Our customers can best use our service if they understand the REASON why courts award severance pay and why employers pay severance packages. You have a contract with your employer. Therefore, if your employer decides to terminate the contract, they have to compensate you for terminating that contract. Severance pay is intended to put you in the same position that you would have been if you had been given proper notice.
Severance pay at its most basic includes the wages and vacation pay that you would have received if you had stayed with your employer during the length of the notice period. Included in your severance pay may also be other employment benefits (like bonuses) that would have been paid to you during this time.
This means that it should be more than just your cash salary, you have the right to receive all of the benefits and other compensation you would have received if you had kept working up to the end of your notice period.
If, for example, your employer owes you a notice period of four months, and your employer chooses to pay you a severance package, your payment should be more than four months’ of your salary.
It should also include:
- bonuses you would have earned and been paid during the four months
- stock options you would have earned that would have vested during the four months
- RRSP contributions
- medical coverage
- extended medical coverage
- dental coverage
- long-term disability insurance
- short-term disability insurance
- life insurance
If you have a fixed-term employment contract, severance pay is based on the wages and benefits that you would have earned until the end of the fixed term, unless there is an early termination clause.
Thicken My Wallet, a blog providing general financial advice, gives general advice on severance pay here: http://www.thickenmywallet.com/blog/wp/2009/02/10/severance-pay-what-am-i-entitled-to-part-i/
