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Payroll Treatment of Wages in Lieu of Notice

When a company fires an employee, it usually pays a price. Literally. More often than not, fired employees are in line for termination payments known as wages in lieu of notice. How do you treat wages in lieu of notice for payroll purposes? The answer depends on which province is the province of employment. More precisely, it depends on whether the payment is subject to federal or Québec law.

Here’s a look at the tax and payroll treatment of wages in lieu of notice under both federal and Québec rules.
In the U.S., employment relationships are typically at-will. That means the employer can fire the employee at any time and for any reason, with or without notice. Canadian employers can also fire any employee they want at any time. But unless the employment is probationary, the termination is for “just cause,” or another exception under employment standards laws applies, the employer must provide the employee notice of termination.

In lieu of notice, employers typi...

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