Guide to Global Payroll Management

TERMINATION OF EMPLOYMENT
LIEU OF NOTICE
When employment is being terminated, the employer must either:
 give the employee a period of notice; or
 pay the employee wages in lieu of the notice period (known as pay in lieu of notice or
termination pay).
The period of notice due will depend on:
 where the employee works, i.e. under which jurisdiction; and
 how long the employee has been employed with the firm.
When providing the employee with notice of termination, the notice must be in writing and
served in person or by registered mail. Where the employer is unable to or chooses not to
provide the notice period, the employee must be paid in wages lieu of notice.
If terminating employment for "just cause", i.e. willful misconduct, disobedience or neglect of
duty that has not been condoned by the employer, no notice of termination is required.
However, since just cause can be difficult to prove to the satisfaction of the courts, the employer
should seek legal advice before proceeding with termination on these grounds.
The following should be noted concerning the period of notice:
1 At no time can any part of the vacation entitlement be used as part of the period notice.
2 There can be no reduction in pay during the period of notice.
3 Payment in lieu of notice will be based on basic wages without overtime. If an
employee works variable hours, an average should be determined and paid.
4 If the employee works past the period of notice, a new period of notice must begin.
5 The CRA considers wages in lieu of notice are considered to be regular income and are
subject to source deductions. Revenu Québec considers wages in lieu of notice to be a
retiring allowance, subject to provincial tax using the lump sum tax rates.
6 If paid with the final pay period earnings, regular deductions would apply. CPP
deductions would be determined by using the tables or the manual method. There
would not be any QPP deductions as a result of the fact that it is a retiring allowance.
7 EI and QPIP premiums would be deducted at the fixed premium rate. Remember to
check the employee has not reached the annual maximum for CPP, EI, and QPIP.
8 Federal and provincial income tax for all provinces with the exception of Quebec
provincial tax would be calculated using the bonus method (due to the tax liability of
such a payment). Revenu Québec allows employers to use the Quebec provincial lump
sum tax rates at source. Quebec employers can, however, choose to use the bonus
method if requested by the employee.
9 Wages in lieu of notice are reported on a T4 slip in box 14 and box O on an RL-1 slip
using Code RJ.
10 The tables on the following pages outline the regulations for individual terminations for
each jurisdiction.

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Guide to Global Payroll Management - 2020

Table of Contents for the Digital Edition of Guide to Global Payroll Management - 2020

Guide to Global Payroll Management - 2020 - 11-124

Guide to Global Payroll Management - 2020

Table of Contents for the Digital Edition of Guide to Global Payroll Management - 2020