CD 2011-012

Subject: New Entitlement Codes - Severance Liquidation Payment

June 17, 2011 Updated July 8, 2013

1. Purpose

1.1. The purpose of this directive is to provide information on the new entitlement codes for the lump sum payment in lieu of severance, payable under various collective agreements and authorizing instruments.

1.2. A notice of information to employees concerning the above subject has been included with this compensation directive.

2. Background

2.1. The collective agreements or authorizing instruments provide for the cash-out of the accumulated severance pay as a lump sum amount (in full or in part), provided the eligibility requirements are met. The changes take effect on the day following the effective date of the collective agreement or other authorizing instrument.

2.2. Under the income tax policy, this cash-out of the severance benefit is considered as regular employment income, not a retiring allowance. Therefore, the existing severance pay entitlement codes, ENT 054 (Severance Pay - Eligible) and ENT 280 (Severance Pay - Non-Eligible), cannot be used to process the severance liquidation payments.

Consequently, two (2) entitlement codes will be created in the Regional Pay System (RPS) on June 22, 2011, to process the payments:

1F6 Full Severance Liquidation Payment
1F7 Partial Severance Liquidation Payment

3. Policy

3.1. End of Voluntary Severance

3.1.1. Under the terms of each settlement, the articles on severance benefits for resignation and retirement were deleted from the collective agreements or other authorizing instrument and the provision for voluntary severance will end on the date specified.

3.1.2. The severance benefit will cease to accumulate for all impacted employees. Eligible employees have the option to receive either a full pay-out, to retain their severance benefit for payment upon termination or to receive a partial pay-out with the remainder to be paid upon termination.

3.2. Eligibility Criteria

3.2.1. Eligible Groups

The lump sum amount is payable to active and temporarily struck off strength (T-SOS) employees who were members of the relevant bargaining unit on the specified eligibility date.

3.2.2. Eligible Employee Types

This applies to indeterminate employees, term employees appointed for a period equal to or greater than three months, seasonal employees, and employees working on an "as required" basis (employee type M) for all bargaining status codes, except 67, 69 and 79 (non-employee status). Excluded employees are also entitled to receive the payments.

Term employees of less than three months and casual employees are not entitled to receive the payment.

3.3. Continuous Employment

3.3.1. The payments will be based on the employee's eligible period(s) of continuous employment.

Continuous employment is defined as one or more periods of service in the Public Service, as specified in Section 3 (1) of the Public Service Superannuation Act (PSSA), with allowable breaks as specified in the terms and conditions of employment applicable to the employee.

3.3.2. For the purposes of determining which periods of employment are to be counted towards the calculation of continuous employment, refer to the Public Service Employment Act (PSEA), the Directive on Terms and Conditions of Employment, and/or the relevant collective agreementor authorizing instrument.

3.4. Deductions

3.4.1. The new entitlement codes (1F6 & 1F7) are subject to the following deductions:

federal and provincial income tax
employment insurance (EI)
Canada Pension Plan (CPP) or Quebec Pension Plan (QPP)
Quebec Parental Insurance Plan (QPIP)

3.4.2. The payment is not subject to the Public Service Pension Plan, the Disability Insurance (DI) Plan, the Long-term Disability Insurance (LTD) Plan, the Supplementary Death Benefit (SDB) Plan and the Public Service Management Insurance Plan (PSMIP) deductions.

3.4.3. The payment is not considered part of salary for pay purposes. As a result, entitlements related to pay situations (such as promotions or acting pay), will not be recalculated. However, allowances which normally form part of salary under the relevant agreement (e.g. the supervisory differential for the SV group), are to be used in the calculation of the payment.

The payment is not to be used in calculating the 4% gratuity or other entitlements such as premium pay in lieu of statutory holidays.

3.5. Acting Situations

Employees acting outside of their substantive group and level will not be eligible to receive the payment until they return to their substantive position. In addition, employees whose substantive positions are in another group and are acting in a position within one of the applicable groups, are not eligible to receive the payment.

3.6. Dual Employment

Employees occupying two positions within one of the affected bargaining units and on leave without pay (LWOP) from one of the positions shall receive the payment once.

3.7. Dual Remuneration

Employees working in two positions within any of the affected bargaining units and receiving dual remuneration shall receive the payment once.

