Many employers unintentionally delay severance payments to their employees, often due to good faith or lack of knowledge, thus exposing themselves to unnecessary liabilities for delayed severance payments.
When an employee ends their employment and is entitled to severance pay, the employer is typically required to pay the severance within 15 days from the termination of the employee-employer relationship. There are exceptions to this rule, such as a different date specified in a collective agreement, or if the employee needs to provide certain documents to be eligible for severance pay, like proof of residence or a medical certificate.
If severance pay is made within 30 days from the date it was due, it only accrues standard inflation adjustments. However, if the severance is not paid within this timeframe, it starts to accrue late payment penalties. These penalties include both inflation adjustments and an additional 20% on the total amount of severance and inflation adjustments for each month the severance remains unpaid.
These rules also apply when the severance payment is made by releasing funds accumulated in the employee’s various accounts. Most employer mistakes occur around these payments. To “pay” the accumulated severance in the accounts, the employer must provide the employee with a letter addressed to the account, authorizing the transfer of ownership of the funds to the employee and stating the termination date of the employment. To issue this letter, there is no need to wait for the completion of Form 161 or the final deposit. The letter should be handed directly to the employee, not to the insurance agent or the account. This is a simple action the employer can take immediately upon the employee’s departure to avoid the claim of delayed severance payments in the accounts.
At the same time, it’s important to ensure that the employer notifies the various accounts of the employee’s termination to prevent any liabilities for deposits, as the account may not be aware that the employee has left.
This publication is provided as a service to our clients and colleagues, with explicit clarification that each specific case requires individual examination and discussion in writing.
The information presented here is of a general nature and is not intended to answer the unique circumstances of any individual or entity. Although we strive to provide accurate and available information, we cannot guarantee the accuracy of the information on the day it is received, nor that the information will continue to be accurate in the future. Do not act on the information presented without appropriate professional advice after a comprehensive and thorough examination of the specific situation.
