The rules on severance pay in detail

Severance payments in case of redundancy are paid by the Redundancy Fund. The amount of payment is generally calculated based on the number of years of service multiplied by the last weekly wage of the employee including commission and bonuses, if these are part of the employee’s remuneration package (and not one-off payments) or according the employee’s contract of employment. The termination payment must be paid as soon as possible after termination.

Compensation for redundancy is calculated as below:

  • two weeks’ wages for each year of service up to four years;
  • two and a half weeks’ wages for each year of service from five to 10 years;
  • three weeks’ wages for each year of service from 11 to 15 years;
  • three and one-half weeks’ wages for each year of service from 16 to 20 years; and
  • four weeks’ wages for each year of service beyond 20 years.

The upper limit for redundancy compensation is 75.5 weeks’ wages.

Employees who have been unfairly dismissed are entitled to statutory termination pay, provided that they have worked for at least six months. (Six months is the minimum probation period under law, but the maximum that can be agreed is two years, provided the parties agree to this at the beginning of the contract.)

Compensation for unlawful dismissal is payable by the employer for the period of continuous employment, calculated in the same way as for redundancy. However, depending on the circumstances, the employee may claim damages for loss of career prospects and these exceed the amount paid for redundancy but cannot exceed two years’ salary.

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Author: George Z. Georgiou & Associates LLC

Date: December 2019