Severance pay: which scheme applies to you

In many businesses two severance pay systems run side by side without this being noticeable in everyday practice. The difference only becomes visible on termination – and then it is a matter of amounts that differ considerably.

The cut-off date decides

For employment relationships that began from 1 January 2003, only the new severance pay scheme applies. The employer pays 1.53 per cent of remuneration on an ongoing basis into an occupational provident fund. The credit balance belongs to the employee and is retained on changing jobs – regardless of who gave notice.

For relationships established earlier, the old severance pay scheme can continue to apply. It is linked to years of service and – this is the decisive point – to how the relationship ends: on resignation by the employee the entitlement generally lapses. A switch to the new system was only possible by mutual agreement, which is why both models still exist side by side in older businesses.

Where practice runs into difficulty

Three situations regularly lead to disputes: the full-transfer or partial-transfer model, under which old entitlements were frozen or carried over; periods of leave and interruptions that affect length of service; and mutual terminations where severance pay under the old scheme has to be paid, but the parties assume the new system applies.

Before any termination agreement, it is therefore worth checking the employment contract, any transfer agreement and the collective bargaining agreement. Anyone who checks the severance pay entitlement only after signing is no longer negotiating.