Employee Termination’s on a Benefit Plan
The decline of the Alberta economy has seen more requests for extending benefits due to the severance period for lay-off (termination).
When active employees are terminated, it is important the correct termination date is applied. Note, an employee’s benefit coverage ends when employment terminates, which for an employee actively at work, is typically the last day worked.
Severance or Termination pay is the reference used for salary paid in lieu of notice for the statutory notice period. This pay may also include vacation, salary and/or overtime owned to the employee at the time of termination.
In the province of Alberta, even when termination pay is received, the employee’s benefits still end the last day worked.
A severance agreement differ from employment contracts. Once the employee-employer relationship ends, the insured no longer meets the definition of an insurable employee and is no longer eligible for coverage under the group insurance contract.
There may be situations where the employer wishes to extend benefits beyond the date of termination as part of the severance agreement. Under certain circumstances, depending on the insured carrier/provider, they may consider extending coverage for basic life and ad&d (typically to a maximum of $250,000) dependent life insurance, health and dental care benefits for a limited time, providing the extension applies to all employees in a similar circumstance.
Benefits, such as short and long term disability, can not be extended.
If an employer is considering extending benefits into a severance period, it is important they contact the insurance provider prior to offering this to the employee to determine which benefits can be extended, to what amount and for how long, as well as establishing the costs involved.
This information is intended for informational purposes only and is not intended as legal or tax advise. ALWAYS contact a lawyer or accountant for specific tax and legal counseling.
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