Pay in lieu explained for Canadian employers

Pay in lieu of notice is the regular wages an employee would have earned during their statutory notice period, paid by an employer without the notice being worked. In legal terms, it is one of three options employers have for terminations without cause: give working notice, pay the notice, or combine the two, as long as the total meets the minimum.

The weeks of notice an employee gets after a termination without cause depend on their tenure and the jurisdiction’s regulations, either provincial or federal. In any case, weeks of working notice and weeks of pay in lieu are interchangeable, so one unworked week of notice becomes one week’s pay. The table below sets out the statutory minimums:

Length of service	Alberta	Ontario	Quebec	BC	Federal
Under 3 months	None	None	None	None	None
3 months to under 1 year	1 week*	1 week	1 week	1 week	2 weeks
1 to under 2 years	1 week	2 weeks	2 weeks	2 weeks	2 weeks
2 to under 3 years	2 weeks	2 weeks	2 weeks	2 weeks	2 weeks
3 to under 4 years	2 weeks	3 weeks	2 weeks	3 weeks	3 weeks
4 to under 5 years	4 weeks	4 weeks	2 weeks	4 weeks	4 weeks
5 to under 6 years	4 weeks	5 weeks	4 weeks	5 weeks	5 weeks
6 to under 7 years	5 weeks	6 weeks	4 weeks	6 weeks	6 weeks
7 to under 8 years	5 weeks	7 weeks	4 weeks	7 weeks	7 weeks
8 to under 10 years	6 weeks	8 weeks	4 weeks	8 weeks	8 weeks
10 years or more	8 weeks	8 weeks	8 weeks	8 weeks	8 weeks
Payment due	10 days after end of pay period, or 31 days after last day	Later of 7 days or next pay day	When employment ends	Within 48 hours	Within 30 days

*Alberta’s threshold is more than 90 days of employment. Federal rules cover federally regulated workplaces such as banks, telecoms, airlines, and interprovincial transport. Sources: Alberta employment standards, Ontario ESA guide, Canada Labour Code, s. 230 and s.247, Quebec’s Act respecting labour standards (s.82), and BC’s Employment Standards Act (s.63).

Statutory notice generally doesn’t apply to dismissals for just cause in Alberta and federally regulated workplaces, or to wilful misconduct in Ontario. Each jurisdiction exempts certain groups, such as some construction workers and certain fixed-term employees. If you’re unsure which side of that line a case falls on, explore our guide about being laid off vs fired.

Since working notice costs the same in wages as pay in lieu, why would a company pay in lieu of notice? Usually because the weeks between the announcement and the exit carry risks that outweigh the extra output:

• Security and access: Employees with access to client data, financial systems, or intellectual property are often walked out on the day. Paying out the notice closes that exposure immediately.
• Team morale: A departing employee who stays for weeks can shape how the rest of the team reads the decision, for better or worse.
• Productivity: People on notice are job hunting, and they should be. The work they do in that window is rarely their best.
• Nothing left to hand over: When a role is being eliminated, a long handover may serve no purpose.

Even so, plenty of employers keep departing employees on through their notice. Careerminds’ Career Transition Support Index shows that 67% of employees made redundant continue working at the company after learning of their job loss.

That’s a lot of people working alongside colleagues while absorbing the news of their own exit. If you opt for working notice, plan for it: agree on the handover, give the employee time off for interviews, and brief their manager on how to handle the weeks ahead. Working notice buys continuity, while pay in lieu buys a clean break, even if you pay for work you won’t receive.

Many employers split the difference, with a few days or a week of working notice for handover and the balance paid out. Canada’s five biggest jurisdictions allow this, as long as the weeks add up to the minimum. Whichever approach you take, write it into your termination policy.

The formula is this: regular weekly wages multiplied by the number of weeks owed, excluding overtime. The differences show up when hours or earnings vary from week to week:

• Alberta: Average wages over the last 13 weeks worked before termination, excluding overtime, general holiday pay, and vacation pay.
• Ontario: Average regular wages over the weeks worked in the 12 weeks before notice was given.
• Quebec: The regular wage, excluding overtime. For commission-based employees, the average weekly wage over the three months before termination.
• BC: Total regular wages for the last eight weeks worked, divided by eight.
• Federal: The employee’s regular rate of wages for their regular hours of work.

