Questions and Answers

July 01, 2016
Each issue, we will answer one or two of the top questions employers are asking.

How do I report a lump-sum payment made in lieu of working notice for an employee termination without cause?

In these situations, the Employment Standards Act (ESA) requires uninterrupted benefits coverage, which includes pension participation, during the ESA notice period.  Therefore, for the ESA notice period portion of the lump-sum payment:

  • employers must continue to make matching pension contributions for the member; and
  • accrual of pension benefits will continue for the member.

For OMERS reporting purposes:

  • Set the termination date to the end of the ESA notice period.
  • Deduct, match and remit contributions on contributory earnings to the end of the ESA notice period.
  • Calculate and report the pension adjustment (PA) on contributory earnings up to the end of the ESA notice period.

Example

  • Member’s employment is terminated on June 30, 2016.
  • The employer does not provide working notice of the termination.
  • The employer issues a single payment to the member equal to one year’s regular salary.
  • The member worked for the employer for eight years; therefore, the ESA notice period ends on August 25, 2016, which is June 30 plus eight weeks.
  • The employer puts August 25, 2016 as the termination date on Form 143 - Request for an OMERS Plan Benefit, and OMERS contributions are applicable up to that date.

Notes:

1. PA reporting when the ESA notice period extends into the following year
  • Exclude any severance payment portion of the lump sum from contributory earnings

In addition to requiring benefits continuance during the notice period, ESA may also require a severance payment. Under OMERS rules, severance payments are excluded from contributory earnings.

2. PA reporting when the ESA notice period extends into the following year
  • Under the Income Tax Act (ITA), the lump-sum payment is taxable in the calendar year it is issued.
  • This means that if the ESA notice period extends into the following calendar year, there are no earnings in the following year.
  • However, for OMERS purposes, the member would continue to accrue credited service, and you would continue to deduct, match and remit contributions, and calculate and report a PA up to the end of the ESA notice period.
  • The challenge is that without earnings in the following year, a PA cannot be calculated, and a PA must be reported for any period of credited service in OMERS.
  • The Canada Revenue Agency (CRA) has noted that employers would face fewer challenges if they continued regular salary and benefits during the ESA notice period instead of paying the lump sum.
  • We recommend that you contact CRA or your payroll provider if you have to deal with this situation.