SSO: Questions and answers on severance

The new provisions of the arbitral award related to severance for retirement or resignation will require all SSO bargaining unit members (both the RO and FI units) to make an important decision in the coming year. Cashing out your severance pay now or later will have important savings and tax implications. The following questions and answers will help you understand this change and guide you in making the right decision on cashing out your severance.

Key points on severance:

  • Severance pay for retirement or resignation will cease to accumulate for employees in this bargaining unit as of April 29th 2015.
  • Everyone, including term workers, with at least one year of continuous employment will be entitled to one week's pay for each completed year of continuous employment. Indeterminate employees will also be entitled to a pro-rated week for a partial year of employment.
  • Everyone, including term workers, with at least one year of continuous employment will be able to choose what to do with their accumulated severance:
  1. Immediately cash out the severance they have accumulated, or
  2. Keep their accumulated severance and have it paid out when they actually resign or retire, or
  3. Immediately cash out part of the accumulated severance and keep the rest of it to be paid when they resign or retire.
  • Everyone has time to decide. Employees will have six months from the date of the arbitral award (until September 29th 2015) to decide which of the options they will choose – cash it all out, bank it until they resign or retire, or cash out some now and bank the rest to cash out when they resign or retire.
  • No one will be forced to take the cash out immediately. But if you decide to cash out all of your severance right away, you will not receive a payment when you resign or retire later.
  • Accumulated severance that is banked and not cashed out immediately will be paid at the salary rate that applies when you actually resign or retire.
  • Under the new collective agreements severance pay will no longer accumulate in the case of resignation or retirement.
  • Severance pay will continue to accumulate for employees who are forced to leave SSO due to layoff, death, termination on probation or because of incapacity or incompetence.

What did we get in exchange for severance?

  • The bargaining teams fought hard to ensure that the trade-off for severance was fair. We achieved wage increases totaling 9.6% over the life of the contract, with full retroactivity – significantly more than what management had proposed in negotiations. The increased wages will accumulate as pensionable earnings and employees will enjoy the benefits of that when they retire.
  • The Union also achieved some concrete victories on longstanding demands, including new protections and rights for employees in the context of work assignments, new job security rights, increases in premiums and new language concerning AWW’s.

Who brought the issue of severance pay to the bargaining table? Statistical Survey Operations

I've been told that severance pay is worth 2% of my salary. Is that true?

No. For employees who know they will stay until they retire, current severance pay is worth 1 week per year of continuous employment (up to a maximum of 30 weeks). That calculates to be 1.9% of pay (1 week divided by 52.176 weeks per year) - provided you retire before reaching the 30 year maximum.

Employees who resign after more than 10 years of continuous employment receive one-half week's pay for each year of continuous employment, or 0.95% of pay, under the previous agreement. Employees who resign prior to 10 years of continuous employment receive no severance pay. Current statistics show that one federal employee resigns for every two or three who retire.

The overall cost of severance as a percentage of pay across the bargaining unit is estimated to be 1.3%.

In comparison, the retention adjustment awarded by the arbitration board and effective December 1st 2013 is worth 4% alone. The overall wage increase for the life of the contract is worth 9.6%.

Impact of part-time employment on severance benefit

For part-time employees, the years of continuous employment are calculated in such a way that they total full time equivalent. The amount of the severance benefit to be paid will be calculated as follows: once the period of continuous employment eligible for severance pay is established all straight time hours worked in that period will be divided by nineteen hundred and fifty (1950). The number of complete years of employment so established shall be multiplied by the appropriate weekly rate of pay to produce the severance benefit.

In the case of an employee with 10 years of half-time employment (average work week of 18.75 hours), you would have your continuous employment calculated at 9750 (18.75*52*10) straight time hours / 1950 = 5 years of continuous employment. If this was your status one month following the date of the arbitral award, you would be entitled to a severance benefit of 5 weeks to be paid at the rate of your substantive classification at the rate effective one month following the date of the award if you cash it out immediately, or at the rate of your substantive position when you retire if you choose to bank your accumulated severance. The weeks would be multiplied by the full-time salary to determine the benefit.

