Calculating the severance pay – how to proceed correctly?

If employees decide to accept the Termination agreement to be signed, is usually calculated at the same time Payment of severance pay agreed.

A settlement calculate experts in different ways. As a rule, length of service and age are relevant.

Calculate your severance pay here free of charge!

The employer pays these as consideration for the premature termination of the employment relationship. It compensates for the employee’s economic disadvantages due to the job loss and is also known as the Severance pay or compensation for dismissal denotes.

In short& just: calculate severance pay

Some employees are entitled to a severance payment upon termination of employment. However, there is usually no statutory right.

As a rule, you calculate severance pay using a rule of thumb: gross monthly salary x 0.5 x length of service (in years).

The legislator taxes a severance pay differently than regular income. Here the quintuple regulation is to be applied. You can find more information here.

But what is it about this payment? Is there a right to severance pay? How to calculate severance pay? Is there a formula for this? And are there severance pay calculators on the World Wide Web?

When do you get a severance payment?

If termination occurs, an employee has under certain conditions a claim to a severance pay. However, even if he would not be entitled to such a payment, employers often decide to make it. You are hoping that To avoid dismissal protection action. It is therefore often a voluntary measure.

A severance payment is only a a sum of money paid once by the employer to the employee. It can be paid for a wide variety of reasons. Employees who are terminated for the following reasons have a statutory claim:

  • Dismissal in the presence of a social plan (social plan severance payment)
  • Operational change without seeking a reconciliation of interests with the works council (disadvantage compensation) (§ 113 Works Constitution Act – BetrVG) (§ 1a Dismissal Protection Act (KSchG)
  • if a labor court recognizes that the termination did not lead to the dissolution of the employment relationship, but continued employment is not reasonable for the employee (§ 9 KSchG)

Of course, the claim to severance pay can also arise from the concluded employment contract or. a collective bargaining agreement in force.

Depending on what type of dismissal is involved, the Severance payment calculation differently. Possible approaches are explained below.

This is how severance pay is calculated

1. How is severance pay calculated in the event of termination for operational reasons??
In this type of dismissal, the employee is entitled to a severance payment of a certain amount – this is called the standard rate or standard severance payment. You can calculate the amount of severance pay using the following formula:

If the termination takes place in the middle of the calendar year, a full year of service is assumed after six months for calculation purposes. There is therefore a Rounding up. The employee is are not required to pay social security contributions. But completely around the taxation it does not come – it has the severance pay is taxable according to the Income Tax Act (§ 34 EStG) according to the one-fifth rule.

They are also payable on extraordinary income, but do not have such a strong effect, since dismissal compensation is considered to be a income subject to collective bargaining agreements apply. Fully calculated in the calculation of income tax at the end of the year is then not the annual income plus severance amount (as total income). The dismissal compensation is used here only to one fifth, hence the name. This reduces the tax burden, which is why the one-fifth rule is decisive in the calculation.

The one-fifth rule for severance pay works like this:

Thanks to the one-fifth rule, the severance pay is not taxed in the full amount.

The severance amount is divided by five and the result is then added to the other income (including salary or wages).

The resulting amount (annual income) is then taxed. This is followed by a comparison of the two different tax amounts. The difference between the two different tax rates is then multiplied by five. This result represents the income tax to be paid.

And what remains of the severance payment? If you subtract the wage tax amount from the gross severance paid, this again results in the net severance pay.

2. How is the severance pay calculated for a disadvantage compensation?
If an employer in the event of a change in operations, the provisions of the Works Constitution Act are not taken into account, by, for example, not or not sufficiently insisting on a reconciliation of interests with the works council and/or. If the employee avoids this without a relevant reason, a severance payment claim can arise.

In this case, the labor court determines the amount. Also in this case the Calculation of severance pay based, among other things, on the age of the terminated employee and the length of service with the company. This may well result in a value of 18 months’ salary (not net, but gross).

Disadvantage compensation severance pay = age x length of service x specific factor

3. How to calculate a severance payment when a social plan is in place?
According to the Works Constitution Act (§112), the employer and the works council can agree in writing on how employees can be protected, at least proportionally, from the economic damage caused by a change in operations. Within the scope of these agreements, the severance payment formula is usually provided immediately. Often the severance pay is calculated as follows:

Social plan compensation = basic amount + top-up amount + social amount.

At basic amount it is usually a case of fixed value like a gross monthly salary.
The Top-up amount is usually variable and results from: age x length of service x gross monthly salary / 52 (weeks).
In addition, both parties can also agree on the payment of a social contribution for severely disabled employees or those with dependent children some.

Experts point out that the formulas used to calculate the amount of severance pay are never set in stone.

How does the severance pay calculator work??

Use the severance calculator to calculate the tax burden.

The subject "Calculate severance pay" is relatively complicated and opaque, which is why an employee rarely knows the approximate amount of the Dismissal compensation can be determined. Here the severance calculator, which you will find further up this page, no further.

It only specifies, how high the tax burden will be, that is, how high in the case of severance pay the Deductions are. In order for an approximately correct result to be determined, it is necessary to have of the following:

  • Tax year
  • severance pay
  • annual gross income
  • Compensation benefits
  • Church tax
  • Marital splitting

All these factors are used to determine how high the Deductions for severance pay and how much money you will have left after taxes are deducted. Also the Fifth rule is taken into account. The use of the severance pay calculator is free of charge.

By the wayA severance payment usually has no effect on unemployment benefits. It is only credited if the ordinary notice period is not complied with. If you use the taxation of the severance pay If you wanted to find out the amount of the severance pay by means of a calculator, please be aware that no statements are made here about whether the severance pay is taxable Amount of severance pay is correct or you do more money would have been entitled to.

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