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Last Updated On – 02-10-2026
Under Ontario’s Employment Standards Act, 2000 (ESA), statutory severance pay is not automatically available simply because an employee loses their job.
An employee generally qualifies when:
- Their employment has been “severed” within the meaning of the ESA
- They have worked for the employer for five years or more and
- Either the employer has a payroll of at least $2.5 million, or 50 or more employees have their employment relationships severed within six months because of a qualifying permanent closure of all or part of the business.
The $2.5 million test is a payroll test, not an employee-headcount test. A business with fewer than 50 employees can therefore still owe statutory severance pay.
Ontario statutory severance is generally calculated as:
Regular wages for one regular work week × (completed years of employment + completed months ÷ 12)
The maximum statutory severance entitlement is 26 weeks’ regular wages.
Ontario’s official severance-pay guidance should be checked alongside the current Employment Standards Act, 2000 when assessing an entitlement.
Severance Pay, Termination Pay and Common-Law Notice Are Not the Same Thing
One of the most important distinctions for an Ontario employee is that termination pay and severance pay are separate ESA entitlements. A third concept, common-law reasonable notice, may also apply to some non-unionized employees.
| Entitlement | What it is | Basic eligibility | How much? |
| ESA termination notice/pay | Notice before employment ends, or pay instead of notice | Generally applies after at least 3 months of continuous employment, subject to exceptions | Usually 1 to 8 weeks under the individual termination schedule |
| ESA severance pay | Additional compensation recognising long service and employment loss | Generally 5+ years plus the $2.5m payroll test or qualifying 50+ employee closure test | Completed years plus completed months/12, capped at 26 weeks |
| Common-law reasonable notice | Potential contractual damages where adequate notice was not provided and no enforceable contract validly limits the entitlement | Depends on the employment contract and circumstances | No statutory formula; assessed individually |
For individual terminations, Ontario’s ESA notice schedule generally runs from one week after at least three months’ continuous employment to a maximum of eight weeks after eight or more years.
Termination pay is the amount an employee would have received during the statutory notice period when adequate working notice is not provided.
Employers must also continue required benefit-plan contributions during the statutory notice period, and vacation pay can apply to termination pay.
Severance is different. An eligible employee may be entitled to both termination pay and statutory severance pay.
One Employee, Three Different Calculations
Consider an illustrative employee who:
- Earns $1,200 in regular wages each week
- Has completed 10 years of employment when dismissed immediately
- Works for an employer that meets the ESA payroll test and
- Is not covered by an ESA exemption.
Because the employee has at least eight years of service, the individual ESA termination notice entitlement is eight weeks.
| Calculation | Illustrative result |
| ESA termination pay | 8 × $1,200 = $9,600, before applicable vacation pay |
| ESA severance pay | Approximately 10 years + the applicable statutory notice period counted as service, producing roughly 10⅙ weeks × $1,200 = $12,200 |
| Common-law compensation | Cannot reliably be calculated from salary and tenure alone |
Ontario’s severance guidance confirms that the statutory notice period may count when calculating length of employment for severance purposes even where the employee is paid instead of working that notice.
For the third figure, imagine only as an example that a proper assessment of the employee’s contract and circumstances determined a 10-month reasonable-notice period.
At $1,200 a week, the base salary represented by 10 months would be approximately $52,000 before considering bonuses, benefits, mitigation and other compensation.
That is not a prediction that a 10-year employee is entitled to 10 months.
Common-law notice does not use a month-per-year formula, and ESA minimum payments must be considered when calculating the ultimate amount payable rather than simply stacking every figure together without adjustment.
Who Qualifies for Statutory Severance Pay in Ontario?
The first part of the test is length of employment.
An employee generally needs five or more years of employment. Employment for this purpose can include periods that are not continuously active, depending on the ESA rules.
Certain periods of inactive employment can therefore still count.
The employee must then satisfy one of two employer-based tests.
The $2.5 Million Payroll Test
The employer qualifies where its payroll is at least $2.5 million under the ESA calculation.
The Act provides alternative payroll calculations, including wages over the relevant four-week period multiplied by 13, or wages during the employer’s last or second-last fiscal year.
