Understanding Your Severance Package in AlbertaEric Chow2022-10-31T21:10:29+00:00
If your employment is terminated against your will and through no fault of your own (i.e. there is no termination with just cause) and you do not receive adequate notice from your employer, you are entitled to severance pay in Alberta.
This may also be known as a severance agreement or severance package.
It may be a lump sum cash payment or a continuing salary payment that includes benefits but your employer must follow specific guidelines laid out in Alberta employment law or you may be able to claim compensation or unfair dismissal.
The amount of tax you pay depends on how your employer pays it.
Tax is likely to be higher if you receive your severance pay as a lump sum rather than as a salary continuance.
Lump-sum severance pay
With a lump-sum payment, your employer will deduct income tax but not Canada Pension Plan (CPP) contributions, Quebec Pension Plan (QPP) contributions, or Employment Insurance (EI) premiums.
However, you can request that your employer pays it into a Registered Retirement Savings Plan (RRSP) or a Registered Pension Plan (RPP) and, in this way, no tax will be deducted until you withdraw the money from your plan.
Severance pay as salary
If you receive severance pay as salary continuance, your regular pay and benefits will continue for a set period after your employment is terminated.
You will pay the following income tax deductions on this severance pay:
Canada Pension Plan
Employment Insurance premiums
Registered Pension Plan contributions
Deferred severance payments
In some cases, an employer will allow you to spread your severance pay over a number of years, and this can be beneficial from a tax point of view.
ARE YOU RECEIVING THE RIGHT SEVERANCE DEAL?
Has your employer recently asked you to sign a severance package agreement that you’re not sure about?
You may be entitled to more severance than the minimums quoted above in the state guidelines.
It’s best not to sign anything that you’re unsure about without talking to a lawyer.
At Taylor Janis LLP, we have the skills, knowledge, and expertise to handle all of your employment & labour law needs.
To arrange a consultation and document review with one of our employment lawyers, please contact us today at (587) 333-4399 in Red Deer.