Differences in Severance Regulations Across Countries

Some countries make it mandatory to provide severance pay to employees when they lay them off from their jobs, regardless of the reason. In some countries, whether or not an employee gets severance pay depends on the reason for their layoff. In this blog, we will explore differences in severance regulations across countries.

What is Severance Pay?

Employers give severance pay as compensation and/or benefits to employees upon the conclusion of their employment. These packages can encompass extended benefits like health insurance and assistance with finding new employment.

Employers typically extend severance packages to employees facing layoffs, job eliminations due to downsizing, or those retiring. In some instances, employees who voluntarily resign or are terminated could still be eligible for such packages.

Employers use severance pay as a gesture of goodwill and provide employees with a transitional period between their jobs and unemployment.

When an employer cannot provide a valid cause for termination, courts in certain countries may require them to offer severance pay. An alternative form of compensation, and in some cases, even mandate reinstatement. Severance regulations across countries vary.

Severance Regulations in Austria

Austrian labour law imposes various penalties on employers for non-compliance with essential provisions outlined in the labour code. For example, when an employer fails to comply with the minimum wage outlined in the employment contract, they must pay the specified penalty.

Legal entitlement to severance pay or payment through a special fund. Starting from January 1, 2003, a fresh company pension scheme has been in effect, covering all employees in Austria who initiated their employment after that specific date. Employers participate by allocating 1.53% of the employee’s gross monthly salary into an individual severance pay account.

Severance Regulations in Australia

In Australia, the calculation of severance pay relies on the duration of continuous service. The computation is based on regular hours worked. Employees who have served for at least 1 year but less than 2 years have entitlement to 4 weeks of severance pay. If their service extends to at least 2 years but remains below 3 years, they receive 6 weeks of severance pay.

For employees who have been with the company for at least 3 years but less than 4 years, they receive 7 weeks of severance pay. This structure ensures that severance pay is proportionate to the duration of an employee’s service.

Severance Regulations in Azerbaijan

If employees are terminated due to redundancy, they must receive a mandatory minimum severance pay of three months. For employees with service ranging from one to five years, the severance pay amounts to 1.4 times their monthly salary. Employees with service between five and ten years have entitlement to severance pay at a rate of 1.7 times their monthly salary. Those with over ten years of service receive severance pay equal to twice their monthly salary.

• Dismissal due to staff reduction or liquidation: 1 monthly salary.
• Dismissal due to alterations in working conditions, military service, loss of working ability: 2 monthly salaries.
• In case of death or dismissal due to a change of ownership of the company: 3 monthly salaries.

Severance Regulations in Belgium

Following Belgian employment law, when one party terminates the employment contract without giving prior notice, they require to provide compensation equivalent to the current annual remuneration. This includes benefits equivalent to the notice period that should have been given. Additionally, Belgian employment law outlines various non-competition clauses that may be applicable in such cases.

No legal claim for severance pay. The employer and employee can mutually establish alternative arrangements or provide compensation in lieu of adhering to the notice period. If you don’t have an obligation to remain employed after receiving a request to depart, you qualify for severance pay.

Severance Regulations in Brazil

If both the employer and the employee mutually agree on the dismissal, the employee will receive the same severance payment. It is specified for involuntary terminations, except for adjustments to the notice period and a reduction in the Severance Fund penalty, which will be half.

Severance Regulations in Bulgaria

No legal claim for severance pay. For dismissal with compensation: minimum 4 gross monthly salaries. Numerous severance payments are in regulations by law, including those for unused annual paid leave, non-observance of the notice period, and becoming unemployed, among others.

Severance Regulations in Canada

Severance agreements differ in Canada based on employment law and common law. Ontario’s Employment Standards Act sets minimum severance pay. While common law considers factors like length of service, age, job character, availability of similar employment, and inducement.

Severance Regulations in China (Mainland)

In Mainland China, severance payments depend on years of service, calculating one month’s salary for each year worked with adjustments for high earners and taxation rules.

