jobs. It can include monetary and non-monetary benefits, such as extended health insurance coverage or career counselling services. Termination pay is intended to help ease the financial burden of losing one’s job and is typically offered as a standard practice by most employers.

While termination pay can help provide financial stability during this difficult time, specific rules and regulations govern how it is offered and which employees are eligible. For example, employers may only offer termination pay to permanent employees who have worked at the company for a certain length of time or a certain number of hours. In addition, employees are entitled to different amounts of notice depending on how long they have been with a company.

Additionally, termination payment may be subject to tax withholding and other deductions, so it is crucial to understand the specific terms and conditions of receiving this benefit. For example, suppose you are laid off from your job and are eligible for termination pay. In that case, it is vital to take advantage of this benefit as it can provide much-needed financial support during this challenging time. 

Eligibility of Termination Pay

Certain workers are not entitled to termination pay. For example, those who commit willful neglect of duty or similar misbehaviours not tolerated by their superiors or have been with the company for less than three consecutive months. 

Eligible employees receive termination pay on the last day of work or no later than the next pay period following their termination date. An employment agreement will typically stipulate when termination money must be processed, so read the employment contract thoroughly.

Consider speaking with your employer about the specific details of termination pay, including eligibility requirements and how to apply for it. Moreover, be sure to explore other options for financial support, such as unemployment benefits or job retraining programs, to move forward positively and productively.

The Difference Between Severance and Termination Pay in Alberta

More often, the two terms are used as synonyms, but they are far from the same in the eyes of the employment law. While termination pay is something that every employee is entitled to as compensation for being relieved from their duties, severance pay does not apply to everyone. Severance compensation in Ontario takes into consideration factors unique to each individual.

In other words, severance pay is compensation paid to qualified employees whose employment position has been severed. A severed job is when an employee is laid off for no fault of their own. Here included:

  • Bankruptcy of the employer
  • Employees being underpaid
  • Company closing permanently
  • Not enough work for a specific employee

As with termination pay, the longer the working relationship, the bigger the severance pay. However, by the law, an employee has to have five consecutive years within that company. In addition, the right to severance pay has a person who was one among 50 or more employees laid off from the same company in the last six months. In addition, the employer, regardless of the current state, has to have at least $2.5 million in global payroll.

The Bottom Line on Termination Pay

Employment law in Canada and its provinces is clear. Although laypeople use termination and severance pay as synonyms, they are not the same. In truth, both are compensations for employee services. Still, they differ in the unique and individual circumstances of the person in question. 

In conclusion, termination pay is typically for unused vacation time or other benefits. In contrast, severance pay is a payment made for the employee’s termination agreement. Additionally, termination pay is usually paid immediately upon termination. The employer may pay out severance pay during a specific period or in a complete sum. 

Ultimately, the type and amount of termination or severance pay that an employee receives will depend on various factors, including their employment contract and company policy guidelines. However, it is crucial to understand your rights and legal obligations whether you are receiving termination or severance pay. That way, you can ensure that you are treated fairly during this transition period.

If you have any doubts or lack knowledge in this area, don’t hesitate to get in touch with an employment lawyer. As an Alberta-based law firm, Chapman Riebeek has experts who can help you overcome any obstacles.