The rules on severance pay in detail

There is a statutory obligation on the employer to pay severance to an employee, if the employment contract concluded with the employer:

  • lasted for at least two consecutive years, and
  • was terminated by the employer for reasons other than the employee’s behaviour.

The calculation is made as follows:

Severance pay cannot be less than one third of the average monthly salary earned by the employee in the three months prior to termination, for every full year of employment. Severance pay can be set in the employment contract, but this statutory minimum must always be respected.

The maximum amount of severance pay cannot be higher than six average months’ salary, as earned by the employee in the three months prior to employment termination, unless otherwise stipulated in the collective agreement, the internal rulebook of the employer, or the individual employment contract.

If the employee has suffered an injury at work or a professional illness which leaves him or her unable to perform all of the job, and the employer is not able to redeploy them in another role, the severance pay is double the usual amount.

Severance pay is subject to different tax treatment, depending on the type and amount.

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Author: Divjak, Topic & Bahtijarevic

Date: December 2018

 

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