Severance pay needs to deduct EI and CPP?

Fired by my employer while on LTD, negotiated a tiny amount of severance, but my employer is saying it needs to go through their payroll system for deduction of CPP and EI. I haven’t report any CPP and EI for the past years, and I am on approved CPPD. Should Severance also deducting CPP and EI? Wondering if such action will trigger CPPD any problem? I know work income threshold is 5700, but once reported this way on T4, CPP office won’t know if this is work income or severance, and I definitely don’t want such small amount trigger a review. Should I talk to my employer about this? Thank you.

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I would phone Service Canada and not the employer. I suspect the employer must do deductions as if you’re working.

Please let us know what they say.

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In these sevrance situations employers have the option to structure them as a retirement allowance and that would avoid need to do those payroll deductions. It may be that your employer doesn know how to do that, or don’t want to structure it as a retirement allowance.

Either way, it should not affect your CPP, but you should give CPPD the heads up that this is a severance payment and not for work performed.


David Brannen

Disability Lawyer with Resolute Legal

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Thanks David for the reply. I asked my employer if it can be paid as a lump-sum so no cpp and EI deducted. My employer is saying their lawyer particular wanting it to be paid as income not severance. And lump-sum will make it look as severance. Not sure why is that. The negotiated amount is equal to the vacation pay they owe me years ago, however they don’t want to admit it’s owing money through negotiation, once I agreed now only want to pay as income not as severance. I don’t get why. The amount is actually smaller than 5700, do you think I should still call cpp? I am afraid call/without call will trigger for a review.

Severance is in lieu of notice so you’re lucky to get severance (many people on LTD don’t).

The amount is equal to my owing vacation pay years ago. Didn’t get what do you say here, sorry.

It sounds like vacation pay and not severance.

I called service Canada, yes it can be paid as lump sum, a withholding tax from 5% to 30% deducted but it can be transferred to rrsp directly. Will talk with my employer again. Thanks.