Running Termination Payments in Payroll:

After you've set up the pay rules, it's time to apply those earning rules in the pay run in order to pay out the termination payments.

Vacation Pay:

If the vacation rule is set as "release at each pay," vacation is paid out with the regular earnings. This means that no action is required.

When vacation rule is set as "accrue, tax on release," accrued vacation should be paid/released along with the last pay run before terminating. We recommend releasing accrued vacation with the last regular pay run, or with your termination pay run. Please follow the instructions given in this article to release accrued vacation.

If your employee does not have a vacation setting in their profile add the vacation earnings rule as a an additional earning in your regular or termination pay run.

Paying vacation as a special run:

If you missed releasing vacation in the last regular pay run, please run a special run to release the vacation for the specific employee.

Please note that the start and end date of the pay cycle should match with the start and end date of the last regular run.

If you're unsure of the pay cycle dates of the last regular run:

A: EMPLOYEES

B. PROFILE

C. PAYROLL TAB

D. PAY RUNS

 

Payment in Lieu of Notice

Payment in lieu should cover the days that the employee would have otherwise worked. If the pay period for payment in lieu falls in a new pay cycle, please run it as a special pay run with the start and end date the same as the last pay period worked. While approving hours, approve only the hours associated with payment in lieu. Then finish as normal.  If the lieu period falls within your next normal pay cycle, include the appropriate earnings for the employee within that pay run. 

For example, let's assume an employee's regular pay run is from Sept. 1 to Sept. 14. They have been let go on Sept. 7. You have determined you owe them payment in lieu from Sept. 8 to Sept. 21. You can run one regular pay run for this employee, or if you already completed the regular run do one regular plus one special (using the same work dates).

A. RUN REGULAR PAYROLL FROM SEPT. 1 -14

B. APPROVE REGULAR HOURS FOR SEPT. 1 - 7.

C. ADD AN ADDITIONAL EARNING

D. SELECT PAYMENT IN LIEU

E. ENTER THE AMOUNT ONLY FROM SEPT. 8 - 21 (IF YOU ARE DOING 1 RUN).

F. NEXT

G. FINISH AS NORMAL

H. IF YOU ALREADY COMPLETED YOUR REGULAR RUN, START A NEW SPECIAL RUN WITH THE SAME WORK DATES OF SEPT 1-14.

I. DO NOT APPROVE REGULAR HOURS; SELECT PAYMENT IN LIEU

J. ENTER AMOUNT FROM SEPT. 15 - 21 AND APPROVE ONLY PAYMENT IN LIEU.

K. FINISH AS NORMAL

 

Salary Continuance

When an employee continues to be on payroll even after stopping work, employers provide what is called a Salary Continuance.

These payments are paid the same as if the employee were still working.

A. RUN PAYROLL

B. SELECT SALARY CONTINUANCE AS THE EARNINGS TYPE.

C. ENTER REGULAR HOURS AND RATE.

D. NEXT

 

Severance Pay (Applicable to CLC and Ontario Employers)

A. RUN PAYROLL WITH THE SAME DATES AS THE LAST REGULAR PAY RUN (this can be a Regular or Special run depending on when you're running it).

B. SELECT SEVERANCE AS THE EARNINGS TYPE

C. ENTER SEVERANCE AMOUNT

D. DURING REVIEW, CLICK THE EMPLOYEE'S NAME

E. UNDER FEDERAL TAX, ENTER THE INCOME TAX BASED ON THE RATES SHOWN HERE.

F. REMOVE PROVINCIAL TAX

G. SAVE

 

Retiring Allowance or Lump Sum Payments (Informally Known as Severance)

For non-Quebec employees:

A. RUN PAYROLL WITH THE SAME DATES AS THE LAST REGULAR PAY RUN (this can be a Regular or Special run depending on when you're running it).

B. SELECT RETIRING ALLOWANCE AS THE EARNINGS TYPE

C. ENTER AMOUNT

D. DURING REVIEW, CLICK THE EMPLOYEE'S NAME

E. UNDER FEDERAL TAX, ENTER THE INCOME TAX BASED ON THE RATES SHOWN HERE.

F. REMOVE PROVINCIAL TAX AMOUNTS

G. SAVE

 

For Quebec employees:

A. RUN PAYROLL WITH THE SAME DATES AS THE LAST REGULAR PAY RUN

B. SELECT RETIRING ALLOWANCE AS THE EARNINGS TYPE

C. ENTER AMOUNT

D. DURING REVIEW, CLICK THE EMPLOYEE'S NAME

E. UNDER FEDERAL TAX, ENTER THE INCOME TAX BASED ON THE RATES SHOWN HERE.

F. UNDER PROVINCIAL TAX, ENTER THE INCOME BASED ON THE RATES SHOWN HERE.

G. SAVE

 

Statutory Holiday Pay

Pay out any stat holiday pay that will be owning prior to completing your ROE for easier terminations. To do this:

A. RUN PAYROLL WITH THE SAME DATES AS THE LAST REGULAR PAY RUN

 

B. SELECT STATUTORY HOLIDAY AS THE EARNINGS TYPE

C. ENTER TOTAL GROSS PAY

D. APPROVE

 

We recommend paying out any statutory holiday that occurs after the last day for which paid before you offboard the employee in the system.

If a statutory holiday occurs after the last date for which an employee is paid and is paid out after processing ROE, please amend the ROE to include the amount in Box 17 of ROE. See here for how to amend your ROE.

Now that you have run your final pay runs for your employee, you are ready to terminate them and issue an ROE. Follow the steps in Part 3 to make any adjustments necessary for the ROE to reflect your termination payments properly.

 

A further note from one of our accountant partners on how to confirm this difference, "The CRA tool uses claim codes rather than dollar values. I worked out to get the same result as the CRA tool you need to take the midpoint of the code range. This now made the PE calculation the same as the CRA calculation." If you are running payroll using the "Special" pay run the CPP exemption will not be taken into consideration and some earnings might be taxed at a slightly different rate than with a regular payroll. For more information on when to use the SPECIAL run, see this article HERE.

 

CPP and EI both have a yearly max, so if your employee has reached those it will no longer calculate them, which could account for a different net pay amount. See HERE for rates.

Check to see that your employee payments aren't below the TD1 exemption amounts provided by the Canada Revenue Agency and their province / territory of employment. Typically, the system will annualize the earnings for an employee and if the total amount is under the exemption limit for the year, then no taxes will be deducted.

 

Is your employee exempt from certain government programs? For example, if they are under 18 or over 70 they may not need to contribute to CPP. The system will apply this automatically based on their Date of Birth.

If you are comparing numbers to other payroll calculators (like the CRA website), please keep in mind:

1.  The CRA calculator will not have historical CPP/EI information to use when applying its calculations (unless you have explicityly entered them)
2. The values used by the CRA calculator uses ranges rather than the exact figures used in your payroll profile. This may account for an up to $5 differential between the CRA and your account. The exact figure method is more accurate, the range method can be slightly off.
3. The system will estimate the annual income of an employee and apply the correct tax calculations based on any income to date. If a $50k/year employee is hired and paid in Dec - the taxes deducted will correctly reflect earnings for Dec only. If the $50k/year employee is hired in Jan, the system will estimate the annual income and apply the correct tax calculations. The CRA calculator will not have this history and can only provide an estimate of the taxes. 
4. The CRA calculator will not take into consideration any custom pay rules you may have created - many of these rules have tax implications which the service will correctly adjust for.