Severance pay under Ontario's Employment Standards Act compensates long-service employees for losing their job. It's separate from, and paid in addition to, termination pay. Not everyone qualifies: you need at least five years of service, and your employer needs to meet a size test.
You qualify if both are true
- You've worked for the employer for five years or more, counting all time employed, including some leaves
- The employer has a payroll of $2.5 million or more, or your job ended because of a permanent closure in which 50 or more employees lost their jobs within six months
The formula
Severance pay = regular weekly wages × (completed years + completed months ÷ 12), up to a maximum of 26 weeks.
| Service | Weeks of severance | At $1,200/week |
|---|---|---|
| 5 years | 5 | $6,000 |
| 7 years, 6 months | 7.5 | $9,000 |
| 12 years | 12 | $14,400 |
| 20 years, 3 months | 20.25 | $24,300 |
| 26 years or more | 26 (maximum) | $31,200 |
The $2.5 million payroll test
The threshold counts the employer's total payroll, not just one location. Court decisions in recent years have held that payroll outside Ontario can count, which means a small Ontario office of a larger company can still trigger severance pay. If you're unsure whether your employer meets the test, ask the Employment Standards Information Centre or a lawyer.
Severance plus termination pay
An eligible employee with 26 or more years of service could receive up to 8 weeks of termination pay plus 26 weeks of severance pay: 34 weeks in total under the ESA alone, plus vacation pay on the termination pay.
Who doesn't get severance
- Employees dismissed for wilful misconduct, disobedience or wilful neglect of duty that isn't trivial and hasn't been condoned
- Employees who refuse reasonable alternative work
- Employees whose employment ends because of a strike-related closure, and some construction employees
- Employees who retire and receive a full, unreduced pension
Before you sign an offer
Employers sometimes offer ESA minimums in exchange for a signed release. If your contract doesn't validly limit you to the ESA, you may be entitled to substantially more at common law. Many employment lawyers offer free consultations.
Frequently asked questions
How many weeks of severance do I get in Ontario?
One week for each year of service, prorated for partial years, up to 26 weeks, if you have five or more years of service and your employer meets the payroll or closure test.
Is severance pay taxable in Ontario?
Yes. It's taxed as income. You may be able to reduce the tax by transferring part of it to your RRSP if you have room.
Do part-time employees get severance?
Yes, if they meet the same tests. It's based on their regular weekly wages.
Sources
- Government of Ontario, Your guide to the ESA: Severance pay