What Severance Pay Rules Must Employers Follow in Canada?

Which Employees Qualify for Severance Pay?

• Have worked continuously for the same employer for at least 12 months under federal rules, or five years in many provinces such as Ontario.
• Are dismissed without cause.
• Work for an employer with payroll over the required threshold, for example CAD 2.5 million in Ontario.
• Have not refused a reasonable alternative position offered by the employer.
• Are not covered by a valid fixed-term contract which expires naturally.

What Are the Legal Timelines for Paying Severance?

Under the Canada Labour Code, payment must be made within 30 days after the last day of work or on the next regular payday, whichever comes first.

Provinces follow similar timelines. In Ontario, severance must be included in final pay, due within seven days of termination or on the next regular pay date. Employers should ensure all final wages, including vacation pay, notice pay, and severance, are processed together to avoid penalties or disputes.

What Penalties Apply if Severance Is Not Paid Correctly?

Failure to pay severance correctly leads to significant compliance risks, including:

• Government fines and penalties issued by employment standards authorities.
• Interest on unpaid amounts.
• Employee claims before tribunals or courts, with orders for back pay and damages.
• Reputational harm, especially where bad faith is found.

Each province enforces its own penalties. Non-compliance often escalates into costly legal proceedings.

Does Outsourcing Employment via an EOR Change Severance Liability?

Yes. When a company uses an Employer of Record in Canada, the EOR becomes the legal employer. The EOR administers severance and ensures compliance with federal and provincial labor laws. The client company directs day-to-day work but remains shielded from direct statutory employment obligations, including severance.

This structure allows expansion into Canada without a local entity or deep knowledge of complex labor rules, while ensuring employees receive full statutory entitlements on time.

Be 100% Compliant in Offering Severance with Playroll

Severance rules in Canada differ across provinces, and small mistakes in timing or calculation lead to penalties. Playroll keeps your business compliant by managing every step, from eligibility checks to final payment, across federal and provincial regimes.

With Playroll, you hire confidently across Canada knowing every legal requirement is covered. The platform automates calculations, ensures prompt payments, and provides full transparency for employers and employees. Partner with Playroll to simplify compliance and protect your business at every step.