Severance Question
Severance Question
My wife just got laid off and was offered a severance package consisting of multiple months of compensation. The separation agreement stated this clearly with no stipulations regarding such severance payout. It only stated the total, method, and time of payment. However the employer is now stating that if she is to take any interview or accept another job anywhere else before her final termination day she will not receive her severence compensation. Is this a normal method and how can they expect her to let them know if she interviews or accepts any job that wont start til after her termination date. Are they legally in anyway required to know this info? and can they use this info to withhold severance. Any and all help is much appreciated.
Re: Severance Question
It will likely depend on which province she resides in, vis-a-vis labour laws. More clarity required.
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Re: Severance Question
I am not sure about having any interviews but if she accepted a job before her termination date, I suppose she would have to resign in order to take the new job which would negate her terminatiion.
( unless the new job started after the termination date)
Has the employer put this in writing anywhere? Was it just a manager talking or was this stated by HR.
I know that there are a few large national employers, who would have access to good legal advice, that no longer offer lump sum termination payments. Terminated employees are put on a 'salary continuance'. If they find a job before the continuance expires, then the salary stops. Interviews certainly don't affect this in any way. And any lump sum terminations prior to this policy were not affected by interviews or subsequent jobs.
Best to spent the money for a session with a lawyer and review the terms of the severance and anseer any questions. Most provincial bar associations have a lawyer referral service where you can get a short appointment for free or a nominal fee, with a lawyer in the field you require.
( unless the new job started after the termination date)
Has the employer put this in writing anywhere? Was it just a manager talking or was this stated by HR.
I know that there are a few large national employers, who would have access to good legal advice, that no longer offer lump sum termination payments. Terminated employees are put on a 'salary continuance'. If they find a job before the continuance expires, then the salary stops. Interviews certainly don't affect this in any way. And any lump sum terminations prior to this policy were not affected by interviews or subsequent jobs.
Best to spent the money for a session with a lawyer and review the terms of the severance and anseer any questions. Most provincial bar associations have a lawyer referral service where you can get a short appointment for free or a nominal fee, with a lawyer in the field you require.
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Re: Severance Question
Something about the employer's statements (or her understanding of them) doesn't make sense. It would actually be in the employer's interest if she did take interviews and seek another job, because they may then be able to limit her severance. She should seek clarification.
Re: Severance Question
First time I heard about something like this was last night just before poker guy's wife was in same situation but I didn't ask for clarification. Two years pay as long as she doesn't get a new job.
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Re: Severance Question
correct. I was also offered a choice - salary continuance for a given time or one time payment of somewhat reduced amount.'salary continuance'. If they find a job before the continuance expires, then the salary stops
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Re: Severance Question
Severance payments are meant to cover the time it takes you to find another job. That's generally the guideline that courts take when they rule on how much severance an employee is owed.
This old G&M article is quite good on the topic
https://beta.theglobeandmail.com/report ... cle4098859
With that in mind, I do know that some employers state that the severance will be stopped if the laid off employee finds a job sooner. I've no idea if that is enforceable. I've never heard of it being stopped due to the laid off employee taking an interview. That would seem to be counter to the intent.
This old G&M article is quite good on the topic
https://beta.theglobeandmail.com/report ... cle4098859
With that in mind, I do know that some employers state that the severance will be stopped if the laid off employee finds a job sooner. I've no idea if that is enforceable. I've never heard of it being stopped due to the laid off employee taking an interview. That would seem to be counter to the intent.
Re: Severance Question
I very much appreciate all the replies
Start date for new position was a week after the termination date. Also no where in anything signed or presented to my wife states any stipulations of severance that would deny it being dispersed. This rule of interviewing before termination date or getting a new job altogether would negate her severance was only verbally stated by HR team. We may have to go speak with a lawyer as I cannot understand how they are required to know if she interviews or accepts a new job especially if nothing of that short is stated anywhere on the forms she signed.
thanks all
Start date for new position was a week after the termination date. Also no where in anything signed or presented to my wife states any stipulations of severance that would deny it being dispersed. This rule of interviewing before termination date or getting a new job altogether would negate her severance was only verbally stated by HR team. We may have to go speak with a lawyer as I cannot understand how they are required to know if she interviews or accepts a new job especially if nothing of that short is stated anywhere on the forms she signed.
thanks all
Re: Severance Question
It may or not be written into the agreement but generally yes if you get a job in the period the severance is covered an employer is very much in their right to try and claw that back. They might have to take you to court to do that, but their argument will be very easy to make in court. The severance is based on how long it should/may take the person to find equivalent employment. If it turned out that period is only one week and they paid in excess of that, it would be hard to argue that the payment wasn't excessive. For the most part employers won't bother trying to claw this stuff back unless we are talking material amounts....both parties usually just want to move on with their lives.