Ontario policy applies the payroll test beyond merely looking at workers physically located in Ontario where the relevant businesses are treated as one employer under the ESA.
There is no rule saying every employer with fewer than 50 employees is exempt.
A company with 20 employees could potentially meet the $2.5 million payroll test. Conversely, headcount by itself does not automatically establish this branch of eligibility.
The 50-Employee Permanent-Closure Test
An employee can also qualify where:
50 or more employees have their employment relationships severed within six months as a result of the permanent discontinuance of all or part of the employer’s business at an establishment.
This rule should not be confused with Ontario’s separate mass-termination notice rules, which use a four-week period and can require 8, 12 or 16 weeks of notice.
What Does “Severed” Mean Under Ontario’s ESA?
“Severed” has a specific statutory meaning. It is broader than simply being handed a termination letter.
Employment may be considered severed where an employer dismisses an employee or stops employing them, including certain bankruptcy or insolvency situations.
It can also arise after a constructive dismissal if the employee resigns within a reasonable time in response to the employer’s fundamental change.
Certain lengthy layoffs can amount to severance as well. Another route applies when an employee is laid off because all of the employer’s business at an establishment is permanently discontinued.
There is also a lesser-known rule for resignation during an employer’s notice period.
An employee who has received notice of termination may, in qualifying circumstances, give at least two weeks’ written notice of resignation taking effect during the employer’s statutory notice period and preserve their severance entitlement.
Because the wording and timing requirements matter, employees considering an early resignation after receiving notice should verify the rule before choosing their departure date.
How to Calculate Ontario Severance Pay?
The basic calculation is:
Weekly regular wages × years of employment
For the employment period, add:
Completed years + completed months ÷ 12
Only completed months in the partial year are used.
Example 1: Six Years of Service
An eligible employee earns $1,000 per week and has six completed years for severance purposes.
6 × $1,000 = $6,000
The statutory severance amount is $6,000.
Example 2: Eight Years and Six Months
An eligible employee earns $1,200 per week and has eight completed years and six completed months.
8 years + 6/12 = 8.5 years
8.5 × $1,200 = $10,200
The statutory severance amount is $10,200.
Example 3: The 26-Week Maximum
An eligible employee earning $1,500 per week has 30 years of employment.
The mathematical result would exceed 26 weeks, but the ESA maximum applies:
26 × $1,500 = $39,000
The maximum statutory severance in this example is $39,000.
What If There Is No Regular Work Week?
For an employee without a regular work week, or an employee paid on another basis such as certain commission arrangements, the ESA uses an averaging method.
Regular weekly wages are generally based on the employee’s average regular wages during weeks actually worked in the relevant 12-week period preceding severance or, for applicable layoff situations, preceding the beginning of the layoff.
When Must Ontario Severance Pay Be Paid?
Ontario employers generally must pay statutory severance by the later of:
- Seven days after the employment is severed or
- The employee’s next regular payday.
An employer cannot simply decide to spread statutory severance over several months.
Instalments are allowed where the employee agrees in writing or electronically, or where the Director of Employment Standards approves the instalment arrangement. The payment period cannot exceed three years.
If the employer defaults on an instalment, the unpaid balance can become immediately due.
This replaces the incorrect idea that severance instalments always have to be completed within 60 days.
Are There Exemptions From Ontario Severance Pay?
Yes. Meeting the five-year and employer payroll requirements does not guarantee payment in every situation.Ontario’s regulations contain specific exclusions.
They can include certain employees guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned, employees who refuse qualifying reasonable alternative employment, certain construction employees and other defined circumstances.
The statutory wording is important. Being dismissed “for cause” in an employer’s letter does not automatically prove that the stricter ESA wilful-misconduct exemption has been established.
What Happens After a Long Temporary Layoff?
A lengthy temporary layoff can sometimes become a termination or severance under the ESA.
Historically, an important severance threshold has been a layoff lasting 35 or more weeks in a period of 52 consecutive weeks, subject to the detailed statutory conditions.
Ontario changed this area effective November 27, 2025.
For some non-unionized employees, an employer and employee may now enter into a written agreement for an extended temporary layoff, but the Director of Employment Standards must approve it before the relevant threshold is crossed.
