How Does Severance Pay Affect Unemployment Benefits in Alberta?

In Alberta, severance pay can impact your eligibility for Employment Insurance (EI) benefits, including unemployment benefits. Here’s what you need to know: 

1. Severance Pay Delays EI Benefits 

• When you receive severance pay (also called termination pay or pay in lieu of notice), Service Canada considers it as earnings. 

• These earnings are allocated over a period based on your normal weekly earnings before termination. 

• You cannot receive EI regular benefits for the period covered by your severance. This means your EI benefits will be delayed. 

2. How the Delay is Calculated 

• The severance amount is divided by your average weekly earnings before termination. 

• The resulting number of weeks determines how long EI benefits will be postponed. 

• Example: 

• If your severance package is $ 10,000 and your weekly salary was $ 1,000, then EI will be delayed for 10 weeks. 

3. When Can You Apply for EI? 

• You should apply for EI immediately after losing your job, even if you receive severance. 

• Service Canada will determine when your benefits will start based on your severance pay. 

4. Exceptions & Special Considerations 

• If your severance is structured as a retiring allowance (e.g., payment for unused vacation or sick days), it may be treated differently. 

• If you return to work before EI starts, you may not need EI at all. 

5. Impact on Other Benefits 

• Severance does not affect eligibility for Alberta Income Support but must be reported. 

• If you are part of a union or have a pension plan, severance might affect other entitlements. 

Need Alberta Employment Law Legal Advice? 

If your employer is offering severance, it may be worth consulting an employment lawyer in Alberta to ensure you are getting the maximum severance owed to you. An employment law firm like Osuji & Smith Employment Lawyers in Calgary can assist with severance negotiations and disputes. 

I have received severance pay and I got a letter from Service Canada saying it is considered like benefits, is that accurate? 

Yes, severance pay is generally considered earnings and can delay your EI benefits in Alberta. 

How Severance Pay Affects Unemployment Benefits (EI) in Alberta 

Losing your job can be a stressful experience, and understanding how severance pay interacts with Employment Insurance (EI) benefits is crucial for planning your finances. In Alberta (as in the rest of Canada), severance pay can directly affect your EI unemployment benefits. This article explains what severance pay entails, how Service Canada classifies it, and how it may delay or impact your EI eligibility. We’ll also walk through calculation examples, discuss what to do if you think Service Canada misclassified your severance, and highlight how Osuji & Smith Alberta Employment Lawyers can assist with severance and EI-related issues. By the end, you’ll have a clear picture of the relationship between severance packages and EI benefits, along with practical steps to protect your rights. 

Definition of Severance Pay 

Severance pay is compensation provided by an employer when your employment ends, typically in recognition of your service or as compensation for the loss of your job. It can go by different names – for example, some employment agreements or tax documents call it a “retiring allowance,” which is essentially severance paid at termination. Severance pay isn’t one single type of payment; it can include several components of a termination package. Common forms of severance pay include: 

• Pay in Lieu of Notice: Money given instead of the required advance notice of termination. For instance, if an employer is required to give 8 weeks’ notice but ends your employment immediately, they might pay you 8 weeks’ salary as pay in lieu of notice. This is often considered part of your severance package. 

• Lump-Sum Termination Payment: A one-time payment of severance. Your employer might give you a lump sum that covers a certain number of weeks or months of compensation. 

• Salary Continuation: Instead of a lump sum, the employer keeps you on payroll for a defined period after termination, continuing your regular pay (and sometimes benefits) for that time. This means you receive your paycheques on the normal schedule for the duration of the severance period, even though you’re no longer working. 

• Retiring Allowance: A term used (especially by the Canada Revenue Agency) to describe severance payments. It generally refers to amounts paid upon retirement or loss of employment, and can include packages for long service or damages for wrongful dismissal. In practical terms, a retiring allowance is severance pay – it’s often eligible for special tax handling (like transfer to an RRSP) but, importantly, it’s still money you receive because your job ended. 

• Other Components: Severance packages might also include payment of unused vacation or sick leave, bonuses, or other allowances. These are also typically paid out upon termination and sometimes folded into the term “severance.” For example, unused vacation pay and even a closure bonus paid due to a layoff are considered amounts paid “to compensate the worker for the loss of employment.”  

