Specalist labour lawyerSeverance Pay
Upon termination of the employment relationshipSeverance pay
Whether through a termination agreement or after a dismissal, employers and employees often negotiate severance pay as compensation for job loss.
However, there is no legal entitlement to severance pay. Many so-called severance calculators on the internet suggest that severance pay must always be paid, not only in principle but also in amount.
Nevertheless, most unfair dismissal cases are settled out of court, primarily through the payment of severance by the employer.
The reasons for this can be varied. Most often, the parties primarily want to end the legal dispute and establish legal peace.
Determining the amount of severance pay is difficult using standard severance calculators, as each case is unique. Key factors in determining a “good” severance payment include:
- The length of employment (the longer the length of service, the higher the severance payment should be)
- The salary level
- The existence of special protection against dismissal (especially for works council members, during pregnancy, parental leave, or with a severe disability)
- The age of the employee (this regularly influences job market opportunities)
- Job market prospects (e.g., with a very high salary and professional specialization, the chances of finding an equivalent job quickly may be lower)
- The individual circumstances (e.g., caregiving responsibilities or the need for employment to obtain a visa)
- The specific litigation risk
I would be happy to assist you with your termination agreement or unfair dismissal proceedings and negotiate your severance package to fully compensate for your specific situation. I will advise you on your individual case.
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Frequently Asked Questions
Under German labor law, there is generally no legal entitlement to severance pay for job loss.
Only in the case of Section 9 of the German Protection Against Unfair Dismissal Act (KSchG) does labor law provide for a court order to pay severance. However, this constitutes a special case within the framework of unfair dismissal proceedings; it is the so-called “termination of the employment relationship by the labor court in cases of unreasonableness.”
Yes, a severance payment counts as income and is subject to taxation. Unlike regular salary, however, no social security contributions (pension insurance, health insurance) are deducted, so you typically end up with a higher net income than with regular salary.
It’s also important to note the tax relief available for severance payments under Section 34 Paragraph 1 of the German Income Tax Act (EStG) – the so-called one-fifth rule. This must be claimed when filing your income tax return.
Many so-called severance calculators calculate severance pay using a specific factor. This factor is not stipulated in any law but is derived from practical experience. While regional differences exist, a trend can be observed in calculating severance pay using the factor:
0.5 to 1.5 gross monthly salaries x years of service
For example, with 5 years of service and a gross monthly salary of €5,000.00, this would be:
0.5 to 1.5 x €5,000.00 x 5 years = €12,500 to €37,500.00
However, it is important to remember that each case is unique!
No,
while severance pay is often offered and the employment relationship is terminated by mutual agreement on a prompt date, it very much depends on the individual case. Those who already have something new lined up or simply want a quick end to the situation are well-advised to accept a high severance payment. However, the parties can also agree on a later termination of the employment relationship with a long period of paid leave and continued salary payments.