What is the difference between salary continuation and severance

Severance pay is an amount paid based on length of service that is payable to an employee upon termination of employment. A retiring allowance is paid at the discretion of the employer. This payment may also be referred to as severance. The meaning of retiring allowance includes any amounts paid to an employee who is leaving as compensation for loss of office or employment, or relating to a court award or settlement for wrongful dismissal, or in recognition of long service.

Therefore, retiring allowance is not considered income from an office or employment under the ITA and is not subject to EHT. There may be situations where periodic payments following an individual's loss of office or employment could represent instalment of a retiring allowance. However, periodic payments will not be considered a retiring allowance if the payments are treated as income from employment for the purpose of computing employment insurance premiums and benefits, Canada Pension Plan pension accruals or eligible years of service under a registered pension plan.

These payments are considered a salary continuance and are subject to EHT. Items such as bonuses, commission payments, accumulated overtime, and unused vacation credits are ordinary income and do not qualify as a retiring allowance. Therefore, these items are taxable for EHT purposes. A payment relating to unused sick leave credits qualifies as a retiring allowance and is not subject to EHT. To obtain the most current version of this publication, or additional information, visit our website at ontario.

Your email address will not be published. Save my name, email, and website in this browser for the next time I comment. Skip to content. Severance packages structured on a salary continuance basis are most common in a few different scenarios, including but not limited to the following: Where the employee has been terminated by a business with a rather small payroll, a lump sum severance payment may not be feasible on account of cash flow constraints; as such, the employer wishes to spread out the severance obligations to the terminated employee as a function of cash flow management; Where the employee has a high salary or holds a senior position with the company and has contributed a long duration of service, the severance entitlement could be substantial typically, up to 24 months of pay.

In such a case, again, the employer wishes to spread out the severance obligations. What to do if you have Received a Severance Package in Ontario? Previous Post. Next Post. Leave a Reply Cancel reply Your email address will not be published. Schedule A Callback. I agree that my submitted data is being collected and stored. My employer wants to make a lump sum payment of my severance pay. How does that work? My employer has offered to pay severance by continuing my salary, even though I no longer work there.

Can I cash out my vacation and sick pay when I leave the company to use as severance? Each employer is different.

Or its policy may state that severance will be paid on a case-by-case basis. Although employers are not required to do so by law, many give severance pay to some or all permanently laid off or terminated employees. Sometimes employees who have quit their jobs because of intolerable working conditions can also negotiate for more severance pay than would normally have been provided. A lump sum payment is a one-time payment in full of the amount of severance pay that you and your employer have agreed to.

A lump sum payment gives you immediate funds to invest or use. If you receive a lump sum, your other fringe benefits will usually cease as of the date of the payment. A lump sum payment is taxable, and the employer may withhold at a higher rate than usual if it puts you in a higher tax bracket, so you may wish to consider deferring part of the payment until the next calendar year to avoid having a greater amount withheld.

When an employer agrees to salary continuation, the employee ordinarily remains on the payroll for a specified length of time and receives pay at the end of each pay period as if he or she were still working. During this time, the employee's benefits, such as health insurance, ordinarily will continue.