Re: Severance Question
I believe in this instance there is nothing that can be done but I thought I would throw the following question out there in case someone knows better.
My sister has been offered a package by her Megacorp and at age 57 she has decided to take it at the end of this month. This is in Ontario. She was going to work to age 60 when her daughter finishes uni but after a health scare last year she's just decided to go for it. Her eventual pension is generous, as are the life long benefits.
She has also been offered 96 weeks pay as part of the package. Again, quite generous. However, it is in a lumpsum payable next month. So, she would be looking at a massive tax bill this year on a combination of both her earned income and the lump sum payout. Her employer is a big machine and HR have indicated they will not contemplate shifting any of it into the next tax year (one assumes it is a better write off period for them this year).
Is there anything she can do to ameliorate this tax hit ?
My sister has been offered a package by her Megacorp and at age 57 she has decided to take it at the end of this month. This is in Ontario. She was going to work to age 60 when her daughter finishes uni but after a health scare last year she's just decided to go for it. Her eventual pension is generous, as are the life long benefits.
She has also been offered 96 weeks pay as part of the package. Again, quite generous. However, it is in a lumpsum payable next month. So, she would be looking at a massive tax bill this year on a combination of both her earned income and the lump sum payout. Her employer is a big machine and HR have indicated they will not contemplate shifting any of it into the next tax year (one assumes it is a better write off period for them this year).
Is there anything she can do to ameliorate this tax hit ?
Re: Severance Question
Any RRSP room left?
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Re: Severance Question
See, I always forget the pertinent details.
No, she has no RRSP room left. BIL has a little but not much. Perhaps equivalent to 10-15% of the payout. Daughter is 18, not that I believe that has any relevancy.
No, she has no RRSP room left. BIL has a little but not much. Perhaps equivalent to 10-15% of the payout. Daughter is 18, not that I believe that has any relevancy.
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Re: Severance Question
Part of her severance may qualify as a "Retiring Allowance" under the rules for RRSP's. This is extra RRSP room that she can use. Read about Retiring Allowances in CRA T4040. In a well-run business Pay & Benefits should be able tell her how much of it is eligible.
Otherwise, if they are unwilling to spread the tax load over 2 or more years,, there is not likely anything she can do about it. If she has existing RRSP room she can use that. Unfortunately the RRSP room she earns this year she can't use until next year (other then the Retiring Allowance above). But if she can manage the cash flow, maybe she can use it next year to reduce her taxes.
Otherwise, if they are unwilling to spread the tax load over 2 or more years,, there is not likely anything she can do about it. If she has existing RRSP room she can use that. Unfortunately the RRSP room she earns this year she can't use until next year (other then the Retiring Allowance above). But if she can manage the cash flow, maybe she can use it next year to reduce her taxes.
Re: Severance Question
Don't know if this might apply. CRA Form T1198
Best to check with her employer.In addition, lump sum benefits from employment insurance, superannuation or pension plans other than lump-sum withdrawals, lump sums received for spousal or taxable child support payments, or benefits from a wage-loss replacement plan may all qualify.
For the fun of it...Keith
Re: Severance Question
How much of a tax hit does she take?
Not asking for a dollar amount but what % does her marginal tax rate increase?
With RRSP at max and a generous pension plan is deferring the tax going to be that much of a benefit?
Not asking for a dollar amount but what % does her marginal tax rate increase?
With RRSP at max and a generous pension plan is deferring the tax going to be that much of a benefit?
"And the days that I keep my gratitude higher than my expectations, well, I have really good days" RW Hubbard
Re: Severance Question
Thanks to all who replied.
" Read about Retiring Allowances in CRA T4040. In a well-run business Pay & Benefits should be able tell her how much of it is eligible."
~ does not seem to be applicable. She has "only" been employed there since 1999, so the adjustment for pre-1996 or earlier wouldn't apply.
"Don't know if this might apply. CRA Form T1198"
~ it seems to specifically exclude lump sum payments. (benefits from a superannuation or pension plan (other than non-periodic benefits such as lump-sum withdrawals))
"How much of a tax hit does she take? Not asking for a dollar amount but what % does her marginal tax rate increase? With RRSP at max and a generous pension plan is deferring the tax going to be that much of a benefit?"
