The rules on severance pay in detail

For dismissals on objective grounds (i.e. redundancies) the employer must pay an indemnity at the time the dismissal letter is given to the employee. For collective dismissals, the amount of the indemnity is usually agreed with the employee representatives during consultation. Statutory redundancy dismissal severance is equal to 20 days’ salary per worked year of service with a cap of 12 monthly instalments. Less than one year’s service is calculated pro rata.

In addition, 15 days’ prior notice must be given, although this can be replaced by a payment in lieu of notice at the employer’s discretion.  

The statutory termination severance for fixed-term employees is 12 days’ salary per worked year of service. Less than one year’s service is calculated pro rata. 

If a dismissal is declared unfair, the employee will be entitled to receive a higher severance indemnity. The statutory unfair dismissal severance for indefinite term employees is 33 days’ salary per year worked and a maximum of 24 monthly payments. Less than one year’s service is calculated pro rata. This severance affects all new indefinite employment contracts entered into since 12 February 2012.

The unfair dismissal severance payable for employment contracts signed prior to 12 February 2012 is calculated based on 45 days’ salary per year worked, for service before that date only (and with less than one year’s service is calculated pro rata), plus 33 days’ salary per year worked for service after that time (pro rata for less than one year). The amount of the severance is capped at 720 days’ salary unless the calculation for the period worked prior to 12 February 2012 results in a higher amount, in which case that amount is used as the upper limit, provided it does not exceed 42 months’ pay. 

Note that employers do not usually provide redundancy pay schemes that are more generous than the statutory ones for blue collar workers, but sometimes do for high level white collar workers.

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Author: Sagardoy Abogados

Date: December 2019