Terminating an employee: final pay, the vacation payout and the ROE

Once employment ends, payroll has a deadline. The decision is a legal and management call; the last cheque, vacation payout, Record of Employment and year-end slips are payroll, where small employers get caught out. Here is the sequence for a British Columbia employer.

Three clocks run at once when someone leaves, and the ROE is the one most often missed. Ask what is due, and when.

Working out an average day’s pay for a B.C. statutory holiday? The BC stat pay calculator does it, and settles the qualifying test first.

When the final paycheque is due: 48 hours, or six days if they quit

1. All wages owing — within 48 hours if the employer ends the employment; within six days of the last day or the day of quitting, whichever is later, if the employee quits.
2. Compensation for length of service, where it applies.
3. Vacation pay — always paid out.
4. The Record of Employment, on its own clock.

Section 18 of B.C.'s Employment Standards Act sets two clocks. If the employer ends the employment, all wages owing must be paid within 48 hours of the termination. If the employee quits, the employer has six days after the last working day or the day the employee quit, whichever is later. In B.C., “if an employee quits how long do I have to pay them” has a short answer: six days, counted as set out above.

“Wages” is broad. The Employment Standards Branch’s reading of section 18 includes accrued statutory holiday pay, overtime, vacation pay, time banks, length-of-service compensation, group termination pay and earned commissions. On a semi-monthly cycle, someone let go on the 3rd cannot wait for the 15th. Under the BC final pay rules, every one of those items belongs on the final cheque, inside the same 48-hour or six-day deadline.

Compensation for length of service

In B.C. an employer ending someone’s job can give written working notice, pay compensation for length of service instead, or combine the two. The statutory minimum is tied to length of employment:

A week’s pay is total wages over the last eight weeks divided by eight, including salary, commission, statutory holiday pay and paid vacation, excluding overtime. Notice cannot run during vacation, leave, layoff or medical absence; pay instead. None is owed if the employee quits, retires or is fired for just cause, among a few other exceptions.

Two cautions. These are minimums; common-law notice can be much larger. And just cause is a legal question, so confirm the entitlement with an employment lawyer before payroll.

Vacation pay always comes out

All remaining vacation pay goes on the final cheque, including 4% of wages for staff with under a year of service, unless employed five calendar days or less. See vacation pay rules for Canadian employers for how the liability builds.

The Record of Employment

An ROE is required whenever an employee with insurable earnings has an interruption of earnings, whether or not they claim EI. Paper ROEs are due within 5 calendar days of the interruption starting or of the employer learning of it. Electronic ROEs on weekly, biweekly or semi-monthly payrolls are due within 5 calendar days after the pay period containing it ends.

On a monthly or 13-period payroll, the deadline is the earlier of 5 days after the pay period ends or 15 days after the first day of the interruption. Our walkthrough of completing the Record of Employment covers the block-by-block detail.

How the payment is taxed

This part is federal, so it works the same everywhere in Canada. The label on the cheque matters less than what the payment is for:

• Wages in lieu of termination notice are employment income. Income tax is calculated using the bonus or irregular payment method; CPP contributions and EI premiums are withheld as they would be on regular salary. The amount is reported in box 14 of the T4, with EI insurable earnings in box 24 and pensionable earnings in box 26.
• A retiring allowance — damages for loss of employment, or a payment in recognition of long service, including unused sick-leave credits — is treated differently. No CPP and no EI are withheld. Income tax comes off at the lump-sum rates: 10% on $5,000 or less, 20% from $5,001 to $15,000 and 30% above $15,000, with lower federal rates for Quebec. It is reported on the T4 using code 66 for the eligible portion and code 67 for the non-eligible portion.

If one lump sum blends the two without a breakdown, the CRA generally treats it all as a retiring allowance. Unused vacation pay and salary continuance are not retiring allowances; they remain employment income. The split sets your source deduction remittance, so settle it before the cheque is cut.

The year-end tail

A mid-year termination does not close the file. Final earnings and retiring allowance codes go on the T4, EI insurable earnings must reconcile to the ROE, and the usual retention rules apply. Add the departure to your payroll year-end checklist and the February slips stay uneventful.

The bottom line

Terminations fail on process, not arithmetic: confirm the entitlement with a lawyer, pay within 48 hours, characterize the payment before withholding, and file the ROE on time. CPA-run payroll services keep deadlines and slips aligned.

If you want the answer for your own company rather than the general case, send the question and a CPA answers, usually the same business day.

A termination touches the final cheque, the ROE and the year-end slips at once — the payroll obligations that surround it sets out how those pieces fit together.

This article is general information for Canadian business owners and is current as of July 2026. It is not tax, legal or accounting advice, and your situation is unique, so please speak with a CPA before acting on anything here.

Working through this locally? We advise owners on it as an accountant in Abbotsford.

If you would rather not run final pays and ROEs yourself, payroll is part of our monthly package from $325 a month.