Here’s an Ontario example: one employee has six years of service and worked 40 hours a week at $30 an hour, so they’re owed six weeks: 6 × $1,200 = $7,200. When calculating pay in lieu of notice, Ontario employers also owe vacation pay on that amount. At six years of service, the rate is 6%, which adds $432, for a total of $7,632.

Details such as payment deadlines, benefit contributions, vacation pay, and continuous service frequently catch HR teams out, and they tend to vary more than the week counts do. Let’s examine each variable in detail.

The table presented above gives each jurisdiction’s deadline in its bottom row. For pay in lieu of notice, Alberta lets employers choose between 10 days after the end of the pay period in which employment ends and 31 days after the last day of employment. BC’s 48 hours is the tightest by far, and it rarely lines up with a regular pay cycle, so plan for an off-cycle payment. 

Federal employers paying in lieu must also give the employee a written statement of their vacation benefits, wages, severance pay, and other benefits no later than the termination date.

In Ontario, you must keep making the contributions needed to maintain benefit and pension plans through the notice period, and that applies to the termination pay period too. Paying the weeks out in a lump sum doesn’t end benefits early. Alberta bars reducing earnings or other terms and conditions during the notice period, and BC requires consent before conditions of employment change once notice is given.

In Ontario, you can’t schedule vacation during the notice period unless the employee agrees after receiving notice. In Alberta, you can’t require it unless you’d already told the employee in writing, before giving notice, to take it, and banked overtime can only be used with written agreement. Ontario’s vacation pay on termination works as in the example above, and Alberta counts earned but unpaid vacation pay as part of final earnings.

An employee on working notice is still employed, so their service, wages, and terms carry on until the termination date. In Ontario, you can offer up to 13 weeks of temporary work after the termination date without resetting it or triggering new notice. After 13 weeks, the employee is owed fresh notice, and the extra time counts toward their period of employment.

In Alberta, an employee who keeps working past the termination date voids the original notice, so a new one is needed. With pay in lieu, the job ends on the termination date, though Ontario’s benefit obligations still run through the notice weeks.

For payroll, pay in lieu of notice is ordinary employment income. The Canada Revenue Agency treats it as wages, so you withhold CPP or QPP contributions, EI premiums, and income tax as usual, and report it in box 14 of the T4.

Service Canada normally treats pay in lieu as earnings and allocates it to the weeks after separation, which can delay when a former employee’s EI benefits start. A temporary federal measure currently suspends that. For claims or allocations starting between March 30 2025, and October 9 2027, separation earnings aren’t deducted from EI benefits. It’s worth raising in exit conversations, because it changes the financial picture for the people leaving.

No, pay in lieu does not count as insurable hours. It counts as insurable earnings, since EI premiums apply, but CRA guidance lists pay in lieu of notice among payments for which no hours are considered worked. Report it on the Record of Employment as a separation payment, without adding hours for the notice weeks.

Pay in lieu and severance are not the same, although the two often arrive in the same payment. Pay in lieu replaces the notice period an employer chose not to have worked. Severance pay is a separate statutory payment in some jurisdictions, including Ontario and federally regulated workplaces, that compensates for the loss of the job itself and has its own eligibility rules.

For the full picture on pay in lieu of notice vs severance, see our guide to what goes into a severance package and our breakdown of severance pay in Alberta.

Pay in lieu of notice follows a simple formula and has short deadlines. Deciding for or against it, however, is a judgment call with real-life consequences, potentially shaping security, morale, and productivity. Whichever route you choose, make sure to balance strategic priorities with empathy for departing employees.

Speaking of empathy, the best organizations support their departing employees with outplacement services and coaching. Careerminds can help your people start their search with confidence, whether they’re working out their notice or leaving with pay in lieu. Talk to our team of experts about building transition support into your next termination plan.