logo
The Professional Institute of the Public Service of Canada > News & Events > Communications Magazine > Vol. 37, No. 1, Spring 2011 > Understanding Severance Pay
Decrease Text Size Increase Text Size
Logo

Understanding Severance Pay

Debi Daviau

Contributor:
Vice-President Debi Daviau
Full-Time Vice-President

Background

Sample calculations on severance pay can be found under Services/Collective Bargaining

The Treasury Board is actively seeking an expedited agreement with our CS, RE, SP, SH, NR, and AV Groups. They have made it abundantly clear to our representatives that termination of our severance pay for voluntary departures is a pre-condition to a settlement in this round of bargaining. Failure to gain an agreement on this item will result in an impasse at every table (whether we expedite the bargaining process or not). Severance pay provisions were negotiated as part of our first collective agreements in the late 60s and it has been an important part of our compensation package since that time. Simultaneously, in 1969, members gave up an existing right to cash in surplus sick leave.

Aviva Ad

Current provisions for severance pay

The vast majority of our collective agreements provide for severance pay when you leave the federal public service. Departure from service can be voluntary (i.e.: resignation or retirement), or involuntary (i.e.: lay-off, termination or death). The current provisions provide for a severance pay-out for both voluntary and involuntary departures at varying rates for indeterminate employees with at least ten years of service. For retirements, the rate is commonly one week’s pay for each complete year of continuous employment to a maximum benefit of thirty weeks’ lump-sum payment when you retire. Its value works out to approximately 1.9% of your salary per year, until you retire. For resignation it is ½ week per year to a maximum of 13 weeks pay, or approximately 1% of salary per year. These provisions are not nearly as generous as the packages for government executives.

The PSAC Deal

Three of five bargaining tables under the Public Service Alliance of Canada (PSAC) agreed to a three-year deal (1.75%, 1.5%, 2.0%), which included the elimination of Severance Pay accumulation for voluntary departures. Essentially, they exchanged a 0.75% salary increment for 1.9% of salary per year until you retire. Their severance deal also included various other changes. These include a voluntary immediate cash-out of severance accumulated to date (minus the taxes), which would now apply to those with less than 10 years of service and to term employees; employees may also opt to defer the payment of this benefit until they retire to benefit from additional pay increases. PSAC was motivated to accept Treasury Board’s demand to relinquish severance because it felt the government’s severance liabilities posed the threat of layoffs. Currently, two of five PSAC tables have refused to relinquish their severance, and three other bargaining units have concluded negotiations successfully without losing their severance pay (Union of Taxation Employees, Association of Canadian Financial Officers and Federal Government Dockyard Trades and Labour Council Canada).

PIPSC Position

As legitimate as PSAC’S reasons may be, the Institute has different concerns and priorities, which have persisted through multiple rounds of bargaining. For us to even consider a similar deal on severance pay Treasury Board must address the specific concerns of professionals. By chance or by design, the severance proposal divides PIPSC members; young against old, long-serving employees against new hires. Pitting member against member – and inviting existing members to relinquish a right at the expense of future public colleagues serves the employer’s interest, not those of the Institute.

We will fight to keep our severance pay, as this is an important part of our overall compensation package. Many PIPSC professionals are paid significantly less than their private-sector counterparts. Severance pay is just one small way to assure that we have the best and brightest professionals, innovators, and producers serving Canadians.

Tax Implications

Members who may be tempted to surrender severance pay in exchange for access to the money now should be aware that unless they have the ability to completely tax shelter the payout, the government will collect its share, reducing the payment by almost 50% in taxes. However, if severance is preserved until you retire, there are other options available for tax deferral and lower rates.

Can the government legislate?

The possibility is technically always there. In the past, under exceptional economic circumstances, government has justified its right to change previously negotiated public service agreements through legislation. Given this fact, and the legislation which impacted our previous round of bargaining (i.e. the Economic Restraint Act, or Bill C-10), it seems unlikely that the government will legislate to change negotiated public service agreements so soon again.