Running a termination payroll

Employer's Responsibility

After terminating an employee, they will appear for one final payroll entry on the input page, allowing you to process their final payment. The timing of this payment depends on the province. For example, in Ontario, it should occur within seven days of termination or on the employee's next regular pay date, whichever is later. In British Columbia, all owed wages must be paid within 48 hours after employment termination or within 6 days after the employee terminates their employment.

For a typical final payment, you will need to pay:

  • All outstanding wages, less any necessary deductions and withholdings required by law.
  • Any accrued but unpaid vacation pay, less any necessary deductions and withholdings required by law.

If applicable:

  • Statutory / holiday pay
  • Pay in lieu of notice
  • Severance pay

Income Types

Before running a termination payment, ensure you have the correct income types set up. Navigate to "Run Payroll" and then click on the "Income Types" tab.

If you don't see "Pay in Lieu of Notice" or "Severance Pay" within your list of income types, start by creating these income types. Click on "+ Add new income type".

Pay in Lieu of Notice:

Enter a suitable name for the description. Select "Wages in lieu of termination" as the income type, set the payment unit as "amount," and indicate "yes" to include it in Box 14.

Severance Pay

Enter a suitable name for the description. Select "Severance Pay" as the income type, set the payment unit as "amount," and choose "No" to include it in Box 14.

Input Payroll / Final Pay

Make sure you process the final payment prior to terminating the employee within their profile. Otherwise, manual adjustments will be required for the record of employment. Once the relevant income types are configured, go to "Run Payroll" and either select the next generated payroll run or initiate an off-cycle payroll.

Within the "Input Payroll Page" click on the orange + icon and add in the Pay in Lieu of Notice and Severance Pay income types that you have just created. 


Regular Pay:

Prorate the number of days the employee worked and enter the corresponding hours. The system will automatically calculate the appropriate payment amount.


Vacation Pay for Salaried Employees:

Calculating final vacation pay for salaried employees involves manual calculations. You should compute the accrued vacation amount for the final pay and combine it with the employee's banked amount. Then, include this total in the same payroll for payout.

To calculate accrued vacation for the final pay's payroll, multiply the gross pay by the appropriate vacation percentage. For example, 2 weeks of paid time off equals 4%, and 3 weeks equals 6%, which translates to 2% per week of paid time off.

Add the accrued vacation you calculated for the final pay's payroll and the vacation pay amount shown in the "$BANKED" column. Enter the total calculated vacation pay into the "$PAY OUT" field. Keep the "Vacation HRS" field blank.

Vacation Pay for Hourly Employees:

If the employee's vacation pay setting is configured as "Paid out on each pay cheque," the system will automatically determine the vacation pay amount to be paid out.

Pay in Lieu of Notice:

If applicable, calculate the specific dollar amount you need to pay the employee for wages in lieu of notice. Add this amount to the "Pay in Lieu of Notice" column that you have just added in the input sheet.

Severance Pay:

If applicable, calculate the specific dollar amount you need to pay the employee for Severance Pay. Add this amount to the "Severance Pay" column that you have just added to the input sheet.

While some employers use the term "pay in lieu of notice," also known as "termination pay" and "severance pay," interchangeably, they are not the same. Not everyone is entitled to severance pay.

In Ontario, severance pay is considered an earned benefit for long-serving employees. As the Ontario Ministry of Labour explains, severance pay compensates an employee for the loss of seniority and the value of firm-specific skills, acknowledging their lengthy service.

To qualify for severance pay, you must have worked for a company with a total annual payroll of $2.5 million or more for at least five years.

Severance pay is calculated differently from pay in lieu of notice. To determine severance pay, multiply your regular week's wages by the number of years you've been employed with the company.


Confirm Payroll

Once all the necessary calculations are completed and entered into the appropriate fields, click "Save and Review." This action will lead you to the "Payroll Review" page. After carefully reviewing and confirming the accuracy of the payroll, click "Approve." Congratulations, you have successfully processed a termination payroll.

File Record of Employment

To file the record of employment please review the following help documentations:


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