Severance Regulations in Croatia

Entitlement for employees with at least two years of service. An employee with at least two years of service becomes eligible for a severance payment if their departure is due to business-related reasons or their health and capabilities, as described in the initial two dismissal categories.

Severance Regulations in the Czech Republic

Legal claim depending on the reason for dismissal.
At least one, two, or three average monthly salaries (depending on employment duration) or at least twelve average monthly salaries (depending on the reason for dismissal).

Severance Regulations in Denmark

After 12, 15, and 18 years of employment: 1, 2, or 3 months’ salary as severance pay (only in the case of ordinary dismissal).

Severance Regulations in Finland

No legal entitlement for severance pay. However, the option for severance may be stipulated within the employment agreement.

Severance Regulations in France

The severance package is structured as 1/4th of the monthly salary for each year of service during the initial ten years and 1/3rd of the monthly salary for each subsequent year.

Severance Regulations in Germany

Employees do not have a legal entitlement to severance pay. Severance payments are accessible to employees solely through a social plan established in collaboration with the Works Council, typically negotiated during mass layoffs, or through the terms outlined in a collective bargaining agreement.

Severance Regulations in Hong Kong

Employees with over 24 months of service are eligible for severance payment in Hong Kong due to redundancy, non-renewal of fixed-term contracts, or layoffs. Certainly, in Hong Kong, when employees with uninterrupted employment spanning at least 24 months are terminated because of redundancy, their employer is required to provide a severance payment.

Severance Regulations in Hungary

Standard Termination

• Requires a minimum of 3 years of service
• Entails severance pay ranging from one to six months’ salary, depending on seniority
• No severance pay in cases of dismissal due to employee misconduct or non-health-related issues

Immediate Termination: No severance pay involved

Severance Regulations in India

In India, the eligibility for severance pay is determined by factors like employment terms, company policies, and the cause of termination. The provision of severance pay is not universally required by law, but certain conditions may permit employees to seek it.

Severance Regulations in Indonesia

In the event of company closure due to two consecutive years of losses or non-consecutive reasons, employees are entitled to half their basic severance pay. They also receive a one-time basic severance payment and additional compensation.

Severance Regulations in Italy

In Italy, all terminated employees are entitled to severance pay as per the civil code. A legal claim to receive an “end of service allowance,” equivalent to 1/13.5 of the annual salary for each year of seniority.

Severance Regulations in Korea

According to Korea’s Employee Retirement Benefit Security Act, a full-time employee in Korea is entitled to receive statutory severance pay within 14 days of termination. Full-time status is defined as working over 15 hours per week or more than 60 hours per month.

For employees with at least one year of service, the severance pay is one month’s salary for each year worked, calculated based on a three-month average preceding termination. These rules apply to voluntary retirement and termination for cause.

Employers must provide a minimum 30-day notice or pay the equivalent of 30 days’ salary if they don’t. Employment contracts may specify longer notice periods, and in certain cases, employees may be entitled to up to one year’s notice.

Employees with over six months of service can file unfair dismissal claims if they meet specific income criteria, whether covered by an award or agreement.

In Korea, only individuals classified as employees, not independent contractors, are eligible for severance pay, based on the nature of their working relationship.

Severance Regulations in Latvia

In cases of voluntary resignation, a one-month notice period is applicable. However, for employees who are dismissed due to economic reasons or prolonged illness, employers are obliged to offer severance pay, which is determined by the employee’s tenure and can extend up to four months’ worth of wages.

Severance Regulations in Lithuania

Following the conclusion of employment, an individual is eligible for severance pay, with the specific amount contingent upon the duration of their employment.

Severance Regulations in Mexico

An employee, when dismissed without just cause, is entitled to compensation equivalent to three months of salary. They also receive a prorated Christmas or vacation bonus and vacation pay. Furthermore, for individuals with 15 years or more of seniority, an additional 20 days of pay per year of service is to be provided.

