The rules on severance pay in detail

At present there are two severance payment schemes in operation in Austria. The old scheme applies to employees who commenced work before 1 January 2003 and the new one applies to employees who commenced work after 31 December 2002 and those who have agreed with their employer that they would transfer from the old to the new scheme.

Under the old scheme, severance is only payable if the employment relationship is terminated after at least three years. If the relationship is terminated by resignation before this without substantial reasons on the part of the employee, by a summary dismissal where the employee is at fault, or by notice from the employee, there is no right to severance pay (unless the employee is entitled to a state pension, or has terminated to take care of a newborn child).

The amount of severance pay depends on the length of the employment relationship. After three years, it is twice the last paid monthly wage. After five years, it increases to three times the last monthly wage, after ten years, four times, after 15 years six times, after 20 years nine times and after 25 years 12 times the last monthly wage.

The new severance payment scheme is rather like a defined benefit pension plan. The employer pays 1.53% of the employee's pay each month into a Provisions-Fund, specially established for this purpose. The contributions are invested by the fund and, at the end of the employment relationship, upon request by the employee, both the capital and profits are paid in cases where severance would have been payable under the old scheme.

In other words, where contributions have been paid for a minimum of three years and the employment relationship did not end by notice given by the employee, early resigning without cause or summary dismissal. Unlike the old system, the contributions are not forfeited, but simply remain in the fund (the so called 'backpack-principle') and can only be taken out if the above-mentioned requirements are met at some point - at the latest, upon retirement.

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Author: Schima Mayer Starlinger

Date: December 2018

 

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