Final Pay, Pay in Lieu of Notice, and Severance: What Can Appear on Your Last Pay
Your last pay can include several distinct amounts. Here is what each one is and why they are different.
Written and reviewed by Rocco Clayfield, Founder & DirectorLast reviewed
Short answer
Your final pay can include several different items: outstanding wages for hours worked, accrued vacation pay, termination pay or pay in lieu of notice under employment standards legislation, and severance pay, which is a separate entitlement in some circumstances. These items are legally distinct, calculated differently, and governed by provincial employment standards legislation and, in some cases, contract or common law. The rules are complex and vary significantly by province. For any material dispute or uncertainty, a qualified professional or employment lawyer is the most reliable source of advice.
When employment ends, the final pay can look very different from a regular cheque. It may include several distinct items stacked together, some labelled clearly and some not. The amounts involved can be significant, and the rules that govern them are genuinely complex.
This page explains what each item is in plain terms and where to look for more detail. It does not provide legal or tax advice, and it does not state specific entitlements as guaranteed because the rules vary by province, by length of service, by contract terms, and by the circumstances of the termination. If you have a material question about your final pay, a qualified professional or employment lawyer can review your specific situation.
What this page helps you check
- Whether outstanding wages for all hours worked up to your last day are included
- Whether accrued but unused vacation pay is included
- Whether any termination pay or pay in lieu of notice is identified as a separate line item
- Whether any severance pay entitlement has been calculated and included if applicable
- Whether the tax withholding on each component appears reasonable
- Whether you received a Record of Employment (ROE) and whether the insurable earnings and reason code are correct
- Whether the payment was made within the timeline required by your province
Outstanding wages: what you are owed for work already done
Outstanding wages are the simplest item: they represent regular pay for all hours or days you worked up to your last day of employment. This includes any pay period that had not yet closed when employment ended.
If you were paid weekly and your last day falls in the middle of a pay week, you are owed wages for those partial days. This is the most basic obligation and is required under employment standards legislation in every province. Outstanding wages are taxed the same way as regular pay.
Accrued vacation pay
Any vacation pay that has accrued and not yet been taken or paid out must be included in your final pay. This includes vacation time earned in the current year that you did not take, and in some cases amounts carried over from prior years.
The exact calculation depends on how vacation was tracked (accrued as a dollar amount or as days), your province's rules, and your employment contract. In most provinces, paying out accrued vacation on termination is a legal requirement, not discretionary.
Termination pay and pay in lieu of notice
When an employer ends your employment without cause, provincial employment standards legislation typically requires a minimum notice period or a payment in lieu of that notice. If you receive a payment instead of working through the notice period, this is commonly called termination pay or pay in lieu of notice.
The minimum entitlement is set by each province's employment standards legislation and generally depends on your length of service. These are statutory minimums; your employment contract or common law may provide more. The distinction between what the statute requires and what common law or your contract provides can be significant. This is one of the main reasons a qualified professional or employment lawyer is valuable when the amounts are material.
Severance pay
Severance pay is different from termination pay. Not every employee is entitled to severance, and the rules vary widely by province. In Ontario, for example, employment standards legislation provides a separate severance pay entitlement for employees who meet certain criteria around length of service and employer payroll size. Other provinces have different rules or no equivalent statutory severance.
Severance pay, where it exists, is in addition to the notice or pay in lieu of notice entitlement. The two are not interchangeable. Whether you are entitled to severance, and how much, depends on the specific rules in your province and the facts of your situation. Do not assume that because you received one, you have been paid the other.
Tax treatment of final pay amounts
Outstanding wages and accrued vacation pay are taxed as regular employment income. Termination pay and pay in lieu of notice are also generally taxed as employment income and subject to CPP and EI deductions, depending on provincial and federal rules.
Severance pay may have different tax treatment in some circumstances, including possible eligibility for a direct transfer to an RRSP or RPP for pre-1996 service amounts in specific situations. Tax rules around lump-sum severance payments can be complex. A tax professional can advise on your specific situation.
What to do if your final pay seems incorrect or incomplete
Request an itemised breakdown of every amount on your final pay, showing how each component was calculated. Compare this against your own records of hours worked, accrued vacation, and any agreements about notice or severance.
If items are missing or you believe amounts are incorrect, raise it first with payroll or HR in writing. For unresolved wage issues, your provincial employment standards office handles complaints. For questions about whether your entitlements under common law or your contract are being met, an employment lawyer is the most appropriate resource. Do not sign any release or settlement without understanding what rights you may be giving up.
Province & territory note
Quebec works differently
Common red flags worth checking
These do not automatically mean there is an error. They are simply lines worth a closer look, or worth asking payroll to explain.
Final pay does not include accrued vacation
Accrued vacation pay is a legal obligation in every province. If it is not included in your final pay, follow up with payroll in writing immediately.