Severance Regulations in the Netherlands

The transition allowance for Dutch employees is calculated at a rate of 1/3 of their monthly salary for each full year of service starting from their first day of work.

Severance Regulations in Norway

There are no legal requirements that guarantee employees severance pay upon termination. Employees are typically expected to fulfil their notice period and receive their regular compensation. Nonetheless, employees and employers are at liberty to negotiate and establish severance agreements if they so choose.

Severance Regulations in Poland

In Poland, severance falls under the Act on Collective Redundancies. It applies to collective or non-conduct-related individual dismissals. Severance amounts vary from 1 to 3 months’ salary, with a cap of 15 times the statutory minimum wage. Specific legal prerequisites. Sum based on the length of employment association.

Severance Regulations in Puerto Rico

Employees in Puerto Rico are entitled to severance pay upon termination, except for “just cause” dismissals. The amount varies based on the years of employment, ranging from two to six months of salary.

Severance Regulations in Romania

In Romania, eligibility for severance payments under specific circumstances of dismissal is by tracking relevant individual and collective agreements or legal regulations.

Severance Regulations in Russia

Eligibility for severance pay in case of staff reduction or liquidation. An employee will receive severance pay equivalent to one month’s average salary at the time of their dismissal.

Severance Regulations in Slovakia

Legal entitlement to one, two, or three months’ salary, dependent on employment duration. In cases of dismissal due to work-related injuries, occupational illness, or the risk of such illness, a minimum of ten months’ salary may apply.

Severance Regulations in Slovenia

Employees with a minimum of one year of seniority and no fault in their dismissal are entitled to receive a severance payment. It ranges from 1/5 to 1/3 of their basic salary for each year of employment, with a maximum of ten times the basic amount.

Severance Regulations in Spain

In Spain, employers are obligated to provide severance pay to employees who have served for at least one year. This severance pay equals 20 days of the monthly salary for each year of employment and is applicable even in cases of redundancy-related dismissals. It’s essential to emphasize that employees terminated for misconduct do not qualify for severance pay.

Severance Regulations in Sweden

No statutory claim for severance pay; it must be agreed upon by the parties. It’s not uncommon for severance payments to range from 6 to 15 monthly salaries.

Severance Regulations in Switzerland

Ordinary dismissal does not entail a legal claim to severance pay. In cases of abusive dismissal, indemnity may apply. Summary dismissal may lead to severance payments of up to six months’ salaries if the dismissal is unjustified.

Severance Regulations in Singapore

Severance pay in Singapore lacks a fixed formula. Employers often follow a guideline of providing 1-2 weeks of salary per year served. It’s essential to remember that if an employee is terminated because of misconduct or inadequate performance, they might not qualify for severance pay.

Severance Regulations in the United Kingdom

In the United Kingdom, offering a severance payment isn’t mandated by law, making it a voluntary practice. However, companies that choose to provide severance packages gain a competitive edge. Demonstrating commitment to employee well-being helps in attracting and retaining top talent effectively. This is unlike businesses without such benefits. Additionally, these severance agreements serve as a protective measure against potential legal disputes stemming from termination.

Severance Regulations in the United States

Employers and employees determine severance pay in the United States through agreements. Severance contracts may contain clauses preventing employees from pursuing legal claims or working for competitors.

Severance Regulations in Vietnam

According to the Vietnamese Labor Code, severance compensation is equivalent to half a month’s salary for each year of the employee’s tenure. For instance, if an employee worked for three years, they would receive one and a half months’ worth of pay as severance compensation.

Conclusion

In conclusion, the landscape of severance regulations across countries varies significantly from one nation to another. The entitlements, calculations, and legal frameworks for severance pay are diverse, reflecting each nation’s unique labour laws and social policies. While some countries mandate specific severance benefits, others leave room for negotiation between employers and employees.

Understanding these differences is vital for both employers and employees operating in international contexts. It highlights the importance of seeking legal counsel or expert guidance to navigate the complexities of severance regulations, ensuring fair treatment for both parties.