You quit, or your employer ends the job: one pay is still coming. That final paycheque is nothing like an ordinary one. It mixes hours worked, vacation you accumulated but never took, sometimes severance — and each of those pieces carries different deductions. Here is what it has to contain, and what the taxman takes out of it.
What the final paycheque must contain
Three amounts can land in it, and they do not follow the same rules.
The hours you worked, first: everything you put in that has not been paid yet, overtime included. That is the least arguable part.
The annual vacation indemnity, next. Vacation you accumulated without taking it does not vanish when you leave: it is wages already earned, and the employer owes them to you in cash. The Act respecting labour standards sets it at 4% of the gross wages earned during the reference year, and at 6% after three years of uninterrupted service. It is owed whether you quit or are fired. The calculation is laid out in the article on vacation pay.
Pay in lieu of notice, finally — but only when the employer ends the job without giving the written notice the law requires. The Act respecting labour standards scales that notice to length of uninterrupted service: one week after three months, two weeks after one year, four weeks after five years, eight weeks after ten years. If the employer does not give it, it must pay the cash equivalent. The law carves out exceptions, serious misconduct above all. A resignation opens no right on this front.
Wages and vacation pay: the usual deductions apply
The Canada Revenue Agency publishes a special payments chart that sets out, line by line, what an employer must withhold on each type of payment. Three lines matter here, and they all say the same thing.
| What is paid | Pension plan | Employment Insurance | Income tax |
|---|---|---|---|
| Salary | Yes | Yes | Yes |
| Vacation pay and lump-sum payment for accumulated vacation | Yes | Yes | Yes |
| Wages in lieu of termination notice | Yes | Yes | Yes |
In other words: your vacation money is not a tax-free gift. It is treated like wages, because that is what it is.
One Quebec-specific point: the CRA writes about the Canada Pension Plan (CPP), but when the province of employment is Quebec, the employer withholds Quebec Pension Plan (QPP) contributions instead. On top of that comes QPIP, the Quebec parental insurance plan, to which the CRA devotes its own box on the T4 slip.
Over a full year at $55,000 gross — a round number, for illustration — here are the five deductions that apply in Quebec:
| What gets withheld | Annual gross | Share of gross |
|---|---|---|
| Federal tax | −$4,016 | 7.3% |
| Provincial tax | −$4,492 | 8.2% |
| QPP | −$3,245 | 5.9% |
| Employment Insurance | −$715 | 1.3% |
| QPIP | −$237 | 0.4% |
| Total withheld | −$12,704 | 23.1% |
| Annual net | $42,296 | 76.9% |
Why the tax withheld looks higher than usual
This is the most common surprise. The final paycheque is large, and the tax withheld looks out of proportion. The explanation lies in the calculation method.
When vacation pay is paid out without the leave being taken — precisely what happens when you leave — the CRA requires income tax and pension plan contributions to be calculated "using the bonus or irregular payments method". Employment Insurance premiums, by contrast, are calculated "in the same manner as you would for regular salary".
What that method means in plain terms: the payroll software acts as if this unusual amount were added on top of your income for the year, then withholds accordingly. The bigger the amount, the higher the percentage withheld.
But withholding is not tax. It is an instalment. In the spring, your return settles the exact difference between what was taken and what you actually owed, and anything over-withheld comes back as a refund.
The amount also stays ordinary employment income. The CRA specifies that it is reported on the T4 slip: Box 14 for employment income, Box 24 for EI insurable earnings, Box 26 for pensionable earnings, and Box 56 for parental insurance earnings when the employee worked in Quebec.
To place your own salary, the Salarium calculator for Quebec applies the same brackets and the same contribution ceilings as the table above.
Severance follows different rules
If your departure comes with severance pay — an amount paid for the loss of employment or in recognition of years of service — it is not treated like wages. The CRA calls it a retiring allowance, "also called severance pay".
Two consequences, spelled out on the CRA page.
