Editor's Note: Today's post comes to us courtesy of guest contributor Jacque Vilet. (Note that this will be Jacque's last guest post, as we have finally talked her into joining the regular cast of contributors effective later this month!)
Have you ever wondered what the legal requirements are for severance pay in your company's locations around the world?
This article addresses a few facts about severance pay requirements you might like to know. Please keep in mind these provisions are for local national staff, not expatriates. Let’s take a look at the following countries: Brazil, Germany, Japan, United Arab Emirates (UAE), India and the United States.
Severance payments are determined based on whether the employer or employee initiates the termination, the employee’s length of service and whether or not the termination is with or without cause.
Severance will include:
• Prior notice (one month of salary)
• Family allowance
• Overdue vacation plus an additional 1/3 of that amount
• Vacations/pro-rated vacations plus an additional 1/3 of that amount
• 13th month salary/pro-rated 13th month salary
• Salary pro-rated for time worked before the next pay period
• Additional amounts established in a collective bargaining agreement and/or in the employment agreement
Employers are not required to provide severance pay for employees who are laid off. A claim to severance pay only exists if the employee and employer have agreed to it.
The employer may offer the employee severance pay in the notice of dismissal as long as the employee does not make a claim of unfair dismissal in labor court. If the employee does not make a claim, he/she will be provided the severance pay offered. The payment amounts to half of the monthly salary for each year of service.
Employers are not required to provide severance pay to employees who are dismissed. The only payments owed are the retirement allowance or pension provided in the company’s Work Rules or the collective bargaining agreement with the labor union.
In reality many employers negotiate severance with the employee. The higher the employee’s level in the company, the larger amount of severance pay.
United Arab Emirates (UAE)
Generally, if an employee has more than one year of continuous service, he/she will be entitled to severance pay of up to 21 days of pay for every year of the first five years of service, and 30 days of pay for every year above five years. Total severance pay cannot exceed two years of pay. Severance pay is pro-rated for partial years worked once the employee has worked one year.
Severance pay includes bonus and commissions; however allowances and benefits are excluded. If an employee resigns voluntarily during the first and third years of service, his/her severance pay will be reduced by 1/3. If termination is between the third and fifth years of service, severance pay will only be 2/3.
An employee on a fixed-term contract of employment will lose his/her entitlement to severance pay if the employee resigns before the end of the contract and has less than 5 years continuous service.
Employers are liable for severance pay to employees who have been in continuous service for at least one year. Severance pay will equal 15 days of the employee’s pay for every completed year of service or any part of a year in excess of six months.
In addition, to severance under the Industrial Dispute Act (IDA) there may be other payments under the applicable labor laws and contractual arrangements with state-specific laws.
There are no federal or state laws requiring severance pay to employees. Whether to pay severance pay to terminated employees and the amount of that severance pay is generally left to the discretion of the employer. In reality most employers provide severance pay to employees who are laid off and the amount is usually based on the employee’s length of service. Employees who are terminated because of performance reasons are usually provided severance but it typically is a lower amount than that provided due to a layoff. Employees who are terminated for cause are not usually awarded any severance pay.
In any case, the amount of severance provided is left to each employer’s discretion. Perhaps the two most common practices are two weeks or one month pay for every year of service.
While companies need to ensure they are in compliance with the law, it is also important to understand the common and competitive practice. Competitive practice will be higher than the minimum legal requirement in almost all industries.
Important Note: This posting is intended to provide a brief overview of severance pay requirements around the world. Please check with your local, in-country law or payroll firm to ensure this information is up-to-date with the latest legal requirements.
Jacque Vilet, President of Vilet International has over 20 years’ experience in International Human Resources with major multinationals such as Intel, National Semiconductor and Seagate Technology. She has worked with both local nationals and expatriates and has been an expat twice during her career. Jacque holds the CCP, GPHR and SWP (Human Capital Institute). She is a member of WorldatWork, Society of Human Resources Management and the Human Capital Institute. She is co-chair of the Global HR professional emphasis group for the Dallas chapter of SHRM. She is a regular contributor to HCI, HR.com and IHR Forum.
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