Retirement - Resignation

Why did the PSAC agree to give up severance for retirement and resignation?

In the fall of 2010, when the PA, SV and EB bargaining units reached collective agreements, it was clear that the employer wanted to save money by ending the accumulation of severance for retirement or resignation. In this context, PSAC worked hard to ensure that the employer agreed to some of our longstanding demands and to fair wage increases for employees. Since that time, all collective agreements reached by all Unions in the core public administration and separate agencies have given up severance pay. The SSO bargaining unit is one of the last to reach a new agreement in this round of bargaining, so a clear precedent has been established.

What does this mean for employees who were thinking of resigning?

Under the previous contract, employees who resign before reaching 10 years of employment are not entitled to a severance payout. Those with between 10 and 26 years of employment are entitled to only a ½ week of pay for each year of employment. We negotiated that all employees with at least one year of employment would receive a cash out of one week of pay for each year of employment. For employees with 10 years or more who would have resigned before retirement, this represents a doubling of their accumulated entitlement.

Does the timing of my retirement or resignation make a difference?

As a result of the arbitral award the accumulation of severance for resignation or retirement ends effective April 29th 2015.

There is no reason to delay retirement until the new provisions are in place because severance pay for retirement is paid on the basis of one week for each year of continuous employment.

However, an employee who is considering resignation will benefit from waiting until April 29, 2015. Currently, the severance pay for resignation provides for no severance if you resign before 10 years, and one-half week pay for each year of employment if you have between 10 and 26 years of employment. Therefore, waiting to resign after April 29th 2015 increases your severance pay to one week per year of employment.

Is early retirement considered as a resignation or as retirement under the new severance provisions?

There is no difference if you resign or retire. Under the new agreement, as long as you have at least one year of continuous service, you are entitled to one week's pay for each year of continuous employment for all years up to April 29th 2015. The one week's pay per year of continuous employment applies to both resignation and retirement.

Cash out

What are my options for the severance cash out?

Every employee with at least one year of continuous employment will have three options for the cash out of accumulated voluntary severance calculated at the rate of one week of pay for each year of employment:

1.   Immediately cash out their severance at their substantive position rates of pay.

2.   Retain the accumulated weeks of severance with a payout on termination or retirement at their exit substantive position rate of pay.

3.   Cash out some of their severance (a “round” number of weeks) at their substantive position rate of pay, with the remainder to be paid upon termination or retirement at their exit rate of pay

What is the value of the cash out for me?

The monetary value of the severance cash out varies considerably from person to person, depending on their years of employment, their career plan, and the option they choose for their cash out. As a result of the arbitral award, all employees (including term employees with at least one year of continuous employment) will have a calculation made of total years of continuous employment as of April 29th 2015. The following chart shows the before tax value of the cash out by years of continuous employment and annual salary.

 

 

Years of continuous employment

Annual salary

30,000

35,000

40,000

45,000

50,000

55,000

60,000

65,000

70,000

75,000

80,000

85,000

1

575

671

767

862

958

1,054

1,150

1,246

1,342

1,437

1,533

1,629

2

1,150

1,342

1,533

1,725

1,917

2,108

2,300

2,492

2,683

2,875

3,067

3,258

3

1,725

2,012

2,300

2,587

2,875

3,162

3,450

3,737

4,025

4,312

4,600

4,887

4

2,300

2,683

3,067

3,450

3,833

4,216

4,600

4,983

5,366

5,750

6,133

6,516

5

2,875

3,354

3,833

4,312

4,791

5,271

5,750

6,229

6,708

7,187

7,666

8,146

6

3,450

4,025

4,600

5,175

5,750

6,325

6,900

7,475

8,050

8,625

9,200

9,775

7

4,025

4,696

5,366

6,037

6,708

7,379

8,050

8,720

9,391

10,062

10,733

11,404

8

4,600

5,366

6,133

6,900

7,666

8,433

9,200

9,966

10,733

11,500

12,266

13,033

9

5,175

6,037

6,900

7,762

8,625

9,487

10,350

11,212

12,075

12,937

13,799

14,662

10

5,750

6,708

7,666

8,625

9,583

10,541

11,500

12,458

13,416

14,374

15,333

16,291

11

6,325

7,379

8,433

9,487

10,541

11,595

12,649

13,704

14,758

15,812

16,866

17,920

 