All such termination-related payments can be part of your overall severance arrangement. 

It’s important to carefully review your severance agreement to see what’s included. You might see terms like “severance package,” “termination pay,” “pay in lieu of notice,” or “retiring allowance” – collectively, these are funds meant to bridge your transition after job loss. Understanding these terms helps in predicting how they’ll interact with EI benefits. 

Service Canada’s Classification of Severance as Earnings 

When it comes to EI, Service Canada treats most forms of severance pay as “earnings” attributable to your period of employment. In simple terms, EI benefits are meant to cover you during an “interruption of earnings,” so if you received money from your employer for the time immediately after your job loss, the government considers that as income for that period. Here’s how Service Canada classifies severance and why it matters: 

• Severance = Employment Earnings for EI: Service Canada will allocate your severance pay to weeks following your last day of work, essentially treating it like you continued to earn a salary for those weeks. This is true whether the severance came as a lump sum or salary continuance. From EI’s perspective, you’re not experiencing an interruption in income until that severance “runs out.” For example, if you get a severance equivalent to 10 weeks’ pay, Service Canada will count you as having earnings for 10 weeks after your job ended, as if you were still being paid normally during that time. 

• Lump Sum vs. Salary Continuance: No matter how the severance is paid, it’s counted in the period it’s meant to cover. A lump-sum severance will be spread out (on paper) over the weeks following your termination, based on your normal weekly earnings. With salary continuance, you are literally receiving those weekly payments, which obviously count as earnings during those weeks. In both cases, the effect on EI is similar: you won’t receive EI for the duration of time your severance covers. The key difference is mostly in how you receive the money, not in how EI treats it. 

• “Double Dipping” is Not Allowed: You cannot receive both severance pay and EI benefits for the same period of time. The federal Employment Insurance Act prohibits this double dipping – the rationale is that EI is there to replace lost income, and if you’re still getting income (via severance) for a period, EI kicks in only after that income stops. In Alberta and across Canada, you cannot collect EI regular benefits while you are still effectively being paid via severance. Service Canada enforces this by delaying or reducing EI benefits until the severance money’s time-equivalent has passed. 

In summary, Service Canada classifies severance pay and related termination payments as earnings allocated to your post-termination weeks. This classification directly impacts when you can start receiving EI benefits, as explained next. 

Impact on EI Unemployment Benefits 

Receiving severance pay will generally delay the start of your EI unemployment benefits. Since severance is counted as earnings, you are not considered to have a break in employment income until those earnings are used up in Service Canada’s calculations.  

Here are the key impacts on your EI: 

• Delay in EI Eligibility: After you apply for EI, there is normally a one-week unpaid “waiting period” that every claimant serves (like an insurance deductible) before benefits begin. If you have no severance, you’d serve that one-week wait immediately after your last day of work. However, if you received severance, your waiting period will be pushed back to start only after the allocated severance weeks have passed. You effectively don’t begin serving the waiting week until the end of the severance period. For example, if your severance covers 5 weeks after termination, the EI waiting week would be week 6, and actual benefit payments could only start in week 7 (assuming you are otherwise eligible). 

• “Allocation” of Severance: Service Canada will calculate how many weeks your severance covers by dividing the total severance amount by your normal weekly earnings from that job. All those weeks are considered paid already (by your former employer), so EI won’t pay you for those weeks. In other words, EI benefits are postponed for the number of weeks that your severance represents. This is why even a large one-time severance payment can result in a significant delay before EI starts. During the allocation period, you won’t receive EI (and if EI does pay you by mistake and later learns you got severance for that time, you would have to pay it back). 

• Example – Delay Calculation: Suppose your average weekly salary was $ 600, and you receive a lump-sum severance of $ 1,920 (which is roughly 3.2 weeks’ worth of pay). Service Canada will allocate that $ 1,920 to the weeks immediately following your job loss. In practice, it would cover 3 full weeks of $ 600, and a partial week of $ 120.  

In this scenario: 

• Weeks 1–3 after termination: $ 600 per week of your severance is “allocated” as earnings, covering your normal weekly wage.  

Week 4 after termination: the remaining $ 120 of severance is allocated (and typically, no EI is paid for a partial week either since you still had some earnings).  

• Week 5 after termination: this is when you would serve the 1-week EI waiting period (because the prior 4 weeks were filled with allocated severance).  

