Severance pay in the event of termination – who, when and how much?

Job loss is an absolute horror scenario for many people. Once the initial shock has been overcome, many employees ask themselves whether they are entitled to a severance payment after termination. And if so, in what amount, what remains after taxes in the end at all and how it is calculated?

What is severance pay?

The severance payment is Compensation payment of the employer to the dismissed employee if the employment relationship is terminated prematurely. However, whether the employee is entitled to such a severance payment and in which amount depends strongly on the individual case. However, this does not mean that you as an employee have to bow to the arbitrariness of the employer. The severance pay is in Germany namely legally anchored. So, if you suspect that you might be entitled to a severance pay in case of an employee’s dismissal, or if you would like to find out about the amount to which you are entitled, it is best to seek a lawyer specialized in labor and employment protection law. Nevertheless, we have compiled the most important regulations on the subject of severance pay (without guarantee).

Who receives severance pay?

However, you will not always automatically receive appropriate severance pay, or any severance pay at all, if you are terminated by the employer. On the contrary, severance pay is even an absolutely exceptional case.

By law, severance pay is only required in the following five cases:

  1. The first thing you should look at is your employment contract, because in exceptional cases the employer may have stipulated provisions for a possible severance payment, in the sense of: If you should be dismissed for this or that reason, you will receive a severance payment in the following amount…
  2. More common, however, is the case of a termination agreement: Since the employer cannot simply terminate you without cause, he may offer you the voluntary termination of your employment contract against payment of an appropriate severance package. (Attention: This can result in the blocking of unemployment benefits)
  3. If, on the other hand, you are dismissed on the basis of a social plan or a change in operations, you are entitled to a severance payment as compensation for the disadvantages this has caused you. However, you can still file an action for protection against dismissal and thus either obtain reinstatement or even the payment of a further, even higher severance payment.
  4. You can, of course, also file such an action for protection against dismissal in the case of any other type of dismissal. The goal is in principle the reinstatement. However, if this is unreasonable for you as an employee, the payment of severance pay may be stipulated in the judgment.
  5. There is also another special case: sometimes the employer indicates in the notice of dismissal for operational reasons that you will receive a severance payment if you fail to take such action against dismissal. Payment is then usually made after three weeks, i.e. after your deadline for filing a lawsuit has expired. Therefore, always read the letter of termination carefully and have passages that seem incomprehensible to you explained by a lawyer.

Offsetting severance pay against unemployment benefits

The question, which places itself now many concerning, is however: Is it worthwhile to sue for severance pay at all?? Will this not be offset in full against unemployment benefits anyway, or will it possibly even result in a temporary blocking of ALGI?? No! A Severance pay does not shorten your ALGI entitlement and also it is not credited in principle. The only exception: if you shorten the notice period by means of a termination agreement or collective bargaining agreement and thus do not comply with the notice period stipulated in the employment contract, you will only receive unemployment benefits from the date on which the ordinary termination would have been effective. You must then use the severance pay to bridge this period. For this purpose, the severance pay will be proportionally offset against the unemployment benefits.

Depending on the years you have been with the company and your age, 25 to 60 percent of your severance pay will be taken into account. The other way around means: As long as you comply with the ordinary notice period, the severance payment is usually not offset against unemployment benefits. You should therefore definitely claim your severance pay entitlement.

Claim severance pay

The only way to claim a severance payment, if this is not already derived from regulations in the employment contract, termination agreement or the notice of termination, is the so-called action for protection against dismissal.

Note: You only have three weeks from receipt of the termination notice to file an action for protection against dismissal.

If the action for protection against dismissal is filed within this three-week period, you will either be in negotiations with the employer again or the case will go to court. The goal of an action for protection against dismissal is, however, primarily not the severance payment, but always the Reinstatement. So if you have "won", you can in principle return to your old job. However, the fact that this is not reasonable for many employees, as they are obviously unwanted or have even been bullied, is also clear to the court. If you are able to credibly demonstrate this unreasonableness, the verdict will be Instead of reinstatement, possibly severance pay determined. Otherwise, after reinstatement, an amicable termination agreement with corresponding severance pay between you and the employer is conceivable.

