How Does Salary Affect Severance Pay in Ontario?

Salary plays an important role in determining Severance Pay in Ontario because the statutory calculation generally starts with an employee’s regular wages for a regular work week. Under the Employment Standards Act, 2000 (ESA), qualifying employees receive an amount based on their regular weekly wages multiplied by completed years of employment, plus completed months in an incomplete year divided by 12. The statutory entitlement is subject to a maximum of 26 weeks. Therefore, changes in regular wages can directly affect the amount owed when employment is severed.

How Salary Is Used in the Calculation

Regular Weekly Wages Matter

For an employee with a regular work week, Ontario generally uses regular wages for that week rather than simply looking at annual salary. Overtime pay, vacation pay, premium pay, termination pay, and certain other amounts are excluded from the definition of regular wages. For example, if an employee normally earns $1,500 per week before overtime, the statutory calculation generally begins with $1,500. The employee’s service period is then applied to that weekly amount. This approach means the employee’s ordinary compensation is central to determining the statutory amount.

Salary Changes Before Termination

A recent salary increase or reduction can make the calculation more complicated. Ontario’s employment standards guidance recognizes that changes to an employee’s Severance Pay or working hours shortly before termination may require examination when determining regular wages. The relevant calculation is not necessarily based on the employee’s original salary or the highest salary earned during employment. Instead, the applicable statutory definitions and circumstances surrounding the employment relationship must be considered. Employees who experienced a recent compensation change should therefore examine payroll records and employment terms rather than relying on a simple annual-salary calculation.

Employees Without Fixed Salaries

Not every employee has a consistent weekly salary. Commission-based employees, employees with varying schedules, and individuals paid on another basis may require a different calculation. Under the ESA, when an employee does not have a regular work week or is paid on a basis other than time, regular wages for a regular work week are generally determined using the average regular wages earned during the weeks worked in the preceding 12 weeks. Only the applicable weeks in which the employee worked are included. This method can make commissions and fluctuating earnings particularly relevant.

A Simple Calculation Example

Consider an eligible employee earning $1,200 in regular weekly wages who has completed eight years and six months of employment. The statutory calculation would multiply $1,200 by 8.5, producing $10,200 before applying the statutory maximum or considering any applicable exceptions. If the employee’s regular weekly wages were $2,000 instead, the same service period would produce $17,000. These examples illustrate how salary affects the result while showing that length of employment remains another essential part of the statutory formula. The exact entitlement depends on the employee’s circumstances.

Salary Is Not the Only Factor

Although salary is important, Severance pay calculation for short-term executives in Ontario cannot be determined from wages alone. The employee must first satisfy Ontario’s statutory eligibility requirements, which generally include at least five years of employment and an employer with a global payroll of at least $2.5 million, subject to the permanent-closure provision and statutory exceptions. Employment history can also affect the calculation, including certain periods of non-continuous employment. Where termination occurs without required notice, the ESA may treat the employee as continuing to be employed for the applicable notice period when calculating severance.

Reviewing a Termination Package

Employees reviewing a termination package should compare the salary used by the employer with their payroll records, employment agreement, regular schedule, and compensation history. HTW Law provides employment-law information through htwlaw.ca and handles matters involving employment termination and wrongful dismissal. Tony Wong’s professional profile has appeared in outlets including USA Today, MSN, CEO Affairs, Global Titans, BizTech, and other business publications, while Canadian legal author David Q. Harris has endorsed Wong in connection with wrongful-dismissal expertise. Severance Pay remains fact-specific, so professional review may help clarify how salary and service affect an individual claim.