• Week 6 after termination: EI benefits would begin, since now the severance period plus waiting week have concluded. 

As the example shows, about 4 weeks of severance pay resulted in a 4-week delay of EI (plus the normal waiting week). This aligns with Service Canada’s general rule that your benefit clock starts ticking only once severance (and any other separation earnings) are accounted for. If you had a larger severance covering, say, 8 or 16 weeks, your EI would simply start that many weeks later. (The good news is that if you qualify, you won’t lose those weeks of EI entitlement – the EI benefit period can be extended to accommodate the delay, discussed more below.) 

• EI Benefit Period Extension: When severance delays your EI start, Service Canada will typically extend your EI benefit period accordingly. A standard EI claim runs for a certain number of weeks (depending on your insurable hours and unemployment rate, often up to 45 weeks for regular benefits). If several weeks at the beginning are unpaid due to severance, they don’t want you to lose out on those weeks entirely. In the example above, the severance caused a 4-week delay, and Service Canada noted that a 4-week extension of the benefit period was granted. This means you could still collect your full entitled weeks of EI after the severance period – you’ll just be collecting later than you would have without severance. In short, the total amount of EI you can receive isn’t reduced by taking severance; only the timing of payments is affected. 

• Applying for EI After Severance: A common question is whether you should wait to apply for EI until your severance period is over. Do not wait – you should apply for EI as soon as you stop working (or as soon as possible within a few weeks of your last day) even if you got a severance package. In Alberta, you generally have up to four weeks from your last work day to file your EI application without risking a loss of benefits. You can and should file right away and simply inform Service Canada about the severance. They will process your claim and put your payments on hold until the appropriate time. If you delay applying beyond four weeks, you might jeopardize some of your EI entitlement. Remember, it’s better to apply and have EI delayed than to miss the application window. Even if you can’t get paid immediately because of severance, get your claim in the system! Service Canada will start your benefits the moment you become eligible (i.e. after the severance-covered weeks end). 

• No Overlap Between Severance and EI: As noted, you can’t double dip. This also means if you somehow start receiving EI and later your employer pays you severance covering the same period, Service Canada will require you to pay back EI for those overlapping weeks. This typically happens if severance negotiations take time – for example, you apply for EI and begin receiving payments, and a month later you settle a severance that covers that past month. In such cases, Service Canada considers that EI for that month an overpayment. They will send you a notice of debt to repay those EI benefits (but they won’t charge interest). Sometimes, as part of a severance deal, an employer might hold off on releasing the funds until you arrange repayment with Service Canada or even deduct the EI overpayment from the severance directly to simplify things. The bottom line: you either get income from severance or from EI for a given period, but not both. If severance comes through after EI has paid you, be prepared to reimburse those EI amounts. 

In summary, receiving severance pay will push back your EI benefits. You’ll serve your EI waiting period and start getting cheques only after your severance (and any other termination pay like vacation) is fully allocated. The total weeks of EI you’re entitled to aren’t lost – they’ll just be collected later. Knowing this, you can plan your finances: often, the severance itself is meant to keep you afloat for that initial period. Just remember to apply for EI promptly so you’re ready to receive benefits when the time comes. 

Calculation Examples of EI Benefit Delays Due to Severance 

To make this clearer, let’s look at a couple of practical examples of how Service Canada determines EI benefit delays based on severance pay: 

Example 1: Moderate Severance Lump Sum 

Jane’s employment in Alberta is terminated without cause. Her regular weekly earnings were $ 1,000. She receives a lump-sum severance of $ 4,000 (which is intended to cover four weeks’ pay). Jane applies for EI benefits the day after her last work day. Here’s how Service Canada handles her case: 

• They calculate that $ 4,000 severance equals 4 weeks of Jane’s normal earnings (since $ 1,000/week was her wage). 

• Those 4 weeks (immediately following her termination date) are considered to be already paid by the severance. So, weeks 1–4 after layoff are “allocation of severance” period. Jane will not receive EI for those weeks. 

• Week 5 after her layoff will be counted as the one-week EI waiting period (unpaid). EI’s system waits until after the severance-covered weeks to even start counting this waiting week. 