 

Years of continuous employment

Annual salary

30,000

35,000

40,000

45,000

50,000

55,000

60,000

65,000

70,000

75,000

80,000

85,000

12

6,900

8,050

9,200

10,350

11,500

12,649

13,799

14,949

16,099

17,249

18,399

19,549

13

7,475

8,720

9,966

11,212

12,458

13,704

14,949

16,195

17,441

18,687

19,933

21,178

14

8,050

9,391

10,733

12,075

13,416

14,758

16,099

17,441

18,783

20,124

21,466

22,807

15

8,625

10,062

11,500

12,937

14,374

15,812

17,249

18,687

20,124

21,562

22,999

24,437

16

9,200

10,733

12,266

13,799

15,333

16,866

18,399

19,933

21,466

22,999

24,532

26,066

17

9,775

11,404

13,033

14,662

16,291

17,920

19,549

21,178

22,807

24,437

26,066

27,695

18

10,350

12,075

13,799

15,524

17,249

18,974

20,699

22,424

24,149

25,874

27,599

29,324

19

10,925

12,745

14,566

16,387

18,208

20,028

21,849

23,670

25,491

27,311

29,132

30,953

20

11,500

13,416

15,333

17,249

19,166

21,082

22,999

24,916

26,832

28,749

30,665

32,582

21

12,075

14,087

16,099

18,112

20,124

22,137

24,149

26,161

28,174

30,186

32,199

34,211

22

12,649

14,758

16,866

18,974

21,082

23,191

25,299

27,407

29,515

31,624

33,732

35,840

23

13,224

15,429

17,633

19,837

22,041

24,245

26,449

28,653

30,857

33,061

35,265

37,469

24

13,799

16,099

18,399

20,699

22,999

25,299

27,599

29,899

32,199

34,499

36,799

39,098

25

14,374

16,770

19,166

21,562

23,957

26,353

28,749

31,145

33,540

35,936

38,332

40,728

26

14,949

17,441

19,933

22,424

24,916

27,407

29,899

32,390

34,882

37,374

39,865

42,357

 

 

 

Years of continuous employment

Annual salary

30,000

35,000

40,000

45,000

50,000

55,000

60,000

65,000

70,000

75,000

80,000

85,000

27

15,524

18,112

20,699

23,287

25,874

28,461

31,049

33,636

36,224

38,811

41,398

43,986

28

16,099

18,783

21,466

24,149

26,832

29,515

32,199

34,882

37,565

40,248

42,932

45,615

29

16,674

19,453

22,232

25,011

27,791

30,570

33,349

36,128

38,907

41,686

44,465

47,244

30

17,249

20,124

22,999

25,874

28,749

31,624

34,499

37,374

40,248

43,123

45,998

48,873

Here are some examples:

  • A term employee who has built up 4 years of continuous employment who is currently making $30,000 per year would be entitled to receive a cash payout of $2,300 before tax.
  • An employee that would have resigned after 9 years would have received zero severance pay. Under these payout provisions, if that employee is making $30,000 per year, he or she would be entitled to an immediate cash pay out of $5,175 before tax.
  • An employee with 20 years of half-time employment making $30,000 per year who resigns would have previously been entitled to 5 weeks severance ($2,875). This employee now is entitled to double the payout to a full 10 weeks, or $5,750 before tax.

Note that the payouts will actually be calculated at the rate of pay in effect one month following the date of the arbitral award, after all wage increases negotiated in the new collective agreement have been applied.

