Hourly employees are entitled to severance just the same as annual salary employees. There is no difference in severance “eligibility” if an individual is paid an hourly wage or an annual salary.
The way an employee is compensated has no effect on the eligibility or the calculation of severance pay.
The only difference between hourly employees and annual salary employees in regard to severance is, generally, the range of severance an employee is entitled to. This is because higher earning, higher skill employees are usually entitled to more severance than lower-paid, lower skill employees, and, on average, hourly employees make less than annual salary employees and they have lower skill. In other words, hourly employees are generally entitled to smaller severance packages than salaried employees.
Difference Between Hourly Employees And Salaried Employees
A salaried employee is paid based on an annual amount. Their annual salary is divided between pay periods (usually bi-weekly) for the year. To that end, most salaried employees make the same income every two weeks even if they work more or less in any given two-week period.
On the contrary, an hourly employee is paid based on an hourly amount. Their income fluctuates every week based solely on the number of hours they worked. Hourly employees only get paid for the actual hours they put in. Read more here.
One positive of an hourly position is that employees get paid for working more hours, whereas, under an annual salary, an employee would not get paid extra if they put in extra work (except overtime pay, which kicks in at 44 hours).
Salaried workers usually earn more than hourly workers because salary generally means regular work, whereas an hourly wage is generally paid for work that is more irregular nature. In addition, hourly wage jobs are generally less competitive than salaried positions. Therefore, hourly wage jobs generally, by default, pay less.
How To Calculate Severance For Hourly Employees
Technically, in Ontario, there are two kinds of severance pay:
1. Employment Standards Act severance; and
2. Common law severance.
Employees in Ontario are implicitly entitled to common law severance unless they have a termination clause in an employment contract that says explicitly all they get is Employment Standards Act severance.
Statutory Rights Upon Termination For Hourly Employees
If an employee has a contract that says they get Employment Standards Act severance only, then calculating their severance is a simple formula: employees get 1 week of written notice or pay in lieu (i.e. termination pay) for every year of service, up to a maximum of 8 weeks.
Employees who have five years of seniority who work for an employer that has a $2.5-million-dollar payroll get an additional 1 week of statutory severance pay for every year of service, up to a maximum of 26 weeks.
Common Law Rights Upon Termination For Hourly Employees
Common law severance, like statutory severance, is calculated by units of time.
Common law severance provides much more severance than statutory severance. Where statutory severance would only provide a short term employee just one week of severance, common law severance would provide the same employee at least 8 weeks of severance, generally.
There is no fixed formula or rule of thumb for calculating common law severance. Rather, there are only ‘factors’ we rely on to calculate what is the appropriate common law severance amount. The most important factors are the employee’s:
- character of employment (i.e. the job description and the pay);
- length of service;
- age; and
- the availability of similar employment having regard to the experience, training and qualifications of the employee.
There are hundreds of other factors the courts have used in calculating common law severance. Any fact that generally affects how long it will take an employee to find similar employment again may be relevant. For example, some severance factors chosen at random include:
- Specialization and status;
- Industry in recession;
- Custom in industry;
- Failure of employer to assist employee;
- Existence of a non-competition agreement; and
- Whether the employee was induced away from secure long-term employment.
Combining all the factors and reviewing the case law in Canada, we know that lower paid employees generally receive less common law severance. This is because it is easier to replace a lower paid position than a higher paid position.
In addition, we know that low skill employees get less common law severance because it is easier to replace a low skill job than a high skill job.
Furthermore, knowing that hourly wage employees are more likely to have less seniority (i.e. years of service) than salary employees, we know that hourly employees often receive less common law severance. After all, employees with few years of completed service receive much less common law severance than long-standing employees (see infographic).
All in all, as hourly wage jobs are generally low pay, low skill, and low seniority, hourly wage employees generally receive lower common law severance.
The exact amount of common law severance an hourly employee is entitled can be quickly calculated by a law firm who does free consultations.
Quantifying The Severance For Hourly Employees
After it is determined how many weeks of severance an employee is entitled to (whether it be statutory severance or common law severance), it is easy to determine how much to actually pay the terminated employee.
For hourly employees with regular work weeks (i.e. 35 consistent hours per week), then all we have to do is calculate the employee’s hourly wage, times the number of regular hours in a work week, times the number of weeks’ severance awarded to the employee.
Example for regular work week: $16 per hour (hourly wage) x 35 (regular hours per week) x 8 (amount of severance in weeks) = total severance paid to the employee in dollars.
On the hand, if there is no regular work week, then the salaried employee’s work week, for the purpose of severance, is the average amount of the regular wages earned by the employee in the weeks in which the employee worked during the period of 12 weeks immediately preceding the date of termination.
Example for no regular work week: total earnings in the last 12 weeks / 12 x amount of weeks’ severance
Note: Vacation pay must be paid over the statutory notice/severance period only.
Jeff is a lawyer in Toronto who works for a technology startup. Jeff is a frequent lecturer on employment law and is the author of an employment law textbook and various trade journal articles. Jeff is interested in Canadian business, technology and law, and this blog is his platform to share his views and tips in those areas.