The rules on severance pay in detail

The employer must pay one month’s remuneration for each year of service or any period longer than three months, based on the ‘highest normal, habitual salary’ accrued during the last year of service. For example, if the employee has worked for one year, he or she is entitled to a severance payment of one month’s salary. If the employee has worked for one year and four months, he or she is entitled to two months’ salary. If the employee worked less than three months, he or she is not entitled to severance pay.

Once the salary has been calculated, this should be compared with the cap applicable to the industry. The cap will be three times the average of month’s salary set out in the applicable collective bargaining agreement for the sector and fixed by the Ministry of Labour. For workers not covered by a collective bargaining agreement, the cap will be at the same level as the most favourable one in a collective bargaining agreement for the kind of activities performed by the employer. The resulting amount must be multiplied by the number of years’ service plus any additional period over three months. Finally, the amount arrived at must be compared with the monthly, normal, habitual pay of the employee to check that it is not lower than this.

Note that some employers have voluntary redundancy schemes that are more generous than the statutory obligations. These are used by employers to avoid conflicts with the unions or discrimination cases. In some cases, benefits are also offered, for example, medical insurance or outplacements.

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Author: Funes de Rioja & Asociados

Date: December 2019