• Week 6 is the first week Jane can start receiving EI payments. Since she applied right away, Service Canada simply held her claim inactive until this point. Now, provided she meets all other EI criteria (e.g., she’s still unemployed and looking for work), she’ll start getting her EI cheques in week 6. 

• Jane’s EI benefit period (the time frame in which she can collect EI) is extended by 4 weeks to account for the 4-week severance delay. This means if normally her EI claim would have ended after 50 weeks, it will now end after 54 weeks, ensuring she can still receive up to the maximum weeks of EI benefits she qualifies for, just shifted later. 

In this example, the severance effectively covered Jane’s first month of unemployment, and EI picked up thereafter. Jane did not lose any EI entitlement; it was delayed, not reduced. 

Example 2: No Severance (for comparison) 

Consider John, who was also laid off in Alberta but did not receive any severance pay. He applies for EI immediately. What happens for John: 

• Since there’s no severance, there are no earnings to allocate after his last day of work. John’s EI one-week waiting period is served in the first week after layoff. 

• Starting in week 2 after his job loss, John begins to receive EI benefit payments (assuming he’s otherwise eligible). 

This comparison highlights how receiving severance shifts the EI timeline. Jane had to wait 5 weeks (4 weeks covered by severance + 1 waiting week) to get EI, whereas John waited just 1 week. Jane got money from her employer during those 4 weeks (the $ 4,000 severance), whereas John did not. EI essentially kicks in once you stop getting paid by your employer. 

Example 3: Large Severance and Job Search 

Let’s say Ahmed was a long-term employee with a high salary; his weekly pay was $ 2,000. He negotiated a severance of $ 52,000 – equivalent to 26 weeks (6 months) of pay. Ahmed applies for EI right after termination. Service Canada will allocate the $ 52,000 over 26 weeks. That means EI benefits won’t start for him until roughly half a year later. If Ahmed remains unemployed after 26 weeks, he’ll serve the 1-week waiting period at that point, and then EI can start in week 28. The EI benefit period can be extended so Ahmed can still collect his entitled weeks of EI beyond the standard one-year window in this kind of scenario (EI law allows extension of the benefit period when payments are delayed due to “money paid or payable on separation,” up to a certain limit). If Ahmed finds a new job before EI ever kicks in, then he simply won’t end up using the EI he qualified for — but he keeps all his severance. This example shows that a very large severance can effectively cover your income for an extended time, during which EI is on hold. If you do end up needing EI after that, it will be there for you as long as you applied on time and remained eligible. 

Each person’s numbers will differ, but the principle is consistent: Service Canada converts your severance amount into a number of weeks of “earnings,” and shifts your EI start date by that many weeks. Once those weeks pass (and you’ve served the waiting period), EI benefits can begin. Always report any severance or termination pay on your EI application and in your EI reports, so they handle the calculations correctly. If you’re unsure how long your severance might delay your EI, you can ask Service Canada for an estimate or use online resources, but the examples above give a general idea. 

Disputing Service Canada’s Decision on Severance and EI 

Sometimes, individuals feel that Service Canada misclassified their severance or made a mistake in how it was allocated. For example, you might believe that not all of the money you received should count as “earnings” for EI purposes. Perhaps part of your settlement was for something like human rights damages or reimbursement of legal fees, which are not earnings from employment. If Service Canada treats your entire package as allocatable severance, your EI could be delayed more than it should. In such cases, you have the right to dispute or appeal Service Canada’s decision. Here are the steps to take: 

1. Request a Reconsideration: The first step is to contact Service Canada and request a formal reconsideration of the EI decision. This means you’re asking them to take a second look at how your severance was classified or allocated. You typically must request reconsideration within 30 days of receiving the decision or notice of how your severance affected your claim. In your request, clearly explain why you believe the decision is incorrect. Provide details and any supporting documents – for example, if your severance included a portion for “general damages” (which might not be considered earnings under EI rules), include the part of your settlement or release agreement that outlines this. Service Canada will assign an agent (different from the original one) to review your case. 

