Salary continuance is an initiative from employers that offers you an option to receive a salary continuance instead of receiving a lump-sum severance payment or retiring allowance.
Salary continuance is an initiative from employers that offers you an option to receive a salary continuance instead of receiving a lump-sum severance payment or retiring allowance.
Salary Continuance
A salary continuance is a written agreement between the employer and an employee. Whereby employees at a particular company are paid their normal salary for a fixed time frame once they either leave the company or retire. With salary continuance, your salary will generally continue until the earlier of a specified period or until an event such as finding new employment occurs.
Salary continuance provides cash flow to fund ongoing expenses and only amounts paid in the year are subject to taxation. When choosing whether to obtain salary continuance or a lump-sum payment, consideration should be provided to the total taxable income you will get during the current year and possibly future tax years under each option. Tax may be minimized by choosing the option that allows you to make the most of the graduated tax rates in the current and future tax years.
These payments are provided in place of a lump sum payment and are usually preferred as they allow the workers to resume profiting from various other company benefits such as drug, pension, dental, life insurance, and many other schemes.
Salary Continuance Can Be An Earned Income
Salary continuance qualifies as earned income, it is considered regular employment income, and the amounts paid to you over a financial year are subject to tax. However, a lump sum payment will not constitute earned income and thus might serve as a better option depending on your needs.
Moreover, Ultimately deciding which option to go with is extremely subjective and can vary on a case-by-case basis. Playing close attention to your financial situation and needs will help you decide which option is better suited to help you navigate the next steps of your future.
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