The rules on severance pay in detail
There are no termination payments that apply across the board, apart from payment for accumulated unused holiday. All other termination payments are strictly associated with specific termination grounds.
Types of severance payments:
- For every termination (irrespective of the grounds) the employee is entitled to compensation for accumulated unused paid annual leave.
- Payment in lieu of notice: if one party gives notice of termination to the other but it then terminates the relationship before the end of the notice period, it must pay the other party the amount the employee would have been paid during the unobserved notice period. If one party gives notice and the other party terminates the relationship before the notice period is up, the other party must pay for the unobserved notice period in the same way.
- If the employment contract is terminated because the business closes down or partly closes; for redundancy; reduction in work volume; production stopping for more than 15 working days; upon refusal of the employee to follow the business to a new location; or the position occupied by the employee must be vacated to allow for the reinstatement of an unfairly dismissed employee who had previously occupied the same position; terminated employees are entitled to the employee's gross pay for the period of unemployment, but for not more than one month. If the employee begins work for lower pay during this period, he or she is entitled to the difference.
- Upon termination of the employment relationship by reason of illness, the employee is entitled to gross pay of two months’ salary if the employee has worked at the employer for at least five years and has not received compensation for the same reason during that time.
- If the employment relationship ends when the employee has become entitled to a pension, whatever the grounds for the termination, the employee is entitled to compensation to two months’ salary. If the employee has worked for the employer for at least ten years, s/he will be entitled to six months’ salary. This kind of compensation is only payable once.
- If an employee terminates the employment relationship without notice, but as permitted by law, the employer must pay employee his or her gross pay during the notice period if the contract is indefinite and must pay for the actual harm suffered by the employee, if the contract is fixed. Actual harm means salary for the period s/he remained unemployed after termination, but not beyond the expiry of the fixed term.
- The employer, acting on its own initiative, may offer the employee a payment in compensation for termination of the employment contract. The employee must respond to the offer within seven days, otherwise it will be presumed to have been rejected. If the employee accepts the offer, the employer must pay the employee not less than four months’ salary.
- Upon unfair dismissal, the employee is entitled to compensation from the employer of gross salary for the period of unemployment caused by the dismissal, for up to six months. If, during this period the employee works in a lower paid job, s/he is entitled to the difference between the two wages.
- The compensation for unused paid annual leave is calculated based on the average daily gross salary of the employee over the last calendar month preceding the termination, during which the employee has worked at least ten days. If the employee has not worked for ten working days for the same employer during any month, compensation will be determined based on permanent, basic and additional pay, as agreed in the employment contract.
- For all other types of compensation listed above, the pay used as the basis for calculation is the gross pay received by the employee for the month preceding the month in which the grounds for compensation occurred, or the last month’s gross pay received by employee. Gross pay includes basic pay plus all permanent additional benefits.
Author: Boyanov & Co
Date: December 2019