Termination pay and severance pay are described as a single combined amount
These are legally distinct entitlements in provinces where both exist. Ask for an itemised breakdown showing how each was calculated separately so you can verify both.
You were asked to sign a release quickly
A separation or release agreement may require you to give up certain legal rights in exchange for severance above the statutory minimum. Taking time to understand what you are signing, ideally with legal advice, is important. Signing quickly without review is a common reason people later find they accepted less than they could have claimed.
Your ROE shows the wrong reason code for your departure
The reason code on your Record of Employment affects your EI claim. A termination without cause should show a different code than a resignation. If the code is wrong, ask your employer to issue an amended ROE.
The final pay arrived late
Most provinces require final pay to be delivered within a specific number of days after the last day of employment. Late payment may itself be a violation of employment standards. Note the date payment was actually received.
No pay stub or written breakdown was provided
You are entitled to a pay statement showing how your final pay was calculated. If you received a deposit or cheque with no accompanying breakdown, request one in writing. You need this to verify the amounts.
Want this checked on your real pay stub?
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What to ask payroll or HR
Calm, specific questions get clearer answers. You can copy any of these, or build a full message with the Payroll Message Generator.
- “Can you provide an itemised breakdown of my final pay showing outstanding wages, vacation pay payout, and any termination or severance amounts calculated separately?”
- “How was the termination pay or pay in lieu of notice amount calculated? How many weeks were used and what rate was applied?”
- “Is there a severance pay component in addition to termination pay, and if so, how was it calculated?”
- “Has my Record of Employment been filed? Can you confirm the reason code, insurable earnings, and last day of work shown on the ROE?”
- “When was my final pay processed and what is the expected deposit or delivery date?”
- “Was income tax calculated on each component separately or on the combined total? Is there anything that was or could be treated differently for tax purposes?”
Frequently asked questions
Do I get termination pay even if I was fired for cause?
In general, termination pay under employment standards legislation applies to termination without cause. Employees terminated for serious cause (sometimes called just cause) may not be entitled to the statutory minimum notice or pay in lieu. The threshold for establishing just cause is typically high. If your employer claims cause, getting legal advice to assess whether that claim is well-founded is worth considering.
What is the difference between termination pay and severance pay in Ontario?
In Ontario, termination pay is owed to most employees terminated without cause and is based on length of service under the Employment Standards Act. Severance pay is a separate entitlement that applies only to employees who meet specific service and payroll criteria. Not every employee entitled to termination pay is also entitled to severance pay. Both are statutory minimums only.
Are common law notice entitlements the same as employment standards entitlements?
No. Employment standards legislation sets minimum floors. Common law (judge-made rules about reasonable notice) can provide significantly more than the statutory minimum depending on your role, length of service, age, and other factors. Your employment contract may address this directly. An employment lawyer can advise on your common law entitlement.
Can I receive EI benefits while receiving termination or severance pay?
Service Canada treats certain payments on termination as delaying the start of EI benefits. The rules are detailed and depend on the nature of the payment. Service Canada and the federal EI rules govern this, not provincial employment standards. The ROE your employer files will affect how Service Canada assesses your claim.
My employer offered me a package. How do I know if it is fair?
A package that meets only the statutory minimum may be less than what you are entitled to under common law or your contract. Common law notice periods can exceed statutory minimums significantly depending on your circumstances. An employment lawyer can give you a realistic assessment of what you might be owed before you sign anything.
Is severance pay taxed?
Severance pay is generally taxable income. Some amounts related to years of service prior to 1996 may be eligible for a direct RRSP or RPP transfer in specific circumstances, which can defer the tax. The rules are technical. A tax professional or the CRA's guidance on retiring allowances can clarify what applies in your situation.
My final pay was short. What are my options?
Start by requesting an itemised breakdown from payroll in writing. If amounts are missing or incorrect and your employer does not resolve them, you can file a complaint with your provincial employment standards office for statutory entitlements. For entitlements under common law or contract, an employment lawyer is the appropriate advisor.
When must my employer pay me after my last day?
Provincial employment standards legislation sets deadlines for issuing final pay, and these vary by province. Some require payment within a set number of days of the last day of employment; others tie it to the next regular pay date. Check your province's employment standards rules for the specific deadline that applies to you.
Official sources for this page
Every figure here is derived from these. Where a number matters to you, read it at the source — PayStub IQ Canada explains the rules, it does not set them.
- Your guide to the Employment Standards Act — Government of Ontario
- Payroll deductions and contributions — Canada Revenue Agency
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Helpful guidance, not advice
PayStub IQ Canada provides educational payroll explanations based on the information visible in your document. It does not provide legal, tax, accounting, payroll, CRA, Revenu Québec, or employment standards advice. For official decisions or corrections, contact your employer, payroll department, CRA, Revenu Québec, your provincial or territorial employment standards office, or a qualified professional.