Nobody likes to lay off staff. However, doing so properly can ease the discomfort felt by all parties concerned, and helps the employee receive the support they may need as smoothly and quickly as possible.
Payroll must ensure compliance with their jurisdiction’s employment standards and payroll rules and regulations when processing final payments. Here is how employers can ensure they follow proper steps when terminating or laying off employees due to tariff-related downsizing:
Final Payment Components
- Outstanding Wages:
- Pay all regular hours, overtime and approved expenses until the termination date.
- Include payments owed but not yet paid, such as banked overtime and statutory holiday pay.
- Termination Pay:
- If a working notice is not provided, pay statutory notice (e.g., two weeks for federally regulated employees after three months of service).
- Provincial rules vary.
- Severance Pay:
- Legislated in two jurisdictions (Ontario and under the Canada Labour Code III).
- Accrued Benefits:
- Vacation Pay: Payout unused vacation days at the employee’s current rate.
- Bonuses and commissions: Pay if contractually owed (even if termination occurs before the payout date).
- Other Entitlements:
- Extended health benefits, if required by contract or policy.
- Pension and RRSP contribution, as applicable).
Record of Employment (ROE)
- Deadline: For example, for pay periods that are weekly, bi-weekly (every two weeks) or semi-monthly, the employer has five calendar days after the end of the pay period in which an employee’s interruption of earnings occurs to issue an electronic ROE.
- Code “A” (Shortage of Work): Use for tariff-related layoffs to ensure EI eligibility.
- Electronic submission: Submit via Service Canada’s ROE Web portal.
Best Practices for Payroll Teams
- Audit contracts: Verify whether employment agreements or collective bargaining agreements require enhanced severance beyond statutory minimums.
- Communicate clearly: Provide a detailed pay statement breaking down termination pay, severance and deductions.
- Document everything: Keep records of ROE submissions, final payments and employee acknowledgments.
Pitfalls to Avoid
- Missing ROE deadlines: Delays can impact employees’ EI claims.
- Underpaying final payments: Risk of wrongful dismissal lawsuits.
- Ignoring employment standard rules, such as missing deadlines to process final payments.
Actionable Next Steps
- Use a payroll calculator: Tools like the CRA’s Payroll Deductions Online Calculator (PDOC) help to ensure accurate tax withholdings.
- Consult an employment lawyer for complex cases (e.g., mass layoffs, cross-provincial employees).
- Create a termination checklist: The checklist improves record-keeping for audits and supports remaining staff through transparent transitions.
For more details, consult the National Payroll Institute’s Termination Payroll Best Practices Guidelines.
This article is excerpted from Dialogue Magazine, which is published exclusively for National Payroll Institute members. This is one of the many membership perks they provide.
Photo by Luca Bravo on Unsplash.