An approved extended layoff cannot continue indefinitely and generally cannot reach 52 or more weeks in a 78-week period.
That means a statement that “35 weeks in 52 always automatically produces severance” is no longer sufficiently precise in 2026.
Mass Termination Is a Different Rule
Ontario also has special rules where an employer terminates large numbers of employees at an establishment.
Subject to statutory exceptions, where 50 or more employees are terminated in a four-week period, the required notice can be:
| Number of employees terminated | ESA mass-termination notice |
| 50–199 | 8 weeks |
| 200–499 | 12 weeks |
| 500 or more | 16 weeks |
The employer also has obligations involving the Form 1 – Notice of Termination of Employment, and notice does not begin to run until the Director receives the required information.
Since July 1, 2025, affected employees must also receive the prescribed Employment Ontario career-support information at the required time.
Mass-termination notice should not be confused with statutory severance eligibility. The 50 employees in four weeks test above concerns notice.
The severance-pay closure test looks at 50 or more employment relationships severed in six months because of a permanent discontinuance.
Part-Time, Contract and Probationary Employees
Part-time status by itself does not exclude someone from ESA severance.
A part-time employee can qualify where the service and employer tests are satisfied. The amount depends on the employee’s regular weekly wages calculated under the ESA.
Fixed-term contracts require more care. The circumstances in which the contract ends, the wording of the agreement and ESA exemptions can affect termination rights.
A genuine probationary employee will ordinarily not have the five years of employment needed for Ontario statutory severance. However, the label “probation” does not by itself determine all other termination rights.
What If an Employee Is on Pregnancy, Parental or Medical Leave?
Taking an ESA-protected leave does not normally erase the employment relationship or reset an employee’s service.
An employer also cannot terminate an employee because they exercised a protected ESA leave right. A genuine termination for reasons unrelated to the leave may still occur, but applicable termination and severance rules continue to matter.
Employees dealing with the interaction between job-protected leave and termination may also want to understand the separate rules for parental leave in Ontario.
Does Finding a New Job Quickly Cancel Severance Pay?
Generally, statutory ESA severance is not reduced simply because an employee quickly obtains another job.
Common-law wrongful-dismissal damages are different.
A dismissed employee pursuing common-law damages generally has a duty to make reasonable efforts to find comparable replacement employment. Earnings from replacement employment during the relevant notice period may reduce common-law damages.
This is another reason statutory severance and a broader “severance package” should not be treated as interchangeable terms.
Is Severance Pay Taxable in Ontario?
Yes. The tax treatment depends partly on what each component of the termination package actually represents.
A genuine severance payment arising from the loss of employment can generally be treated by the CRA as a retiring allowance.
For a Canadian resident outside Quebec, the CRA’s current lump-sum withholding rates for a retiring allowance are:
| Total retiring allowance expected during the calendar year | Withholding rate |
| $5,000 or less | 10% |
| $5,001–$15,000 | 20% |
| More than $15,000 | 30% |
The applicable percentage is generally applied to the payment rather than using those figures as progressive income-tax brackets.
For example, a $20,000 taxable retiring allowance would normally have 30%, or $6,000, withheld, leaving $14,000 before any other relevant deductions or adjustments.
That does not mean the employee’s final tax liability on the payment is exactly 30%.
Withholding is a prepayment of income tax. The employee’s actual liability depends on total taxable income, deductions and credits for the year.
Too much withheld can contribute to a refund; too little can result in tax owing when the return is assessed. The underlying refund process is explained further in BusinessIn.ca’s coverage of how Canadian income-tax refunds work.
Termination Pay Is Taxed Differently
Termination pay in lieu of notice is normally employment income, rather than a retiring allowance.
Normal payroll deductions therefore apply according to its classification, including applicable income-tax, CPP and EI treatment.
Salary continuance is likewise generally treated as employment income because regular remuneration continues over a period instead of being paid as a retiring allowance.
Employees receiving a package containing several components should look at how the settlement allocates amounts among:
- Termination pay
- Statutory severance
- Additional damages
- Bonuses or commissions
- Accrued vacation
- Salary continuance and
- Other negotiated amounts.
