What Is Severance Pay?

Severance pay is a form of financial compensation to which an employee is entitled in the event of termination.

When Is an Employee Entitled to Severance Pay?

In Quebec, workers are entitled to severance pay if their employer terminates their employment contract without respecting the statutory time limit or fails to give them a notice of termination.

In France, an employer is obliged to pay severance pay to employees with permanent contracts who have accumulated at least 8 months of seniority in the following situations:

  • A dismissal for simple misconduct
  • An economic layoff
  • A dismissal for ineptitude
  • A cessation or dissolution of the business except in cases of force majeure

How to Calculate Severance Pay?

The calculation of severance pay depends on legislation in place.

In Quebec, employers are required to give notice of termination or pay compensation. An employee who is dismissed without notice and has at least three years of seniority will receive severance equivalent to two weeks’ salary. The compensation or notice period depends on the seniority of the employee.

In France, severance pay is calculated based on the monthly salary for the reference period. The compensation corresponds to one fourth (25%) of the monthly reference salary per year of presence in the company for employees with less than 10 years of seniority. From the 11th year of service, the allowance is one third (33.33%) of the monthly salary.

For example, an employee with 12 years of seniority and a monthly salary of €2,000 will receive €6,333: [(2,000 × ¼) × 10] + [(2,000 × ⅓) × 2].

What Measures Can a Company Implement for Severance Pay?

A company can take several measures to facilitate the management of severance payments, such as:

  • Sign employment contracts with each employee and review them regularly
  • Keep written evidence of the steps that led to the termination in the employee’s file
  • Respect legislation in force
  • Provide reasonable notice to terminated employees
  • Enhance severance compensation by offering to help employees find a job, for example
  • Have the employee sign a waiver, with the support of a qualified attorney

What Is the Difference Between Severance Pay and Contract Expiry Pay?

A severance payment is offered to an employee on a permanent contract while a contract expiry payment is offered on a fixed-term contract.

The contract expiry payment must be equivalent to at least 10% of the total gross compensation paid during the contract. It is paid along with the last salary.

What Are the Different Types of Severance Payments?

Depending on the legislation in force, there are several types severance pay such as:

  • Termination severance pay
  • Contract expiry severance pay
  • Voluntary retirement severance pay
  • Statutory retirement severance pay
  • Contractual termination severance pay
  • Severance pay by agreement
  • Statutory severance pay

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