Quite a hit, I believe. She is already in the 47% bracket area and this would definitely put her up into the 53% area. But, it isn't just a matter of moving brackets but simply of the actual $$ hit. This downsizing came out of the blue in the latter part of the year, so there was no way to prepare and rearrange anything (not that she had a lot of leeway anyway).
My understanding is she isn't going to start the pension until age 60 as that is more beneficial. So this package was going to be used (and was probably meant as) a bridge of sorts. So, to lose such a large chunk of it in one go hurts. Especially as she won't have any income in the next 3 years except for withdrawing from her investments.
I didn't think there was much that could be done. She works tangentially for a bank so she should be able to get in-house advise but I wonder about the quality of it as their Canadian footprint is small. It would be great if they could be more flexible but I don't suppose it suits their plans to be. Nor is she senior enough to negotiate that. Such is the way of large corporations, I gather.
" Read about Retiring Allowances in CRA T4040. In a well-run business Pay & Benefits should be able tell her how much of it is eligible."
~ does not seem to be applicable. She has "only" been employed there since 1999, so the adjustment for pre-1996 or earlier wouldn't apply.
"Don't know if this might apply. CRA Form T1198"
~ it seems to specifically exclude lump sum payments. (benefits from a superannuation or pension plan (other than non-periodic benefits such as lump-sum withdrawals))
"How much of a tax hit does she take? Not asking for a dollar amount but what % does her marginal tax rate increase? With RRSP at max and a generous pension plan is deferring the tax going to be that much of a benefit?"
Quite a hit, I believe. She is already in the 47% bracket area and this would definitely put her up into the 53% area. But, it isn't just a matter of moving brackets but simply of the actual $$ hit. This downsizing came out of the blue in the latter part of the year, so there was no way to prepare and rearrange anything (not that she had a lot of leeway anyway).
My understanding is she isn't going to start the pension until age 60 as that is more beneficial. So this package was going to be used (and was probably meant as) a bridge of sorts. So, to lose such a large chunk of it in one go hurts. Especially as she won't have any income in the next 3 years except for withdrawing from her investments.
I didn't think there was much that could be done. She works tangentially for a bank so she should be able to get in-house advise but I wonder about the quality of it as their Canadian footprint is small. It would be great if they could be more flexible but I don't suppose it suits their plans to be. Nor is she senior enough to negotiate that. Such is the way of large corporations, I gather.
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Re: Severance Question
What sort of RRSP contribution room is she being granted on a yearly basis (i.e. what sort of pension is it)?
Stopping contributing to the pension for Nov and Dec should be a modest increase to whatever is typically granted.
Whatever is granted plus the $2K over contribution allowance should be available Jan 1 next year. With an early part of the year RRSP contribution being eligible for the previous tax year - there likely is an amount available there. The trick is to have an accurate enough estimate to avoid an over-contribution penalty, IMO.
Any TFSA contribution room?
Is the daughter trustworthy enough and without the ability to make use of her TFSA room at the moment?
Just throwing some ideas out there.
Cheers
Re: Severance Question
I will suggest that really isn't that big of a deal in the overall scheme of things. The amount of bracket creep is not that much, and the lump sum difference should not be the tail wagging the dog. Too many people look at the absolute 'bad' number on a lot of things rather than the "net" they get to keep. Severances typically cannot be spread over more than one year for any number of reasons, including CRA's scrutiny of corporate tax behaviour, keeping the company books clean, etc.Koogie wrote: ↑10 Oct 2018 09:46 Quite a hit, I believe. She is already in the 47% bracket area and this would definitely put her up into the 53% area. But, it isn't just a matter of moving brackets but simply of the actual $$ hit. This downsizing came out of the blue in the latter part of the year, so there was no way to prepare and rearrange anything (not that she had a lot of leeway anyway).
I've been on the 'handing out' side of generous severance packages 'en mass' 3 separate times in my career. When I pointed out what a severed individual gets to keep from a generous package versus what it could have been otherwise, the angst diminished. My advice is to not get hung up on what could have potentially been if nothing really can be done about it. Grab the 'net' and use it as momentum to move on....
<A little off-topic> We've had similar discussions on how much portfolios move. From a personal 'value' perspective, there is no difference between a $500k portfolio that dropped 30% in the 2008 crisis than a $5M portfolio that also dropped 30% in the 2008 crisis. Joe Q Public (and incompetent media) make the same mistake when complaining about billion dollar profits made by banks each quarter. The absolute number is not relevant. Only the per share number matters.
