deductions apply to Federally Regulated Employee severance pay
A Federally Regulated Employee is an employee of a company that operates within a sector covered by the Canada Labour Code (CLC). The CLC sets out basic rights and responsibilities for employees and employers, including wages, health and safety rules, statutory holidays, and severance pay. A telecommunication employee, for example, would be classified as a Federally Regulated Employee because the CLC governs telecommunications in the country.
The severance pay that a telecommunication employee receives upon termination of employment is taxed like any other salary. Depending on the circumstances, it may be better for the employer to include severance pay as part of the employee’s regular wage in order to minimize taxes, or the company may prefer to separate out the severance pay and make it taxable separately. A consultation with an employment lawyer can help companies determine what is best for their business and workers.
Severance pay is taxable in the year in which it is received. Whether Federally Regulated Employee severance pay is included in the employee’s regular wages or paid separately, it should be accounted for and reported on the income tax return of the individual. The amount of severance pay that is eligible for taxation is determined by the length of service of the employee, as well as any age adjustments. An age adjustment allowance is an amount that consists of twenty-five percent of the otherwise applicable severance pay allowance for each full three months of creditable service beyond the final full year of service.
What deductions apply to Federally Regulated Employee severance pay?
Generally, severance pay is paid in one lump sum within seven days of cessation of employment or on the next normal pay day after cessation of employment. However, with certain small exceptions, a payment plan is permitted for severance pay.
When a worker is involuntarily separated from a qualifying time-limited appointment, the agency that employs the individual must record on the appointment document the number of weeks of severance pay that the person has already received and deduct it from the amount of telecommunication employee severance pay that will be payable. This is in accordance with 5 U.S.C. 5595 and 5 CFR Part 550, Subpart G.
If a worker who is entitled to severance pay later accepts a new position with the Federal Government or government of the District of Columbia and is in a nonpay status at the time of separation, the agency that employs the individual must recompute the severance pay allowance, based on the rate of basic pay received by the employee at the time of his or her involuntary separation from the qualifying time-limited appointment, and deduct any severance pay previously received from the recomputed severance pay allowance.
If you’re being laid off, or have been fired, and your company is not giving you the severance package that the law requires, contact an employment lawyer at Samfiru Tumarkin LLP right away. If your situation is considered wrongful dismissal, we can analyze your case and provide you with the compensation you deserve.