4. Options For Terms Of Payment

4.1. In accordance with each settlement, eligible employees will have the option to receive, at their discretion:

a one-time lump sum payment for the full amount of accumulated severance, based on the rate of pay of the employee's substantive position on the effective date specified in the relevant collective agreement or authorizing instrument;
a one-time payment on the termination of employment, based on the rate of pay of the employee's substantive position at the time of termination of employment;
a combination of a one-time partial payment (option (a) above), with the remainder being paid on termination (option (b)).

5. Procedures and Instructions

5.1. Employee Options

Compensation advisors are responsible for providing employees with information on the number of years of continuous employment and the payment options available to them, within the timelines specified in the collective agreement or authorizing instrument.

Employees will be required to provide their compensation advisors with written notification as to which option they have chosen, within the specified timelines. Employees who do not indicate which option they have chosen, before the required deadline, will be deemed to have chosen a one-time payment on termination (option (b) in section 4.1.).

5.2. Data Entry Requirements

5.2.1. Compensation advisors are responsible for manually entering the transactions to process the severance liquidation payments.

Alert: Important

The severance liquidation payments must be entered in a separate supplementary update (as is presently done for the regular termination payments) to ensure that any subsequent cancellations will not impact the processing of other payments, such as overtime.

5.2.2.

This table provides a list of certain data input fields and specifies the information required for each field.

Input Field	Data Input
Field 21 (pay period number/code)	SL ("Severance Liquidation" indicator for grouping of transactions)
Field 63 (effective "From" date)	Start date of continuous employment
Field 64 (effective "To" date)	End date for accumulation of continuous employment
Field 65 (rate base)	0 (lump sum)
Field 66 (rate/amount)	Amount paid (lump sum)
Field 67 (hours/days/weeks/number)	W (H/D/W indicator value)
Field 68 (number of hours/days/weeks)	Number of weeks being cashed out
Field 71 (account coding)	Total number of eligible weeks (up to two (2) decimal places are allowed)

5.2.3. Field 21

There is a new requirement to complete the pay period number/code (field 21) on the transactions associated with this cash-out of severance benefits. This field has been added to the Entitlement - Commence (ENC) screen and must be completed with "SL" (Severance Liquidation) on all transactions. By doing this, it will group the transactions for the same employee in one pay run by "family" of transactions. The entire "family" of transactions is processed as a unit to determine the net amount payable. Note that the entire "family" of transactions will be rejected (i.e. group error) when an error is found in any one of the individual transactions making up the "family".

5.2.4. Fields 63 and 64

The effective "From" and "To" dates must be used to indicate the start and end dates for the full period of continuous employment for which the employee is eligible to receive payment, including cases where the employee chooses to receive a partial payment.

5.2.5. Fields 67 and 68

For indeterminate employees opting to cash out the full amount, the compensation advisors may enter the total number of eligible weeks with up to two (2) decimal places (e.g. 20.25), if applicable. For term employees, the number of weeks must be entered as a whole number (e.g. 20.00).

For indeterminate and term employees opting to cash out a partial amount, the total number of eligible weeks must be entered as a whole number (e.g. 20.00).

5.3. Calculation of Severance Liquidation Payments

5.3.1. Compensation advisors are required to review all periods of service (indeterminate, term or a combination thereof) to establish the employee's full period of continuous employment and to determine the total number of weeks of continuous employment for which the employee is eligible to be paid.

5.3.2. Eligible indeterminate employees are entitled to receive one (1) week's pay for each complete year of continuous employment; and for a partial year of continuous employment, one (1) week's pay multiplied by the number of days of continuous employment divided by 365 (up to the maximum number of weeks specified in the authorizing instrument).

5.3.3. Eligible term employees with at least one year of continuous employment are entitled to receive (1) week's pay for each complete year of continuous employment (up to the maximum number of weeks specified in the authorizing instrument).

5.3.4. The amount payable must be reduced by any period of continuous employment for which the employee has already received a termination benefit or certain types of LWOP, as stipulated in the relevant collective agreement or authorizing instrument.

5.4. Entitlement Commence (ENC)

Compensation advisors are to report the payment by completing an Entitlement Commence (ENC - pay action code (PAC) 18C) transaction with the applicable entitlement code (1F6 or 1F7), using the rate base 0. The indicator "SL" must be entered in field 21.

Alert: Important 5.4. Entitlement Commence (ENC)

Compensation advisors are to continue using the existing entitlement codes: Severance Pay-Eligible (ENT code 054) and Severance Pay-Non-eligible (ENT code 280) to process the regular severance benefits, upon termination of employment.