2. Provide Supporting Evidence: Along with your reconsideration request, submit any evidence that supports your position. This could be your termination letter or severance agreement that breaks down the payments. If, say, $ 5,000 of your total package was explicitly for injury to dignity or human rights, point that out, because amounts for human rights violations are generally not treated as earnings for EI. The same goes for things like pension payouts, reimbursement of expenses, or payment for a non-competition agreement – these may be excluded from EI earnings. Clearly identifying these can help Service Canada see if an error was made in the original assessment. In many cases, misclassification issues arise from how the Record of Employment (ROE) was filled out by the employer. If your ROE is wrong (e.g., it lumped all payments together under “severance” when some parts shouldn’t count), you might also ask your former employer to correct the ROE. You can provide a corrected ROE or a written clarification to Service Canada as part of your evidence. 

3. Service Canada Reconsideration Decision: After you submit your request, Service Canada will review the information and send you a reconsideration decision. They might agree and adjust your EI start date or benefit amount, or they might stick to their original determination. You will get a letter explaining the result. 

4. Appeal to the Social Security Tribunal (SST): If you’re not satisfied with Service Canada’s reconsideration outcome, your next step is to appeal to the Social Security Tribunal of Canada – General Division. This is an independent tribunal that hears EI disputes. You must generally appeal within 30 days of the reconsideration decision. In your appeal, you’ll again outline your case, and there may be a hearing (often by phone or videoconference). For instance, if you strongly believe Service Canada wrongly counted a non-earnings payment as severance, you can present your case to the Tribunal. If the Tribunal agrees, they can order EI to adjust your claim accordingly. 

5. Seek Assistance if Needed: The reconsideration and appeal process can be a bit daunting. You are allowed to have an authorized representative, such as an employment lawyer, assist you with your EI appeal. This can be helpful if your case involves nuanced distinctions between types of termination payments. A lawyer familiar with EI regulations can help argue, for example, that a portion of your settlement was “compensatory damages” not intended as wage replacement, and therefore should not delay EI. We’ll touch more on legal help in the next section. 

Remember, honest mistakes in classification can happen. Service Canada might initially allocate everything as earnings if the info they get isn’t clear. By proactively providing details and following the appeal steps, you have a good chance of resolving any misclassification. The key is to act within the deadlines – don’t delay if you plan to dispute a decision. And while going through this process, continue filing your EI reports (to avoid any issues with claim continuity) even if you aren’t being paid yet. That way, once the issue is resolved, you can promptly receive any benefits owing. 

How Osuji & Smith Employment Lawyers Can Help 

Dealing with severance packages and EI issues can be complex, but you don’t have to navigate it alone. Osuji & Smith, Alberta Employment Lawyers, have extensive experience assisting individuals in these exact situations. Here are several ways Osuji & Smith can help if you’re facing severance and EI challenges: 

• Severance Package Review and Negotiation: It’s crucial to ensure that you’re getting a fair severance package when you lose your job. Alberta has minimum standards (e.g. termination pay as required by the Employment Standards Code), but you might be entitled to much more than the bare minimum, especially for long service or certain kinds of terminations. Osuji & Smith lawyers can review your severance offer to see if it meets your legal entitlements. If it’s lacking, they can negotiate on your behalf for a better severance package – whether that means more weeks of pay, inclusion of lost bonuses/benefits, or other improvements. Having a lawyer negotiate often leads to stronger outcomes because employers then know you’re serious about your rights. Importantly, a lawyer can also help structure the severance in a way that’s advantageous to you: for instance, characterizing some amounts in a manner that could be tax-favored or not unnecessarily delay your EI. While you cannot avoid the EI delay on true severance pay meant to be income replacement, certain portions of a settlement (such as damages for human rights or payment for releasing claims) might be set apart. An experienced employment lawyer knows these distinctions and can strive to maximize what you keep without EI clawing it back. 

• Advice on EI Impact: Osuji & Smith can provide guidance on how your severance will impact your EI claim. They can estimate the delay in benefits and explain what to expect, so you aren’t left guessing. If there’s any ambiguity in how something will be treated by Service Canada, they can clarify it. This advice can be invaluable for planning purposes – you’ll know how long you need your severance to last before EI can kick in, and whether to budget for a potential gap. They will likely advise (as we did above) that you apply for EI immediately and report the severance, and they can answer any questions you have about that process. 