Edited for context.
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Re: Severance Question
Thanks.Eclectic12 wrote: ↑10 Oct 2018 11:49What sort of RRSP contribution room is she being granted on a yearly basis (i.e. what sort of pension is it)?
Stopping contributing to the pension for Nov and Dec should be a modest increase to whatever is typically granted.
Whatever is granted plus the $2K over contribution allowance should be available Jan 1 next year. With an early part of the year RRSP contribution being eligible for the previous tax year - there likely is an amount available there. The trick is to have an accurate enough estimate to avoid an over-contribution penalty, IMO.
Any TFSA contribution room?
Is the daughter trustworthy enough and without the ability to make use of her TFSA room at the moment?
Just throwing some ideas out there.
Cheers
It is a DB pension (new hires get DC) but I don't know the nitty gritty of the setup (there was a match, I do know that). Since the package will be +/- 250-300K (depending on bonuses) the ability to smooth the tax damage is limited but would have been nice.
Her TFSA is stuffed and so is DH I believe. Daughter only turned 18 this year so I suppose she can shove 5.5k in there but that would be after tax funds anyway.
Re: Severance Question
It was never necessarily a matter of worrying about the bracket creep this year since the increase percentage wise is modest but more a matter of income smoothing. It just would have been nice to have some next year instead when she has no other "income".AltaRed wrote: ↑10 Oct 2018 11:57 I will suggest that really isn't that big of a deal in the overall scheme of things. The amount of bracket creep is not that much, and the lump sum difference should not be the tail wagging the dog. Too many people look at the absolute 'bad' number on a lot of things rather than the "net" they get to keep. Severances typically cannot be spread over more than one year for any number of reasons, including CRA's scrutiny of corporate tax behaviour, keeping the company books clean, etc.
I've been on the 'handing out' side of generous severance packages 'en mass' 3 separate times in my career. When I pointed out what a severed individual gets to keep from a generous package versus what it could have been otherwise, the angst diminished. My advice is to not get hung up on what could have potentially been if nothing really can be done about it. Grab the 'net' and use it as momentum to move on....
<A little off-topic> We've had similar discussions on how much portfolios move. From a personal 'value' perspective, there is no difference between a $500k portfolio that dropped 30% in the 2008 crisis than a $5M portfolio that also dropped 30% in the 2008 crisis. Joe Q Public (and incompetent media) make the same mistake when complaining about billion dollar profits made by banks each quarter. The absolute number is not relevant. Only the per share number matters.
Edited for context.
I would suggest that if packages are what people will live off of for a year or two the absolute numbers do matter. Spreading that amount out over two or three non earning years would end up a much better result for the terminated individual. I understand there are corporate issues at play as well and can see both sides of the coin.
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Re: Severance Question
Where she makes the RRSP contribution in the first sixty days of the year, the deduction can be used against the previous year's income.OhGreatGuru wrote: ↑08 Oct 2018 14:53 ... Unfortunately the RRSP room she earns this year she can't use until next year (other then the Retiring Allowance above). But if she can manage the cash flow, maybe she can use it next year to reduce her taxes.
The risk is that one makes a mistake in the estimate of the RRSP contribution room being added. Where one uses a tax program and has all the numbers - the estimate should be pretty close. There's also the $2K over-contribution allowance to give some leeway.
Cheers
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Re: Severance Question
Sorry. From your description of her age and the number of weeks payout I jumped to the conclusion that she had many years of service. Is she in an industry like hi-tech that has a 'common-law' standard of nearly 2 years for severance because of the NORTEL severance deals?Koogie wrote: ↑10 Oct 2018 09:46 Thanks to all who replied.
" Read about Retiring Allowances in CRA T4040. In a well-run business Pay & Benefits should be able tell her how much of it is eligible."
~ does not seem to be applicable. She has "only" been employed there since 1999, so the adjustment for pre-1996 or earlier wouldn't apply.
...
Re: Severance Question
Several years ago, when I left a large, federally regulated, company, I was given a menu of receivables. I was married to a labour lawyer, at the time, so it was all made pretty clear to me.
There are a lot of subtitles, as I recall.
I was given a severance. This consisted of a number of weeks per year. As it was explained to me, anyone in management who had been there for more than 2 years was entitled to more than 3 weeks per year of service.
There was no penalty for interviews or accepting another job and I confirmed that there could not be, however, had I wished to pursue a new employment start date prior to the termination date, I would have sacrificed the severance.