For situations where an additional amount is due to the employee, as a result of a data entry error by the compensation advisor, or where the payment needs to be recalculated as a result of a retroactive appointment, compensation advisors are to process an (ENC - PAC 18C) for the additional payment. To ensure that the correct details are provided for historical purposes, compensation advisors are required to enter the full payment details on the transaction. In field 68, enter the additional number of weeks being paid, and in field 71, enter the total number of weeks of continuous employment for which the employee is entitled to receive the severance liquidation payment.

The on-line Pro Forma, identified in ARCHIVED CD 2001-016, can be used to enter transactions in the RPS.

Refer to sections 4-4-18-3-1 and 14-6-1 of the Personnel Pay-Input Manual (PPIM) for additional information on pay input requirements.

5.5. Entitlement Recovery

For situations where the employee has been overpaid (e.g. the employee should have been paid $10,000.00 but instead received $12,000.00), compensation advisors are responsible to recover the amount by completing an Entitlement Recovery (ENR - PAC 18R) transaction with the applicable entitlement code (1F6 or 1F7).

The ENR must be accompanied by an Entitlement Amend (ENA) transaction. Refer to subsection 5.6. for additional information.

5.6. Entitlement Amend

For situations where an ENR is reported, or where there was a data entry error in the payment details (such as the total number of eligible weeks or the payment dates) which do not affect the amount paid (i.e. the amount paid was correct), compensation advisors are required to report a PAC 18, ENA.

To ensure that the information is maintained for historical purposes, compensation advisors are required to report the employee's full payment details, including the amount paid.

The RPS has been modified so that no payments will be issued on ENA transactions for ENT codes 1F6 and 1F7.

ENA s will be used to capture the accurate information for the employee's account. ENA s will also be used to reconcile the information for TB reporting requirements. Compensation advisors should, nevertheless, exercise caution to reduce the number of errors on the initial ENC transaction, thus avoiding the need for ENAs.

5.7. Transaction Database (TDB)

Currently, the TDB records are purged after two (2) years. However, for tracking purposes, starting June 22, 2011, all severance-related payment information will be retained indefinitely in the TDB.

The TDB inquiry screen will also be modified to provide an additional search option. Compensation advisors will be able to retrieve all severance-related pay transactions for a particular employee, using the employee's Personal Record Identifier (PRI).

For additional information refer to PPIM 4-4-13 and PPIM 4-4-02.

6. Additional Information

6.1. Tax Waiver

6.1.1. Employees who wish to have an income tax exemption at source, on the full amount or a portion of the lump sum payment, will require a tax waiver.

6.1.2. The Canada Revenue Agency has authorized the use of a special tax waiver form for the severance liquidation payments (see Annex A). This waiver will apply to employees who are contributing all or a part of their payment to a Registered Retirement Savings Plan (RRSP). The form can be used by active and inactive employees, for an amount up to $10,000, if the employees have the available RRSP room for the year of the payment. Employees who wish to transfer more than $10,000 into an RRSP will need to request a tax waiver from the Canada Revenue Agency (CRA) for the full amount.

Updated The Ministère du Revenu du Québec (MRQ) confirmed that they will accept the same special waiver form (Annex A) as approved by the CRA for an amount up to $10,000. Please note that the same conditions that apply to the CRA waiver also apply to the MRQ waiver. Those employees who live and work in Quebec only need to contact MRQ if they require a waiver in excess of $10,000.

Note that the CRA tax waiver can be used only for severance liquidation payments. The waiver cannot be applied to any other type of payment.

All employees must request a tax waiver from the CRA for any reason other than the purchase of an RRSP, including a buyback of pensionable service.

6.1.3. Tax Waivers are to be reported using a PAC 18C (approved input method), or an ENC screen (on-line method), with ENT code 395 (Special Tax Exemption - Federal) and ENT code 396 (Special Tax Exemption - Quebec).

Compensation advisors must ensure that transactions for the tax waiver are reported in the same update as severance liquidation payments 1F6 and 1F7. The effective "from" and "to" dates must match the dates on the severance liquidation transaction (i.e. 1F6 and 1F7). The indicator "SL" must be entered in field 21.

General information concerning tax waivers can be found on the following Web site: ARCHIVED CD 2002-020.