• Challenging Misclassification or Unfair Decisions: If Service Canada decides that your severance disqualifies you from EI for longer than you think is right, Osuji & Smith can assist in challenging that. For example, if your employer misreported something on your Record of Employment, the lawyers can communicate with the employer or Service Canada to correct the record. Should you need to request reconsideration or appeal an EI decision, Osuji & Smith can help you prepare your case, assemble evidence, and even represent you through the appeal. This can significantly reduce the stress of dealing with bureaucracy and improve your chances of success. Knowing the ins and outs of EI law (and the Employment Insurance Act regulations) allows them to pinpoint if Service Canada made an error in applying the rules to your situation. 

• Wrongful Dismissal and Severance Litigation: In some situations, an employer might try to avoid paying proper severance at all – for instance, by falsely alleging cause for dismissal or telling you to go apply for EI instead. In Alberta, an employer cannot refuse to pay a rightful severance and force you to rely on EI; doing so is essentially a wrongful dismissal. Osuji & Smith’s team can determine if you’ve been wrongfully dismissed (for example, not given the severance you deserve) and take legal action to pursue that severance. They have a strong track record in Alberta for securing fair severance even in tough cases. If your employer is pushing you to accept a lowball severance or claiming you aren’t entitled to more because “you can get EI,” you should definitely consult with a lawyer – EI benefits do not erase your right to severance, and an employer who withholds severance could be liable for additional damages. Osuji & Smith can intervene to demand or litigate for the compensation you are owed, while also advising you on managing EI in the meantime. 

• Peace of Mind and Professional Guidance: Beyond the technicalities, having knowledgeable lawyers in your corner simply provides peace of mind. They deal with these issues regularly and can guide you step-by-step. From reviewing that severance letter, to helping you fill out your EI application correctly (so that all severance info is properly disclosed), to standing by you if there’s a dispute, Osuji & Smith can make the process much less overwhelming. This support lets you focus on moving forward (like searching for a new job) rather than getting bogged down in legal and administrative headaches. 

In essence, Osuji & Smith can be your go-to resource for any problems at the intersection of severance and EI. They combine legal expertise with practical know-how about Alberta employment standards and federal EI rules. Whether it’s maximizing your severance, ensuring you’re not shortchanged on EI, or both, they have you covered. It’s often wise to consult an employment lawyer before signing any severance agreement, because once you sign, it may limit what you can get. A lawyer will ensure you understand the full ramifications – including how it affects EI – before you agree. They will advocate to protect your rights and financial interests every step of the way. 

Conclusion 

Key Takeaways: If you receive severance pay after losing your job in Alberta, expect your EI unemployment benefits to be delayed, but not lost. Severance pay – whether it’s pay in lieu of notice, a lump sum, or salary continuance – is considered income for the period following your termination. Service Canada will allocate those earnings and make you wait to start EI until that period is over. You cannot double dip by getting EI while also drawing severance for the same time frame. The standard one-week EI waiting period will be served after your severance allocation ends, which pushes everything back. However, you can still receive the full EI benefits you qualify for once the severance’s effect is gone – your EI claim can be extended so you don’t lose entitlement because of the delay. Always apply for EI immediately or as soon as you can, even if you got a generous severance, to protect your rights to benefits. 

If Service Canada’s treatment of your severance seems wrong (for example, they counted something as earnings that shouldn’t be), you have the right to request reconsideration and appeal, providing evidence to support your case. Keep an eye on deadlines (30 days for most appeals) and don’t hesitate to correct mistakes. 

Facing a job loss is tough, but knowledge is power. Understanding the interaction between severance and EI helps you avoid surprises – like finding out your EI is on hold for months – and allows you to budget accordingly. Use your severance wisely, knowing it may have to last until EI benefits begin. And importantly, know that you have resources and rights. Employers must still pay proper severance regardless of EI, and you should never feel pressured to give up what you’re owed. If you’re unsure about your package or run into issues with EI, reach out for professional advice. Firms like Osuji & Smith, experienced in Alberta employment law, can make a world of difference in ensuring you get both the severance and EI support you’re entitled to. 

In conclusion, severance pay can be a financial lifesaver after termination, but it does affect the timing of EI. By understanding the rules and possibly getting legal guidance, you can successfully navigate the transition. Take the time to review any severance agreement carefully, fulfill your responsibilities (like applying for EI and reporting income), and advocate for yourself. With the right approach, you’ll maximize your severance benefits, receive your EI at the appropriate time, and move forward to your next opportunity with confidence. 

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