The tax result can differ between components.
Can Severance Be Transferred to an RRSP?
Sometimes.
The special retiring-allowance rollover rules are now mainly relevant to older periods of service.
An eligible portion can generally include:
$2,000 for each year or part-year of service before 1996, plus potentially another $1,500 for each year or part-year before 1989 for which the employee did not have vested employer pension or deferred-profit-sharing-plan benefits meeting the applicable rule.
An eligible amount can potentially be transferred directly to an RRSP without using ordinary RRSP deduction room.
A non-eligible retiring allowance can generally only receive normal RRSP treatment to the extent the employee has available contribution/deduction room.
Because most current employees have little or no pre-1996 service, the special rollover is far less common than it once was.
How Does Severance Affect Employment Insurance?
Severance and termination payments can affect when EI benefits become payable.
Under the normal EI allocation rules currently in force, earnings paid because of a separation, including severance pay, pay in lieu of notice and certain vacation pay, are generally allocated from the week of separation based on the employee’s normal weekly earnings.
This allocation can postpone the point at which EI benefits begin.
A temporary federal measure suspended this normal treatment for qualifying benefit periods from March 30, 2025 to April 11, 2026. That temporary measure has now ended, so it should not be presented as the current rule in September 2026.
Employees should generally apply for EI promptly rather than waiting for a severance payment to be exhausted. Service Canada determines how separation earnings are allocated to the claim.
BusinessIn.ca also has background coverage of Employment Insurance in Ontario, although current Service Canada rules should be used for benefit amounts and eligibility because EI figures change over time.
Lump Sum or Salary Continuance?
A termination package can be structured in different ways.
With a lump-sum severance arrangement, the agreed amount is paid at once or in permitted instalments. Benefit coverage may end or be handled separately depending on the statutory obligation and agreement.
With salary continuance, regular payments may continue for a defined period. Depending on the arrangement, employment benefits, pension participation or other plans may continue as well.
The distinction can affect:
- Timing of cash flow
- Income-tax deductions
- CPP and EI treatment
- Benefit coverage
- Pension contributions
- Mitigation provisions and
- EI allocation.
An employee comparing two offers should therefore compare the net economic value and conditions, not simply the headline dollar amount.
Common-Law Severance and Reasonable Notice
The ESA establishes minimum employment standards. For some non-unionized employees, those minimums are not the end of the analysis.
Unless an enforceable employment contract validly limits termination rights, a dismissed employee may have a claim for common-law reasonable notice or damages instead of notice.
The traditional factors originate from Bardal v. Globe & Mail Ltd. and include:
- The character of the employment
- Length of service
- The employee’s age and
- The availability of similar employment having regard to the employee’s experience, training and qualifications.
This is where age can matter.
Age does not form part of Ontario’s statutory ESA severance formula.
There is also no automatic “one month for every year worked” rule.
Is Common-Law Notice Capped at 24 Months?
Ontario decisions often describe approximately 24 months as the upper end of the ordinary range, but it is not an absolute legal cap.
The Ontario Court of Appeal has recognised that exceptional circumstances can support a period exceeding 24 months.
That distinction is important. Saying that Ontario employees can receive “up to 24 months” as though 24 months were an unbreakable statutory maximum is inaccurate.
Bonuses, Commissions and Benefits Can Matter
Reasonable-notice damages can extend beyond base salary.
Depending on the employment agreement and compensation plan, an employee may have claims relating to:
- Bonuses
- Commissions
- Health and dental benefits
- Pension contributions
- Stock or incentive compensation and
- Other compensation that would have been earned during the reasonable-notice period.
The precise result depends on the contractual wording and the nature of the particular benefit.
Employment Contracts Can Change the Result
An employment contract may attempt to limit termination entitlements to specified amounts or ESA minimums.
The question is whether the termination provisions are legally enforceable.
A clause that violates employment standards or otherwise fails to displace the common-law presumption may not achieve the employer’s intended limitation. Clause enforceability is highly fact-specific and can change as Ontario appellate decisions develop.
What Should You Do After Receiving a Severance Offer?