If I take the cash out now, will I still be entitled to severance pay if I were to be laid-off sometime in the future?

Yes. But any weeks of severance you have taken under the cash out will be subtracted from the number of weeks of severance you are entitled to under the lay-off provisions of the severance article.

If I take a full or partial payout of my severance will the number of years of severance I cash out reduce my vacation leave employment?

No. The tentative agreement contains language to clarify that the cash out does not reduce the amount of vacation leave that you earn.

If the tentative agreement is ratified, how soon can I expect to get the cash out of my accumulated severance if I choose to take some or all of it right away?

The employer has three months following the date of the arbitral award (until June 30th 2015) to notify employees as to how much severance pay they have accumulated. As an employee, you will have six months from the date of the arbitral award (until September 29th 2015) to make a decision. Depending on the number of employees who choose to cash out some or all of their accumulated severance, it could be some months before cheques are actually issued.

What are the advantages of waiting to cash out until I resign or retire?

If you take the voluntary severance cash out now, each week of severance pay will be calculated on the substantive rate of pay in effect one month following the date of the arbitral award, after all the new wage increases takes place. If you cash it out when you resign or retire, it will be paid at your exit rate of pay. For employees who expect to be promoted throughout their career, their exit rate of pay could be considerably higher than their current substantive position rates of pay.

Are there any restrictions on a partial cash out of severance?

You must take a round number of weeks, e.g. 1, 2, 3, 4 etc.; no fractions of a week.

If choose not to cash out my severance now, will it continue to accumulate until I retire?

On retirement, you will be entitled to receive whatever weeks you had accumulated up to one month following the date of the arbitral award, multiplied by your rate of pay at the time of retirement. There is no further accumulation of severance entitlement after one month following the date of the arbitral award for cases of resignation or retirement.

Is the severance cash out considered as pensionable earnings?

No. Severance pay has never been considered as pensionable earnings and this hasn't changed.

Can I roll my cashed-out severance into an RESP as opposed to an RRSP?

You may do whatever you wish with your cashed-out severance. Any choice of investments is up to you.

What happens if I do not take the cash–out, but then later resign before I could retire? Does it mean I won't get any severance pay?

You will receive your accumulated severance pay.  You have the option of banking your accumulated severance and it is payable either when you retire or when you resign.

Timeline

Why does the severance pay-out take effect one month following the date of the arbitral award (on April 29th 2015) ?

By taking place one month following the date of the arbitral award, it means that the severance payouts will be based on the rates of pay in effect after all the wage increases contains in the agreement are in effect.

When do you have to be on strength to qualify to receive the severance termination benefit?

You must be on strength one month following the date of the arbitral award (April 29th 2015), the day the new severance provisions come into effect.

How long do I have to make my choice?

Employees will have six months from the date of the arbitral award (unitl September 29th 2015) to make their choice for the cash out.

Layoff

Do I still get severance if I am laid off?

Yes. Severance for involuntary departure, including lay-off, continues to accumulate under the new collective agreements. In addition, members with over 10 years of employment will get an additional week's pay of severance in the event of lay-off, and members with over 20 years of employment will get two additional week's pay of severance on lay-off.

Term employees

I am a term employee. Do I benefit from the cash out?

Yes. Under the previous collective agreement, most term employees would not have been eligible to receive severance pay when their terms came to an end. Given that many term employees do eventually move onto indeterminate status, the PSAC was able to negotiate that term employees also get the cash out. However, the cash out will only apply to those employees who have completed one full year of employment as of one month following the date of the arbitral award.

Continous employment

Do the changes negotiated affect my total period of continuous employment?

No. We have not negotiated changes to the definition of continuous employment. The employer will notify each employee of their total period of continuous employment within three months of the arbitral award.

What is the definition of continuous employment?

