Severance on dismissal — when it is due and how much

Severance pay on dismissal is a cash benefit that most often appears when employment ends for reasons not attributable to the employee. For many people the key questions are when severance is due, how the amount is calculated and how seniority is counted. Below is a practical explanation covering collective and individual dismissals as well as typical grey areas.

When severance is due after dismissal

Severance is generally due when the employment ends for reasons independent of the employee, such as position elimination, reorganization or insolvency. The legal basis is the Act on special rules for terminating employment for reasons not attributable to employees.

In practice, employer size also matters. For smaller employers, severance rules may come directly from the contract or a collective agreement. Always verify the legal basis stated in the termination documents.

Collective vs individual dismissal

Collective redundancies are the classic scenario where statutory severance applies. Individual dismissal for reasons not attributable to the employee can also lead to severance if statutory conditions are met. The key is the employer‑side reason, not the form of termination.

Severance amount and statutory cap

The amount depends on seniority with that employer and is expressed as months of pay:

• up to 2 years — 1 month,
• 2 to 8 years — 2 months,
• over 8 years — 3 months.

There is also a statutory cap linked to the minimum wage. The exact limit and calculation method should be confirmed as of the payment date.

How seniority is counted

Seniority is usually counted as employment with the same employer. Certain breaks may not count (e.g., unpaid leave in specific cases). If in doubt, verify against the statute or consult HR.

Sick leave (L4) and disciplinary dismissal

Sick leave alone does not determine severance entitlement — the reason for termination is decisive. If the dismissal is for employer‑side reasons, severance may still be due even during L4.

In a disciplinary dismissal (employee fault), redundancy severance is not due. With resignation, severance is generally not payable unless the contract or collective agreement provides otherwise.

Tax and social contributions

Severance is employment income and generally subject to PIT. Social‑contribution rules can vary by type and legal basis of severance — if unsure, confirm with HR.

Checklist — documents and steps

1. Confirm the reason for termination (employer‑side or not).
2. Verify seniority with the employer.
3. Check the legal basis in the termination notice.
4. Estimate the severance amount.
5. If uncertain, request written clarification.

Example

Employee with 6 years of service dismissed due to reorganization. The severance is approximately 2 months’ pay. The exact amount is calculated according to statutory rules for average pay.

Calculate in practice

Use the severance calculator to estimate the amount and see how seniority affects the payment.

See also

• Employee cost — how to calculate
• Employer ZUS contributions — how much
• Additional employer costs

Sources

• Act on special rules for terminating employment for reasons not attributable to employees (ISAP)
• Labour Code (ISAP)
• PIP — termination of employment contract