First, no pension plan contribution and no Employment Insurance premium is withheld on that amount: the instruction given to employers is "Do not withhold". Severance is therefore not insurable earnings, and it adds nothing to your retirement pension.
Second, income tax is withheld at a flat rate, based on the total paid in the calendar year. For a resident of Quebec: 5% on a total of $5,000 or less, 10% from $5,001 to $15,000, and 15% from $15,001 up.
That flat rate is deceptively low, and this is the classic trap. It covers only the federal share — the CRA page puts no number on the Quebec withholding. And like any withholding, it is not the final tax: severance is added to your income for the year and taxed along with it. Plenty of people discover the gap at filing time. What you really keep from severance pay works through that calculation.
The record of employment, and Employment Insurance
The record of employment is the document Service Canada uses to assess your Employment Insurance claim. The CRA describes the interruption of earnings that triggers it: an employee stops working and their pay is interrupted. When the employer files it electronically, it must do so within "five calendar days after the end of the pay period".
Whether you qualify is another question, and this is where quitting and being fired stop being equivalent. The EI regular benefits eligibility page sets the condition of having "lost your job through no fault of your own", and warns that you may not qualify if you "voluntarily left your job without just cause".
There is also a volume condition: "between 420 and 700 hours of insurable employment" during the qualifying period, meaning the 52 weeks before the claim. The exact number depends on the unemployment rate in your region. How EI benefits are calculated starts from those hours.
Three checks before you close the file
- Count the hours. Compare the ones on the final paycheque against your own record, overtime included.
- Look for the vacation line. It has to be there, and the percentage applied has to match your years of service. If those lines look opaque, how to read a pay stub helps you decode them.
- Watch for the record of employment. Without it, no Employment Insurance claim moves forward.
If an amount is missing and the conversation with your former employer goes nowhere, the CNESST is the body that takes labour standards complaints.
Frequently asked questions
Does my employer have to pay out my accumulated vacation if I quit?
Yes. The annual vacation indemnity covers wages you already earned: it is owed when you leave, whether you quit or are fired. The Act respecting labour standards sets it at 4% of the gross wages earned during the reference year, and at 6% after three years of uninterrupted service. It is not exempt from deductions: the Canada Revenue Agency's special payments chart lists vacation pay and the lump-sum payment for accumulated vacation as subject to the pension plan, Employment Insurance and income tax.
Why was so much tax withheld from my final paycheque?
Because it is not calculated like a normal pay. When vacation pay is paid out without the leave being taken, the Canada Revenue Agency requires income tax and pension plan contributions to be calculated “using the bonus or irregular payments method”: the payroll software treats that unusual amount as extra income and withholds more. Withholding is not the final tax, though. Your income tax return settles the exact amount, and anything over-withheld is refunded to you.
When does my employer have to give me my record of employment?
When the employer files the record of employment electronically, the Canada Revenue Agency states that it must do so within “five calendar days after the end of the pay period”. The document is triggered by an interruption of earnings, meaning an employee stops working and their pay is interrupted. Without that record, Service Canada cannot assess an Employment Insurance claim.
Can I get Employment Insurance if I quit?
Not automatically. The EI regular benefits eligibility page requires that you have “lost your job through no fault of your own” and warns that you may not qualify if you “voluntarily left your job without just cause”. Leaving voluntarily with just cause is still possible, but it has to be justified. You also need “between 420 and 700 hours of insurable employment” during the 52 weeks before the claim, with the exact number depending on the unemployment rate in your region.
Why was only 5% withheld from my severance pay?
Because the Canada Revenue Agency treats severance pay as a retiring allowance, with flat withholding rates. For a resident of Quebec: 5% on a total of $5,000 or less, 10% from $5,001 to $15,000, and 15% from $15,001 up. That percentage covers only the federal share, and it is not the final tax: severance is added to your income for the year and taxed along with it. A balance may therefore remain due at filing time.