Checklist for terminating workers

Customize checklist to fit specific organizational needs
By Natasha Smyth
|Canadian HR Reporter|Last Updated: 04/24/2012

Terminating an employee can be a stressful situation, particularly when the termination is involuntary. A clearly defined payroll checklist can ensure everything is handled consistently and efficiently and nothing is missed in the heat of the moment.

There are two considerations in developing this checklist: Processing a termination of employment and identifying the legislated requirements.

In processing a termination, find out if it’s voluntary or involuntary. This will determine the appropriate course of action and which legislative requirements will apply.

Voluntary termination

Obtain from HR the employee’s letter of resignation, with the last day of work, and any agreed-upon compensation details. Ensure compliance in the jurisdiction that applies. Employment standards will outline details for:

•the timing of final payment requirements

•terms of payment

•method of payment.

Set up (and issue) final pay, including:

•calculation of outstanding vacation dollars owing

•reconciliation of any taxable benefits and process any necessary adjustments

•double-checking any vacation balance accrued, including any vacationable earnings that are paid out with the final pay.

Involuntary termination

Obtain or find out from HR:

•the worker’s letter of termination, with the last day of work

•whether the employee is provided working notice or the effective termination date

•any agreed-upon compensation details.

Ensure compliance in the jurisdiction that applies. Employment standards will outline details for the:

•number of weeks for pay in lieu requirements or working notice of termination

•timing of final payment requirements

•terms of payment

•method of payment.

Set up (and issue) final pay, including:

•outstanding vacation dollars owing

•reconciliation of any taxable benefits and process of any necessary adjustments

•any call-in pay if terminated same day before the end of the employee’s shift

•any pay in lieu of notice

•any severance pay (severance pay is legislated only in Ontario and federally)

•any retiring allowance — calculate eligible and non-eligible portions

•any amounts to be transferred directly into the employee’s registered retirement savings plan (RRSP)

•any lump-sum payment in lieu of benefits (except Ontario)

•any other agreed-to compensation.

•double-checking any vacation balance accrued, including any vacationable earnings that are paid out with the final pay.

How to handle all terminations

•Terminate the employee in the payroll system.

•Complete a record of employment (ROE) within the legislative time frame.

•Correspond with the benefits administrator about termination from the extended health and dental plan, from the registered retirement group plan and the employee’s conversion option for life insurance.

Some jurisdictions have exceptions:

•Ontario is the only province that requires an employer to continue and maintain benefits for a period equal to the notice period when an employee is terminated.

•Ontario, Alberta and British Columbia allow a combination of pay in lieu of notice and notice on termination. While other jurisdictions do not directly address the issue, they will likely allow the same.

•An employer may provide lump-sum amounts in lieu of continuing benefit plan coverage. However, these payments would be taxable to the terminating employee.

•Employers in all jurisdictions must communicate the employee’s 30-day conversion option regarding the individual’s life insurance coverage in force prior to the termination.

If an employee is notified about the termination of employment before the end of his shift, the notice period cannot include the balance of the shift not worked. The employee may also be entitled to what is commonly referred to as call-in pay, as per minimum standards, a collective agreement or company policy.

Pay in lieu of notice is an amount an employer pays as an alternative to having an employee work the notice period. Federally, such wages are considered ordinary employment income and reported in box 14 on the T4. They are not retiring allowances.

The legislated pay in lieu of notice requirements depends on the jurisdiction of employment and length of service. The legislated notice period is the minimum requirement.

Be aware, it’s not uncommon for employers to consider offering more that the minimum based on common-law practices in consultation with a lawyer. Common-law practices will consider the employee’s length of service, age, compensation and likelihood to find other work in a similar position.

As a payroll practitioner, a key function in issuing termination pay is to ensure the payments made are taxed with the appropriate tax method and have the appropriate statutory deductions applied.

Review the payments being made to find out if any are taxed with the lump-sum method or the bonus tax method, for example. As well, review which payments are subject to employment insurance (EI) and Canada Pension Plan (CPP) to ensure the correct statutory deductions are applied.

Complete the checklist as the steps are completed in case there is an interruption, so it is clear exactly where to pick up. Keep the checklist on file with the employee records, in case there is a need to refer back to it.

This basic checklist may not cover specific company policies or collective agreements so it needs customizing for your organization.

Natasha Smyth is vice-president of OnPayroll.ca in North Vancouver, B.C. She can be reached at (604) 987-2622 ext. 227, (800) 955-0806 ext. 227 or nsmyth@onpayroll.ca. For more information, visit www.onpayroll.ca.

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