The first couple of days after receiving a termination package are primarily about preserving information and understanding what has actually been offered.
During the First 48 Hours
Keep copies of the termination letter, employment agreement, compensation plans, bonus documents, recent pay statements, benefit information and any amendments to the employment contract.
Separate the package into its components. Identify what the employer calls:
termination pay, statutory severance, accrued vacation, bonuses, benefits, salary continuance and additional compensation.
Do not assume that an employer’s use of the generic word “severance” means every legal entitlement has been included.
Check the deadline contained in the offer, but distinguish an employer’s deadline for accepting an enhanced package from amounts already required by the ESA.
Understand the Release Before Signing
Enhanced severance offers commonly require the employee to sign a release.
A release can prevent the employee from later pursuing certain claims relating to the employment or dismissal. Its scope may cover more than the additional money immediately visible in the offer.
Employees should understand what rights are being released before signing.
An employer should not treat a release as a condition for paying statutory minimum amounts that are already legally due simply because it wants the employee to waive additional claims.
ESA Claim Deadline vs. Court Deadline
Ontario employees need to pay attention to limitation periods.
An Employment Standards claim generally must be filed within two years of the alleged ESA contravention.
A civil wrongful-dismissal lawsuit is also subject to Ontario’s limitation legislation.
The basic limitation period is generally two years from when the claim is discovered, but identifying the precise start date can involve legal issues and exceptions.
Employees should therefore not assume they automatically have two years from whichever date is most convenient.
There is another important choice.
An employee generally cannot pursue an ESA complaint seeking termination or severance pay and also maintain a civil wrongful-dismissal action seeking the same termination-related amounts from the same dismissal.
Ontario’s ESA contains election rules designed to prevent pursuing both routes for the same entitlement.
Where substantial common-law rights may exist, that choice can be important enough to assess before starting an ESA claim.
Frequently Asked Questions
How many weeks of severance pay do you get in Ontario?
Eligible employees receive one week’s regular wages for each completed year of employment plus a proportionate amount for completed additional months, up to a maximum of 26 weeks.
Do you automatically get severance after five years in Ontario?
No. Five years of employment satisfies only one part of the test. The employer must also meet the $2.5 million payroll test or the qualifying 50-or-more employee permanent-closure test, and no applicable exemption can remove the entitlement.
Do companies with fewer than 50 employees pay severance?
They can. An employer can owe statutory severance regardless of headcount where the employee has at least five years of qualifying employment and the employer satisfies the $2.5 million payroll test.
Is termination pay the same as severance pay?
No. Termination pay replaces statutory termination notice that was not worked. Severance pay is a separate ESA entitlement for qualifying longer-service employees.
Does age affect severance pay in Ontario?
Age does not affect the ESA statutory severance calculation. Age can, however, be relevant when a court assesses common-law reasonable notice.
Can Ontario severance be paid in instalments?
Yes, but not simply at the employer’s discretion. Instalments generally require the employee’s written or electronic agreement or approval from the Director of Employment Standards, and the payment schedule cannot exceed three years.
Is severance pay taxable?
Yes. True severance can generally be treated as a retiring allowance for CRA purposes, while termination pay in lieu of notice is normally treated as employment income. The tax withheld when the payment is made is not necessarily the employee’s final tax liability.
Does severance delay EI?
It can. Under the normal EI rules currently applicable in September 2026, separation earnings such as severance and pay in lieu of notice are generally allocated from the week of separation and can postpone EI payments.
Can I get severance if I find another job immediately?
Finding another job does not ordinarily eliminate statutory ESA severance. Replacement earnings can, however, affect common-law wrongful-dismissal damages because of the duty to mitigate.
Can I resign during my notice period and still receive severance?
Potentially. An employee who has received employer notice and then provides at least two weeks’ written resignation notice taking effect during the employer’s statutory notice period can preserve ESA severance in qualifying circumstances. The timing requirements should be checked carefully.
Is 24 months the maximum severance in Ontario?
There is a 26-week maximum for statutory ESA severance. Common-law reasonable notice is different. Around 24 months is often treated as the upper end of the ordinary common-law range, but Ontario courts have said it is not an absolute cap and exceptional cases can exceed it.
