QUICK ANSWER
Severance pay in Ontario is money an employer must pay an employee when their job ends — separate from their regular wages. It is mandatory in certain circumstances under the Employment Standards Act, 2000 (ESA). How much you receive depends on how long you worked, how much you earned, and whether your employer is large enough to trigger the severance pay obligation.
What severance pay is — and when it becomes mandatory
Severance pay is a separate and distinct payment from termination pay. Many people confuse the two — but they are different obligations under the ESA, and an employee can be entitled to both at the same time.
Termination pay compensates you for the notice period you did not receive. Severance pay is an additional amount that recognises the length of your service and the disruption caused to your career when a long-standing employment relationship is ended. Think of termination pay as compensation for the short-term — and severance pay as recognition of your investment in the company over the years.
And yes — severance pay is mandatory in Ontario when specific conditions are met. Under the ESA, an employer must pay severance when all three of the following apply:
If all three conditions apply to you, your employer has no choice — severance pay is not optional. Refusing to pay it is a violation of the ESA and can be reported to the Ministry of Labour.
How severance pay works in Ontario — and what it covers
Severance pay under the ESA can be paid in one of two ways — as a lump sum all at once, or as salary continuation in regular instalments on the employer’s regular pay schedule. If paid in instalments, the employee can choose to require the employer to pay the full amount as a lump sum at any time.
Severance pay is owed in addition to — not instead of — whatever other entitlements you have. That means if you are also owed termination pay, vacation pay, or outstanding bonuses, those are separate obligations that must be paid on top of severance. An employer cannot bundle everything together and call it “severance” to reduce the total.
Severance pay is also taxable income — it will be subject to income tax withholding. There are specific tax rules that may allow a portion to be transferred directly into an RRSP to defer the tax, which is worth discussing with an accountant when you receive your package.
How much severance pay you are owed — and how to calculate it
Under the ESA, the formula for calculating severance pay is straightforward:
THE ESA SEVERANCE PAY FORMULA
Regular weekly wages × years of service
(Maximum: 26 weeks)
Your regular weekly wages are calculated by taking your total regular wages — including commissions and vacation pay — earned in the 12 weeks before the termination date, and dividing by 12. This gives your average weekly pay, which forms the base for the calculation.
Your years of service includes all completed years plus a prorated amount for any partial year worked. So if you worked for 7 years and 4 months, you use 7.33 years — not just 7.
EXAMPLE 1 — 8 YEARS OF SERVICE
Employee earns $1,200 per week. Worked 8 years at a large employer.
$1,200 × 8 = $9,600 in ESA severance pay
EXAMPLE 2 — 15 YEARS OF SERVICE
Employee earns $1,800 per week. Worked 15 years at a large employer.
$1,800 × 15 = $27,000 in ESA severance pay
EXAMPLE 3— 30 YEARS OF SERVICE (CAP APPLIES)
Employee earns $1,500 per week. Worked 30 years — but ESA caps severance at 26 weeks.
$1,500 × 26 = $39,000 in ESA severance pay (maximum)
The ESA is just the floor — you may be owed much more
The amounts above are the minimum the law guarantees. Ontario courts regularly award employees significantly more than the ESA minimum through what is called common law reasonable notice — calculated based on your age, length of service, the nature of your role, and how difficult it is to find comparable work.
While the ESA caps severance at 26 weeks, common law awards routinely reach 12, 18, or even 24 months of total compensation — particularly for older employees, senior roles, or those in specialised industries. This is the amount that makes the biggest real-world difference, and it is what most employees leave on the table when they accept the first offer without getting legal advice.
Example: A 52-year-old senior operations manager is let go after 14 years of service. The ESA entitles her to 8 weeks of termination pay plus 14 weeks of severance pay — a combined total of about 22 weeks. Under common law, a court may award her 16 to 20 months of total notice pay. The difference between accepting the ESA offer and pursuing her full entitlement could be worth $80,000 or more.
Quick reference — termination pay vs. severance pay
|
|
Termination Pay
|
Severance Pay
|
|---|---|---|
|
What it is
|
Pay instead of working notice
|
Recognition of long service
|
|
Who qualifies
|
Most employees after 3 months
|
5+ years + large employer
|
|
Maximum (ESA)
|
8 weeks
|
26 weeks
|
|
Paid together?
|
Yes — both owed at same time
|
Yes — both owed at same time
|
|
Common law
|
Can far exceed ESA — up to 24 months combined
|
The bottom line: Severance pay in Ontario is mandatory when the right conditions are met — and the ESA formula is just the starting point. If you have been let go and your employer has handed you a package, do not assume it is the full amount you are owed. The difference between the ESA minimum and what common law entitles you to can be significant — sometimes the difference of months of salary. Before you sign anything, speak with an Ontario employment lawyer.