6.2. Buyback of Elective Service pursuant to the Public Service Superannuation Act

Employees who wish to apply all or part of their severance liquidation payment towards the buyback of elective service pursuant to the Public Service Superannuation Act (PSSA), will be required to submit a personal cheque directly to the Pension Centre, once they have received the severance liquidation payment.

For information in this regard, employees can refer to the Service Buyback Information Package available at the following address: Service Buyback Package. They can also contact the Public Service Pension Centre (see the Your Public Service Pension and Benefits Web portal, under "Contact Us").

6.3. Method of Payment: Cheque vs. Direct Deposit

There is no change to the current process for supplementary payments. Therefore, severance liquidation payments will be issued by direct deposit or cheque, based on the direct deposit (DD) indicator for supplementary payments on the employee's Master Employee Record (MER).

Reminder: The direct deposit indicator is automatically turned off on supplementary payments for accounts T-SOS. after April 29, 2008. For Struck off strength (SOS) accounts, the direct deposit indicator is automatically turned off for both regular pay and supplementary payments.

Refer to ARCHIVED CD 2008-008 for additional information.

6.4. Disability Insurance (DI) / Public Service Management Insurance Plan (PSMIP) Long-term Disability (LTD) and Employment Insurance (EI) benefits

The severance liquidation payment will not be offset from benefits provided under the DI or PSMIP LTD plans.

For employees in receipt of employment insurance benefits, there may be a potential impact if the employee chooses a lump sum payment in lieu of severance. Therefore, employees may wish to contact Service Canada about the impact of the options available to them.

7. Compensation Tools And Job Aids

7.1. RPS Reports

The regular RPS payment reports will be produced.

7.2. Web Calculator for Severance Pay

Compensation advisors can use the Public Works and Government Services Canada severance pay calculator in the Compensation Web Applications (CWA) to assist in determining the years of continuous employment and estimated gross payment amount. Refer to CD 2011-006 dated May 5, 2011.

8. Pay Office Responsibilities

8.1. There are no new responsibilities to be assigned to pay offices as a result of this payment. Current pay office procedures remain in effect.

9. PPIM

9.1. The PPIM will be updated to incorporate the changes included in this compensation directive.

10. Inquiries

10.1. Any inquiries on the information contained in this document should be addressed to your Public Works and Government Services Canada Compensation Services Office.

Original Signed by
Carrie E. Roussin

Carrie E. Roussin
Director General
Compensation Sector
Accounting, Banking and Compensation

Reference(s): ENT's 1F6 and 1F7

Annex A

Canada Revenue Agency

Subject: Reduction to Tax Withholding on Your Amount Paid in Respect to the Termination of Severance for retirement and resignation

This is Canada Revenue Agency's approval to allow the Government of Canada to reduce the required income tax on the full or partial amount paid to affected employees in respect of the liquidation of accrued severance for retirement and resignation.

This approval is conditional on your making deductible registered retirement savings plans (RRSP) contributions for the year in which you receive your payment. The deductible contributions have to be made to your RRSP or your spouse's. They have to be based on your maximum RRSP deduction limit even if you contribute them to your spouse's RRSP. They also have to equal to the part of your payment on which tax is not withheld pursuant to this approval. This approval is conditional on you deducting the RRSP contributions on your tax return for the year in which you receive your payment.

This approval applies to the least of the following three amounts:

the part of your amount to be paid in respect to the termination of severance on which you do not want any tax to be withheld;
your RRSP deduction limit for the year you get your payment; and
$10,000

If you use this approval, complete the information below, including the portion of your amount to be paid in respect to the termination of severance for retirement and resignation on which you do not want any tax withheld. Then, give/send the form to your pay advisor to make the changes to the tax withholding on your amount to be paid in respect to the termination of severance for retirement and resignation.

Portion of my amount to be paid in respect to the termination of severance for retirement and resignation on which I do not want any income tax withheld (maximum $10,000):

Name:
Personal Record Identifier (PRI):
Signature:
Date:

Note: You can find your maximum RRSP deduction limit by consulting one of the following:

Most recent Notice of Assessment or most recent Notice of Reassessment
My Account for Individuals
Quick Access
Tax Information Phone Service (TIPS) at 1-800-267-6999. To use TIPS, you will need your social insurance number, month and year of your date of birth, and the total income reported on line 150 of your previous tax return.