In our collective agreement, continuous employment is defined by reference to the Terms and Conditions of Employment Policy. This directive indicates that the Terms and Conditions of Employment Directive to the Treasury Board applies:

For most employees, the most relevant part of the definition is:

20.1 For the purpose of this Appendix, the following periods count as continuous employment:

a) in respect of a person appointed to the core public administration on an indeterminate basis or on a term basis for three months or more:

1.   immediately prior service in the core public administration or the public service on an indeterminate basis or on a term basis for three months or more;

2.   a combination of prior service in the core public administration and the public service on an indeterminate basis or on a term basis for three months or more;

3.   immediately prior service in the Canadian Forces or the Royal Canadian Mounted Police provided that the person was honourably released and has made or makes a valid election to contribute for that service under the Public Service Superannuation Act (the effective date will be the date the election is completed) provided that these periods of service are not separated by more than three months;

What is included in continuous employment?

As outlined in the definition, continuous employment includes your current period of employment as well as period in the core public administration and public service provided that these are not separated by more than three months.

Which leaves without pay are deducted from continuous employment?

Our collective agreement states that leaves without pay of greater than three months for reasons other than  illness are  to be deducted from continuous employment. This is found in the “Leave General” article of the collective agreement.

In the SSO collective agreements, the wording is at Article 29.09 for the RO and 29.07 for the FI.

I was off on extended sick leave without pay for a year. Will severance be subtracted from this?

No. As per the definition, only leave without pay of over three  months “for reasons other than  illness” is deducted.

I took a year of maternity and parental leave. Does that reduce my period of continuous employment?

No. Under the maternity and parental leave language negotiated in our collective agreement by the PSAC, periods of maternity and parental leave are not deducted from the period of continuous employment.

I took a year of leave without pay for the care of immediate family. Is the entire year subtracted from my period of continuous employment?

Yes, the entire year will be deducted from your period of continuous employment, as per the wording of the Leave General article shown above.

Indeterminate employees

Does an indeterminate employee with less than one full year of employment receive severance at a pro-rated amount?

Yes.

Acting in another bargaining unit

Would a member acting in a position outside the SSO bargaining units be entitled to cash out their severance?

A member acting in a position in another bargaining unit would fall under that contract and will not be entitled to cash out severance unless the “acting” bargaining unit has  signed similar language.  When the acting period ends and the member returns to their own bargaining unit, the provisions of the new contract will apply. The member returning to the SSO bargaining units would have access to the same three options and would have three months to choose.

Break in Service/Service Date

How will the new severance provisions affect an employee's service date for leave, seniority and pension entitlements?

The new severance provision does not affect an employee's service date or seniority.

Less than/more than 10 years of continuous employment

An employee with less than 10 years of continuous employment is leaving SSO. Will they be entitled to severance pay?

An employee who resigns with less than 10 years of continuous employment any time before one month following the date of the arbitral award would not be entitled to severance pay. If the employee leaves after that date, she/he will be entitled to the severance termination benefit of one week's pay for each year of continuous employment.

An employee with over 10 years of continuous employment resigns before one month following the date of the arbitral award. Will they be entitled to severance pay?

Any employee who resigns with over 10 years of continuous employment would receive half a week of severance pay per year of continuous employment.  If the employee leaves after that date, she/he will be entitled to the severance termination benefit of one week's pay for each year of continuous employment.

Buy Back of Pensionable Service

Can I use my severance payout to buy-back service for my pension? Will taxes be deducted?

The employer has confirmed that employees who are eligible to buy-back pensionable periods will be able to use their severance payout for this purpose. To avoid or reduce tax deduction at source, an employee who wants to use this option will need to complete and submit to CRA a tax waiver form (Form T1213).

I am currently buying-back some pensionable service. Will this count towards the calculation of my severance pay?

Severance pay is based on your total period of continuous employment, not pensionable service. Although the two concepts OFTEN add up to the same amount of time, they are separately defined and calculated. Generally speaking, buying-back pensionable service does not increase the calculation of continuous employment.

Income tax

Is income tax the only deduction from the severance cash out payment?

