The rules on severance pay in detail

Statutory severance is payable by the employer regardless of the cause of termination.

Severance is equal to the greater of (a) the total deposited quarterly in a bank trust or kept in the employer’s account, throughout the employment contract (roughly 60 days of pay per year of employment plus two additional days per year of employment), and (b) the equivalent of one month (30 days) of global wage earned at the time of termination multiplied by the number of years worked by the employee.

Severance accrued under (a), earns interest at a special rate determined by the Venezuelan Central Bank, and must be paid each year to the employee.

For a straightforward calculation employers may assume that (b) will be greater than (a) as a result of Venezuela’s inflationary environment that causes significant pay increases.

The daily global wage includes the daily regular salary earned by the employee at the time of termination, plus vacation bonus and the profit sharing portion. The daily regular salary calculated by dividing the regular monthly salary by 30 days.

Assuming the company pays 30 days a year in vacation bonus and 60 days a year for profit sharing - which is standard practice in small-to-medium sized companies.  The formula is:

Global salary = current regular daily salary + (Current regular daily salary divided by 30/360) + (Current regular daily salary divided by 60/360).

Severance should be paid within five days of the termination date. Any payments made to the employee using severance funds prior to employment termination are treated as severance advances and these can only be granted once a year, for up to 75% of the accrued severance amount. They must only be used the specific purposes listed in law, such as home construction, purchase or repair, payment of mortgages on housing, school tuition and medical expenses.

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Author: D’Empaire Abogados

Date: December 2018