Information Notice to Employees

The purpose of this notice is to provide information on the lump sum amount in lieu of severance, payable to employees under various collective agreements or other authorizing instruments.

Changes to Severance Benefits

The articles on the severance benefit payable on resignation or retirement have been removed from applicable collective agreements or other authorizing instruments. As a result, severance benefits for the voluntary termination of employment shall cease to accumulate for impacted employees on the specified eligibility date.

Employee Options

Employees who are eligible to receive a severance liquidation payment will have the option to either cash-out the amount in full, or in part with the remainder to be paid upon resignation or retirement; or to retain their accumulated severance benefit for payment upon resignation or retirement.

Employees will receive a notice providing information on the different options available to them, the number of weeks of accumulated severance to which they are entitled and other pertinent information concerning the severance liquidation payment.

Eligibility Criteria

The lump sum amount is payable to all active employees and employees on leave without pay who were members of the affected groups on the specified eligibility date. This includes indeterminate employees, seasonal employees, term employees appointed for a period equal to or greater than three months, as well as employees working on an "as required" basis. Excluded employees are also entitled to receive the payments.

The lump sum is not payable to term employees of less than three months or casual employees.

The lump sum is not payable for acting situations outside the bargaining unit. Therefore, employees acting outside of the applicable bargaining unit will not be eligible to receive the payment until they return to their substantive position. In addition, employees in an acting position who are from outside the applicable bargaining unit will not be eligible to receive the payment.

Deductions

The lump sum is subject to the following deductions:

federal and provincial income tax
employment insurance (EI)
Canada Pension Plan (CPP) or Quebec Pension Plan (QPP)
Quebec Parental Insurance Plan (QPIP)

The payment is not subject to the Public Service Pension Plan, the Disability Insurance (DI) Plan, the Long-term Disability Insurance (LTD) Plan, the Supplementary Death Benefit (SDB) Plan and the Public Service Management Insurance Plan (PSMIP) deductions.

Reduction/Exemption for Withholding Tax

Tax Waiver

The Canada Revenue Agency (CRA) has provided administrative approval allowing the Government of Canada to reduce the required income tax on the full or partial amount paid. This approval is conditional on you making deductible Registered retirement savings plan (RRSP) contributions for the year you receive your payment.

Updated The approval is for a maximum amount of $10,000, provided you have sufficient RRSP room for the year of the payment and that the amount will be used to purchase an RRSP. The Ministère du Revenu du Québec (MRQ) confirmed that they will accept the same special waiver form as approved by the CRA for an amount up to $10,000. Please note that the same conditions that apply to the CRA waiver also apply to the MRQ waiver.

If you wish to use the tax waiver, complete the form provided in Annex A and return it to your compensation advisor.

Under income tax policy, the cash-out of severance pay is considered regular employment income, not a retiring allowance.

Updated If you wish to have the full amount or a portion of the lump sum payment exempt from income tax, you will require a tax waiver.

To ensure that the waiver is applied before the payment is issued, you must provide the tax waiver to your compensation advisor by the deadline specified in the "Option Notification" provided to you by your department.

In the request to the CRA and MRQ you should indicate that the tax waiver request is for "an early payout of severance pay".

This tax waivers can only be applied to the severance liquidation payments.

Updated You will need to apply for a tax waiver, with the CRA, for the full amount if you wish to transfer more than $10,000 to an RRSP. Employees who live and work in Quebec will also need to contact MRQ if they require a waiver in excess of $10,000.

Buyback of Elective Service pursuant to the Public Service Superannuation Act (PSSA)

Employees can apply all or a portion of their payment towards the buyback of elective service pursuant to the PSSA (including arrears).

It is important to note that the compensation advisors will not be able to transfer the payment to the Pension Centre on your behalf. Once the severance liquidation payment is received, you will be responsible to submit a request for the required amount, along with a personal cheque, to Pension Centre directly.

DI/PSMIP LTD and EI benefits

The severance liquidation payment will not be offset from benefits provided under the DI or PSMIP LTD plans.

For employees in receipt of employment insurance benefits, there may be a potential impact if you choose to receive the lump sum payment in lieu of severance. Therefore, you may wish to inquire with Service Canada about the impact of the options available.

Processing of Severance Liquidation Payments

Compensation advisors are responsible for manually processing the payments. The method of payment (cheque or direct deposit), will be determined by your individual account status for supplementary payments.

Any request for information regarding the foregoing should be addressed to your compensation advisor.