Severance pay and EI: when separation money delays your benefits
Separation money normally pushes back the start of EI. A temporary measure suspends that rule. See what the ordinary rule would mean for you.
Money you receive because your job ended, such as severance pay, pay in lieu of notice, a retiring allowance or vacation pay paid out on termination, counts as earnings for Employment Insurance. Under the ordinary rule, Service Canada allocates it week by week at your normal weekly earnings, starting with the week of separation, and benefits begin only once it is used up. With $12,000 of separation money and annual earnings of $60,000, normal weekly earnings are $1,154, so 10 weeks are covered before EI starts. The allocation delays benefits but does not reduce the number of weeks payable. A temporary measure changes this: for claims established, or allocations beginning, between March 30, 2025 and October 10, 2026, separation money is not allocated and benefits can start immediately. In August 2026 the federal government announced its intention to extend the measure. In every case you must apply right away and declare all amounts.
How long would severance delay EI?
Weeks covered under the ordinary rule
10
| Normal weekly earnings | $1,154 |
| Left over for the last week | $462 |
| EI weekly benefit afterwards | $635 |
Under the temporary measure, separation monies do not delay claims established in the covered period.
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How many weeks the ordinary rule would delay EI
| Separation money | Delay with $60,000 earnings | Benefits postponed | Delay with $90,000 earnings |
|---|---|---|---|
| $3,000 | 2 weeks | $1,270 | 1 weeks |
| $6,000 | 5 weeks | $3,175 | 3 weeks |
| $12,000 | 10 weeks | $6,350 | 6 weeks |
| $25,000 | 21 weeks | $13,335 | 14 weeks |
| $50,000 | 43 weeks | $27,305 | 28 weeks |
The delay depends on your normal weekly earnings, not on the benefit rate: the higher your salary, the faster the money is used up. Normal weekly earnings are your regular pay before deductions, without overtime. The "benefits postponed" column multiplies the weeks by the weekly benefit of $635; that money is paid later, not lost, as long as you are still unemployed.
What counts as separation money
- Severance pay under employment standards law, a contract or a collective agreement.
- Pay in lieu of notice, also called termination pay.
- Retiring allowances and payouts of accumulated sick leave credits.
- Vacation pay paid because the employment ended.
- Wrongful dismissal settlements and court awards replacing lost wages.
- Bonuses and gratuities paid on separation.
Some payments are never earnings for EI: lump-sum pension withdrawals transferred to a locked-in vehicle, most workers' compensation settlements for permanent impairment, and payments for moving expenses or legal costs.
How the ordinary allocation works
All separation amounts are added together and allocated at the rate of your normal weekly earnings, beginning with the week of your layoff or separation, regardless of when the money is actually paid. If the total does not divide evenly, the remainder goes to the last week and is deducted from the benefit of that week like any other earnings. Your benefit period is extended by the number of weeks of allocation, up to a maximum of 104 weeks, so you keep access to all your weeks of benefits. The one-week waiting period is served after the allocation ends.
The temporary measure
Since March 30, 2025, as part of the response to United States tariffs, the treatment of money paid on separation is suspended. For claims established, or allocations that would have begun, up to October 10, 2026, severance and vacation pay do not delay the claim, and the waiting period is waived as well. The measure applies across Canada and to all sectors. In August 2026 the government announced that it intended to prolong it; check the official page on temporary measures for the dates in force when you apply. If you are negotiating a package, the structure of the payment no longer affects the start of EI while the measure lasts.
Example: one layoff, two sets of rules
You earn $60,000 a year and are laid off with $12,000 in severance and vacation pay. Under the ordinary rule, the money covers 10 weeks at $1,154 a week, with $462 left for the next week; then comes the waiting week, and benefits of $635 a week start about three months after the layoff. Under the temporary measure, benefits are payable from the first week, and you receive the severance on top. Over the life of the claim the total number of weeks is the same; what changes is how soon the money arrives.
Salary continuance is different
If your employer keeps you on the payroll and continues your salary and benefits for a period instead of paying a lump sum, there is no interruption of earnings yet. Your claim cannot start until the continuance ends, and the temporary measure does not change that, because you are still considered employed. Your record of employment is issued when the salary stops. Insurable hours keep accumulating during salary continuance, which can help you qualify.
Reporting and overpayments
Declare every amount on your application, including amounts promised but not yet paid. If you receive a settlement after your claim has started, tell Service Canada immediately: under the ordinary rule the allocation is redone from the week of separation, and benefits already paid for those weeks become an overpayment to repay. Employers who pay a settlement are required to check whether EI must be reimbursed and to remit that part directly.
Severance and tax
Separation money is fully taxable. Lump sums have tax withheld at source at 10% up to $5,000, 20% from $5,000.01 to $15,000 and 30% above that, with different rates in Quebec. EI benefits are taxable too, and if your net income for the year exceeds the threshold, part of your regular benefits must be repaid, as explained on the page about EI taxes and repayment. A large severance paid in the same year as EI benefits is the usual trigger.