After that, there was an option to either remain laid-off and go on a call-back list or take a small payout. I'm not sure what the law is here but I took the pay-out as I literally had a contract that started the next day. Some friends took the call-back list and I think they had salary continuance for 6 months. That wasn't a federal law, it was a corporate benefit.
So, to sum up:
- I THINK she is clear to interview wherever she wishes and if they cut her severance, she can lawyer up and do well for herself. It might depend on Ontario law, if her employer is provincially regulated.
- She probably has some options and other benefits, beyond the straight severance.
- How many weeks she is entitled to per year will depend on her level in the company. A low level staff might only be entitled to 2 weeks while a manager could easily get 4.
I will share one other thing.
I started a consulting company and joined forces with a couple of crazy smart dudes. One of them was a CPA/lawyer. He told me that I should start a corporation and make a point of taking only dividends with no salary and I would legally not be employed, therefore, I could take the 6 months salary continuance from the former employer.
The idea seemed greasy at the time and I didn't do it but I regret not doing it. I knew I wouldn't be called back and it could have been an extra $50K that could have been used to purchase a REIT that would pay me $250~375 for the rest of my life. Worst case, I could have given it back and paid a small legal fee.
The general idea that was imparted to me was employment law isn't absolute, nor is it enforced much, so a company can disadvantage laid off workers a bit with no consequence as the legal system would ignore it but if they disadvantage the worker a lot, they would be made to tow the line and probably get a worse deal than if they had been less grumpy.
This is my speculation but I also think it goes the other way; you can bend the rules a bit and be OK. It's interesting to consider the idea that you incorporate and farm out your wife's resume. If you can contract her out, you can either take a dividend out of the business or build up corporate equity for a future withdrawal.
I live in SK, not ON, but I have been advised to do exactly what I described in the previous paragraph by someone who knows. Your wife's layoff could be the best financial thing that's ever happened to you as a couple. Perhaps it's time to enjoy some lemonade.
There are a lot of subtitles, as I recall.
I was given a severance. This consisted of a number of weeks per year. As it was explained to me, anyone in management who had been there for more than 2 years was entitled to more than 3 weeks per year of service.
There was no penalty for interviews or accepting another job and I confirmed that there could not be, however, had I wished to pursue a new employment start date prior to the termination date, I would have sacrificed the severance.
After that, there was an option to either remain laid-off and go on a call-back list or take a small payout. I'm not sure what the law is here but I took the pay-out as I literally had a contract that started the next day. Some friends took the call-back list and I think they had salary continuance for 6 months. That wasn't a federal law, it was a corporate benefit.
So, to sum up:
- I THINK she is clear to interview wherever she wishes and if they cut her severance, she can lawyer up and do well for herself. It might depend on Ontario law, if her employer is provincially regulated.
- She probably has some options and other benefits, beyond the straight severance.
- How many weeks she is entitled to per year will depend on her level in the company. A low level staff might only be entitled to 2 weeks while a manager could easily get 4.
I will share one other thing.
I started a consulting company and joined forces with a couple of crazy smart dudes. One of them was a CPA/lawyer. He told me that I should start a corporation and make a point of taking only dividends with no salary and I would legally not be employed, therefore, I could take the 6 months salary continuance from the former employer.
The idea seemed greasy at the time and I didn't do it but I regret not doing it. I knew I wouldn't be called back and it could have been an extra $50K that could have been used to purchase a REIT that would pay me $250~375 for the rest of my life. Worst case, I could have given it back and paid a small legal fee.
The general idea that was imparted to me was employment law isn't absolute, nor is it enforced much, so a company can disadvantage laid off workers a bit with no consequence as the legal system would ignore it but if they disadvantage the worker a lot, they would be made to tow the line and probably get a worse deal than if they had been less grumpy.
This is my speculation but I also think it goes the other way; you can bend the rules a bit and be OK. It's interesting to consider the idea that you incorporate and farm out your wife's resume. If you can contract her out, you can either take a dividend out of the business or build up corporate equity for a future withdrawal.
I live in SK, not ON, but I have been advised to do exactly what I described in the previous paragraph by someone who knows. Your wife's layoff could be the best financial thing that's ever happened to you as a couple. Perhaps it's time to enjoy some lemonade.
Re: Severance Question
BTW, to learn whether the company is provincially or federally regulated, you need look no further than the company's stat holiday calendar. If they observe federal stats, they are federally regulated and vise-versa.