Ontario Termination Pay vs Severance Pay: What Employers Must Pay

If you're an Ontario employer wondering about Ontario termination pay vs severance pay , the key point under the Employment Standards Act, 2000 (ESA) is that they are separate entitlements, and in some cases a qualifying employee may receive both . The Ontario government guide states: "The termination-of-employment rules are entirely separate from any entitlements an employee may have to be paid severance pay under the ESA." It also states that "Severance pay is not the same as termination pay, which is given in place of the required notice of termination of employment." Termination pay relates to the employee's statutory notice of termination entitlement. Severance pay is a separate ESA entitlement that may apply only if the employee and employer meet the statutory severance test. In Ontario, statutory termination notice/pay can be as high as 8 weeks . Statutory severance pay may also be payable in addition, if the employee qualifies under the ESA severance provisions. Termination pay under the ESA is the payment an employer must provide when the employer terminates employment without giving the full statutory written notice period. The Ontario government confirms that, in most cases, when an employer ends the employment of an employee who has been continuously employed for three months, the employer must provide either written notice of termination, termination pay, or a combination . Who Qualifies for Termination Pay? An employee is entitled to notice of termination or termination pay instead of notice if they have been continuously employed for at least three months , unless an ESA exemption applies. The Ontario government guide states: "An employee is entitled to notice of termination (or termination pay instead of notice) if they have been continuously employed for at least three months." How Much Termination Notice or Pay Is Required? Based on the employee's period of employment, the ESA requires: At least 3 months but less than 1 year: 1 week 1 year but less than 3 years: 2 weeks 3 years but less than 4 years: 3 weeks 4 years but less than 5 years: 4 weeks 5 years but less than 6 years: 5 weeks 6 years but less than 7 years: 6 weeks 7 years but less than 8 years: 7 weeks 8 years or more: 8 weeks The maximum statutory notice/pay requirement is 8 weeks . An employer may provide working notice, termination pay instead of notice, or a combination, so long as the total ESA entitlement is met. Severance pay is a separate ESA entitlement from termination notice/pay. The Ontario government material quoted in the draft describes severance pay as compensation paid to a qualified employee whose employment is severed, including compensation for losses such as loss of seniority when a long-term employee loses their job. Under ESA s.64, severance pay is owed only when the employee has 5 or more years of employment AND the employer has an annual Ontario payroll of $2.5 million or more (or 50+ employees have been severed within 6 months due to permanent discontinuance). The following table highlights the key differences between Ontario termination pay and severance pay to help employers quickly distinguish the two entitlements: Statutory basis: Termination pay — ESA, ss. 54–62; Severance pay — ESA, ss. 63–66 Purpose: Termination pay — Compensation in lieu of notice; Severance pay — Compensation for loss of seniority and long-term employment Minimum service required: Termination pay — 3 months continuous employment; Severance pay — 5 years (continuous or not) Employer size threshold: Termination pay — None; Severance pay — $2.5 million global payroll or 50+ employees severed in 6 months due to permanent closure Maximum entitlement: Termination pay — 8 weeks; Severance pay — 26 weeks Calculation method: Termination pay — Regular weekly wages × weeks of notice owed; Severance pay — Regular weekly wages × (completed years + completed months ÷ 12) Can employee receive both? Yes. They are entirely separate entitlements. Example 1: Long-Service Employee at a Large Employer Facts: Maria has worked for 12 years and 4 months at a company with a global payroll exceeding $2.5 million. She earns $1,500 per week. She is terminated without working notice. Termination Pay Calculation (ESA, s. 57): Period of employment: 12+ years → entitled to 8 weeks (the maximum) Termination pay: $1,500 × 8 = $12,000 Severance Pay Calculation (ESA, s. 65): Completed years: 12 Completed months in incomplete year: 4 ÷ 12 = 0.33 Total: 12 + 0.33 = 12.33 Severance pay: $1,500 × 12.33 = $18,500 Total statutory entitlement: $12,000 + $18,500 = $30,500 Example 2: Mid-Service Employee — Severance Does Not Apply Facts: James has worked for 3 years and 6 months at a company with a $5 million payroll. He earns $900 per week and is terminated without notice. Termination Pay: Period of employment: 3+ but less than 4 years → 3 weeks Termination pay: $900 × 3 = $2,700 Severance Pay: James does not qualify — he has fewer than 5 years of service. $0. Total statut