Question $1$: What are the main differences between severance pay and pay in lieu of notice? For severance pay, tax is calculated using the Lump Sum Method. For pay in lieu of notice, tax is calculated using the Bonus Tax Method. Severance Pay is not subject to CPP and EI$.$ Pay in lieu of notice is subject to CPP and EI$.$ Severance pay is paid over and above pay in lieu of notice $($often as dictated by legislation or union agreements$).$ Pay in lieu of notice is paid when the employer terminates an employee and does not want him$/$her to finish working the pay period. All of the above.