Terminating an employee is one of the toughest parts of running a business — not only emotionally, but also from a legal and payroll standpoint. In Canada, payroll termination isn’t as simple as stopping a paycheck. There are specific rules and procedures employers must follow to ensure compliance with federal and provincial laws.
In this blog, we break down the essentials of payroll termination in Canada, including notice requirements, final pay, Record of Employment (ROE), statutory obligations, and helpful tips to handle terminations fairly and professionally.
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1. Notice of Termination: Know Your Legal Obligations
In Canada, most provinces require employers to give written notice before terminating an employee — unless the termination is for just cause.
Typical Notice Periods (Varies by Province):
One week after 3 months of continuous employment
Two weeks after 1 year
Up to eight weeks depending on the length of service
Employers can provide working notice or pay in lieu of notice — where the employee stops working but is paid as if they had.
> Tip: Always consult your province’s Employment Standards Act (ESA) for exact rules.
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2. Severance Pay vs. Termination Pay: What’s the Difference?
These terms are often used interchangeably, but they’re not the same.
Termination Pay: Compensation when notice isn’t provided.
Severance Pay: Additional pay required under certain conditions, such as long service or large-scale layoffs (applies federally and in Ontario).
Example: In Ontario, employees with 5+ years of service and a company payroll of $2.5M+ may qualify for severance pay.
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3. Final Pay Requirements
When terminating an employee, you must provide final pay that includes:
Regular wages up to the termination date
Accrued vacation pay
Any earned bonuses or commissions
Pay in lieu of notice (if applicable)
Severance pay (if applicable)
Deadlines for final pay depend on the province. For example:
In Ontario, final pay is due seven days after termination or the next regular payday, whichever is later.
In British Columbia, final pay is due within 48 hours of termination.
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4. Record of Employment (ROE): Reporting to Service Canada
An ROE is a crucial document that outlines an employee’s work history and reason for leaving. Employers must issue an ROE when an employee experiences an interruption of earnings — including terminations.
You must:
Submit the ROE within 5 calendar days of the interruption
Use the correct ROE Code (e.g., “M” for dismissal, “E” for quitting)
The ROE helps employees apply for Employment Insurance (EI) benefits, so accuracy is key.
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5. Statutory Deductions: CPP, EI, and Taxes
Even on termination payments, employers must deduct:
Canada Pension Plan (CPP) contributions
Employment Insurance (EI) premiums
Federal and provincial income tax
Some lump-sum payments may be taxed differently, so check the CRA’s Payroll Deductions Guide or use CRA’s online calculators for accuracy.
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6. Group Benefits and Pensions: What Happens Next?
When an employee leaves, you must clarify the status of:
Group health and dental benefits (often end at termination unless continued for the notice period)
Pension plans or RRSP contributions (employees may need payout or rollover instructions)
Clear communication helps avoid confusion and supports a smooth transition.
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7. Common Mistakes to Avoid in Payroll Termination
Missing final pay deadlines
Incorrect ROE codes
Failing to deduct proper taxes
Not documenting the termination clearly
Overlooking employee entitlements
Errors can result in penalties, employee complaints, or legal claims.
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Real-World Example: Payroll Termination Done Right
Let’s say Emily, a full-time marketing associate, has worked at your company for 2.5 years in Alberta. Due to restructuring, you need to terminate her role without cause.
Here’s what you do:
1. Provide 2 weeks’ notice (or pay in lieu).
2. Calculate and issue her final paycheck, including unused vacation days.
3. Submit an ROE with the correct code (“A” or “M” depending on context).
4. Deduct taxes, CPP, and EI from her final payment.
5. End group benefits coverage in line with your insurer’s policy.
By following proper procedures, you protect your business and help Emily move forward without added stress.
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Payroll Termination Checklist (Downloadable PDF)
To make terminations smoother and fully compliant, we’ve created a free downloadable checklist you can use every time an employee exits your organization.
What’s Inside:
Notice and severance pay requirements
Final pay calculation steps
Required deductions
ROE issuance deadlines
Benefits and pension wrap-up
Documentation and communication tips
Download the Payroll Termination Checklist – PDF
This checklist is perfect for HR managers, small business owners, and anyone handling payroll termination in Canada.
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Final Thoughts
Payroll termination in Canada comes with a legal and ethical responsibility to treat departing employees fairly and lawfully. Whether you’re a small business owner or HR manager, understanding your obligations under Canadian employment standards ensures smooth transitions and protects your company from legal risks.
If you’re unsure about how to calculate final pay, handle severance, or issue ROEs, consult a payroll specialist or employment lawyer. Better safe than sorry — especially when dealing with people’s livelihoods.
Need help simplifying terminations or managing payroll in Canada? Let’s talk. We provide expert payroll services that ensure compliance, clarity, and care — every step of the way.