Calculate the amount of severance pay

When determining the amount of severance pay, the court usually bases its decision on the following values: for each year of employment with the company, you will receive half to a full month’s gross salary. However, there is no legal basis for this. Severance pay is therefore always a matter of negotiation – in the following video it is also referred to as "severance pay" "Severance poker" titled.

By loading the video, you accept YouTube’s privacy policy.
Learn more

Always unblock YouTube

Since the court naturally wants to prevent companies from arbitrarily dismissing employees who have not been employed for that long anyway and the severance payment would therefore be "favorable", severance payments for shorter periods of employment are comparatively higher than for longer periods of employment.

Statista: How much severance pay did you receive after leaving your job? | Statista

An even higher severance payment is also possible if you are dismissed due to a Termination according to social plan have already received a payment, but are still taking legal action against the dismissal. It applies therefore: Play your negotiating position as well as possible, emphasize the disadvantages you incurred from the termination and test your negotiating skills. An experienced lawyer at your side is worth his weight in gold when suing for protection against dismissal. The following chart published on Statista shows how different the severance pay amount can ultimately be:

You can find more statistics at Statista

Tax on severance pay

Unfortunately, you do not receive the entire amount of your severance pay. Since 2006, it has been treated by the tax authorities as a normal wage payment and taxed accordingly. However, it falls under the so-called extraordinary income. This means that you can take advantage of the so-called one-fifth rule.

The one-fifth rule for lighter tax burdens

With the one-fifth rule, as the name suggests, the severance pay is divided by five. The fifth is then added to the annual gross salary and the tax official calculates the tax rate and the tax amount to be paid on the severance pay. This is multiplied by five again and the result is the final tax to be paid on the entire severance payment. You thus keep the tax rate "artificially" lower than when the entire severance payment is credited to a tax year. Particularly in the case of high severance payments in the five- or even six-figure range, this will save you several hundred to a thousand euros. For a better understanding, a short example as an exemplary calculation with rounded values:

Let’s assume you receive a severance payment of 25.000 gross is calculated on the basis of an annual income of 60.000 euros. Your taxable income in the corresponding calendar year is thus 85.000 euros, your taxes as a single person in 2016 at around 33.89 percent wage tax, i.e. around 28.806 Euro.

However, thanks to the quintuple rule, you only have to count one fifth of the severance pay against your annual income, i.e. 5.000 euros. Your taxable income in the year in question is therefore 65.000 euros. This means a wage tax rate of just around 30 percent, i.e. about 19.900 euros.

Without the severance pay, i.e. only for the 60.000 euros in gross annual income, the tax burden would be around 17 euros.700 euros. So the civil servant now takes the difference 19.900 euros – 17.700 Euro = 2.200 Euro. This is the tax payable purely on the severance payment. However, since this is only one fifth of the severance pay, the 2.200 euros multiplied by five: 2.200 Euro x 5 = 11.000 euros.

You therefore pay 17.700 euros income tax + 11.000 Euro tax on the severance pay = 28.700 Euro. You will therefore save 106 euros by applying the one-fifth rule.


Our conclusion is: Severance pay is such a complex issue that it is best to calculate the Advice from an experienced lawyer search. Even if you have already received a severance payment, it may still be worthwhile to take legal action in the form of a dismissal protection action. And should you finally not receive a severance payment, you can at least bridge the critical time with ALGI. A financial cushion for bad times can also never hurt, because as you can read in the article "Getting rich: In 6 legal steps to becoming a millionaire", the key to wealth lies not in your income, but in saving.

Have you ever been dismissed by your employer?? And if so, did you receive a severance payment and why (not)?? How could you bridge the financial gap? We look forward to your personal story, helpful tips and tricks, as well as expert opinions in the comments.

Like this post? Please share to your friends:
Leave a Reply

;-) :| :x :twisted: :smile: :shock: :sad: :roll: :razz: :oops: :o :mrgreen: :lol: :idea: :grin: :evil: :cry: :cool: :arrow: :???: :?: :!: