​What is the Alberta Severance Pay?

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When it comes to getting a job in Canada, there are so many things a job seeker has to put into consideration. Some of them include payment negotiation, working terms and conditions, benefits, etc. Severance pay is not left out. As an employee in Alberta, you must be aware of the total package you get when you lose your job.

Most job seekers are skilled when it comes to negotiating salary and benefits when applying for a job. Sadly, some do not know they can negotiate some payment such the severance pay. This brings us to what severance pay is and how to go about it in Alberta, Canada.

What is Severance Pay?

Severance pay is a settlement or an agreement most employers offer that outlines the financial terms on which an employee will leave the company due to employment termination.

Generally, severance agreements are not required by the law. Most employers that offer them do so out of goodwill or to be competitive in their industries. Some of the terms included in a severance agreement include Continuing insurance benefits, assistance finding another job, and other perks. 

As an employee, you can negotiate anything you feel will make your transition back into the labour market bearable. Also, most severance packages offer one-two weeks of paid salary for every year worked.

Note that you only have about 21 days to accept a severance agreement. Once you sign the agreement, you have seven days to change your mind.

A severance package can also come in the form of commissions, gym membership, dental benefits, bonuses, vacation pay, pension contributions, RRSP contributions, etc.

Severance Pay in Alberta

Under the Alberta labour law, employees who have been at their jobs for more than the customary probatory period (3months) are entitled to some form of a severance package. So, if your employment is terminated, you have legal rights under both federal and provincial law to receive a severance package. 

Once your employment is terminated, ensure to contact an Alberta employment lawyer to get advice. The Alberta law requires an employer to notify an employee of termination or issue severance pay instead of notice.

Before termination, employees and employers must notify each other of their intention to end the employment. On the part of the employer, he/she may terminate the employment by issuing them.

  • Termination notice
  • Termination pay 
  • A combination of both termination notice and termination pay

Termination Notice

Note that no notice is required from either party if the work period is 90 days or less. Also, termination notice is not necessary for seasonal workers or task-specific employees.

The termination notice duration depends on the duration the employee has been working for the employer. Employers must pay the employee’s earnings within 10-days after the end of the pay period where the termination happened. Alternatively, the employer can pay 31 consecutive days after the last day of employment.

While this is ongoing, neither earnings nor other terms and conditions of employment can be reduced. Note that your employer cannot compel you to use benefits such as vacation or overtime during the termination notice period unless both parties agree to it.

Typically, for an employee who has spent about ninety days of employment, the employer must either give a one-week notice of termination or pay weeks’ wages as severance pay. Employees with a year of work are entitled to two weeks’ notice or pay. Every extra year of employment adds a week’s notice or payment to the maximum of eight weeks.

Severance Eligibility in Alberta

Several factors influence the eligibility requirement and amounts of severance pay an employee is entitled to. Some of these factors include:

  • Reason for termination
  • Duration of unemployment
  • Age
  • Duration of employment
  • Employment insurance coverage
  • Nature of work
  • Tax on Severance Pay

Tax on Severance Pay

The CRA requires employees to pay income tax on any severance package. However, the amount of taxes depends on the amount of the severance package and whether you want to receive it as a whole or over time. 

Note that you can defer taxes on a severance package by putting it in an eligible retirement or pension fund. Also, any legal fees you spend to get your severance package can be deducted from your taxes.

Conclusion

Once you are terminated from your job, negotiating your way out is essential as there is most likely room for a bargain. Ensure to research thoroughly on which severance benefits your company is expected to offer. Once you know them, you can maximize them to your advantage. 

Notably, it is crucial to know how to effectively use your severance lump-sum payment to avoid paying a hefty tax on it. Remember to ask relevant questions and push further for more; you have nothing to lose. You’ll never know what you might get unless you request it.

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Avid researcher, freelance writer, and personal finance enthusiast passionate about financial education and literacy.

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Kareena Maya

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Kareena Maya is a freelance writer focused on the personal finance and travel spaces. He frequently writes about credit cards, banking, student loans, insurance, travel rewards and more. His work has been featured in publications such as Forbes Advisor, Bankrate, Credit Karma, Finance Buzz, The Ascent and Student Loan Planner.

Kareena Maya is a freelance writer focused on the personal finance and travel spaces. He frequently writes about credit cards, banking, student loans, insurance, travel rewards and more. His work has been featured in publications such as Forbes Advisor, Bankrate, Credit Karma, Finance Buzz, The Ascent and Student Loan Planner.