The severance cash out payment is not subject to PSSA pension contributions. EI and CP/QPP may be deducted from the severance payment, if the employee has not yet reached their maximum annual contribution limit at the time the payment is made.

What are the tax implications of the cash out?

There are three ways of reducing tax deductions on the payments. For the immediate cash pay-out, the only option for reducing tax at source is for individual employees to use personal unused RRSP room. For example, if an individual has $20,000 of unused RRSP room, and they receive a cash payment of $20,000, then the employer will not withhold income tax on the $20,000.

For the deferred pay-out at retirement members can benefit from a special RRSP contribution on retirement allowances of $2000 for each year of employment up to and including the year 1995. Note that there is an additional retiring allowance for each year of employment up to 1989 but this may be offset by your participation in the Public Service Superannuation Plan during this

period. Both of these special provisions can only be used upon termination and cannot be used for the immediate cash pay-out. Members should consult the latest Canada Revenue Agency Income Tax Interpretation Bulletin on severance pay (Retiring Allowances) for complete details.

The third way of reducing the tax payable on the deferred option is to retire/resign early in a taxation year when you expect the rest of your income to go down.

Newly-hired indeterminate employees (less than one year)

  • Employees with less than one year of continuous employment are entitled to a pro-rated week for their partial year of employment.
  • All recently-hired indeterminate employees that are part of the SSO bargaining unit will receive a severance cash-out payment that corresponds to the time they worked up to one month following the date of signing of the arbitral award.

Additional questions and answers

How can I let my employer know what choice I want to make?

You will be provided with a personalized form from your compensation advisor indicating your level of continuous employment, and estimating your severance payment. Fill out that form to make your choice and return it to your compensation advisor.

What are my choices again?

There are three choices:

1.   Immediately cash out the severance you have accumulated, or

2.   Keep the accumulated severance and have it paid out when you actually resign or retire, or

3.   Immediately cash out part of the accumulated severance and keep the rest of it to be paid when you resign or retire.

When do I have to make my choice?

The deadline for making your choice is six months following the date of the arbitral award (until September 29th 2015).

What happens if I do not make my choice by the deadline?

Employees who do not make their choice by the deadline will be deemed to have chosen option 2 (payout when you retire or resign).

I want to place all or some of the money into my RRSP? What do I do?

The employer will be providing detailed information on this. If you wish to place $10,000 or less into your RRSP, ensure you have unused RRSP contribution room and fill out the form provided by the Employer. If you want to place more than $10,000 in an RRSP, you will need to request a Tax Waiver Form from the Canada Revenue Agency or Revenu Québec. Either form must be attached to your options sheet when you return it to your compensation advisor. If you do not attach one of these forms, the employer is required to withhold income tax based on the value of the severance payment.

I want to roll-over more than $10,000 into a RRSP and understand I have to contact the Canada Revenue Agency for a Tax Waiver Form. When should I do this?

If you think you want to rollover more than $10,000 and have unused RRSP contribution room, you should apply to CRA immediately. It can take several weeks for CRA to issue the forms, and it could take much longer given the expected volume. Residents of Quebec may also have to fill out a separate form for Revenue Quebec.

What if I want to use some of my severance payout to buy-back pensionable service?

Employees wishing to purchase prior service are to contact the Public Service Pension Centre who will advise employees on the required forms.

I want to place money into a Tax Free Savings Account (TFSA). What do I do?

Contributions to a TFSA are not tax deductible. Any contribution to a TFSA must be made using net income.

I disagree with the calculation of my period of continuous employment provided by the employer. What do I do?

Contact your compensation advisor. If the issue is simply one of missing information, the problem should be resolved at that level. If you think there is an error based on misinterpretation of the rules regarding continuous employment calculations, contact your local shop steward for assistance.

Is the payment in lieu of severance based on acting pay or the pay of my substantive position?

Substantive. The clause of the severance pay article in the new collective agreement specifies that payments will be made based on the salary of your substantive position.

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April 17, 2015
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