In the event of an involuntary termination of employment, the Labour Code guarantees a “cushion” to enable the employee to find a new job or other livelihood. In addition, employers like to use severance pay as an “incentive” for termination so that it is less painful for the employee and does not lead to an unpleasant dispute.
What changes did 2015 bring?
Severance pay is particularly advantageous because it is not subject to social security and health insurance contributions, so the employer saves money and the employee gets more. However, this was originally intended to change with the new year 2015. In the end, however, the change did not take place and it is still the case that no contributions are deducted from the severance pay to which the law entitles. But when is severance pay due and how much is it?
There are no changes here. Most often, severance pay is due when an employee is so-called redundant. The minimum amount of severance pay is then guaranteed according to the number of years of service. Employees who have been with their employer for less than a year will only receive a severance payment of at least one month’s average earnings if they are dismissed, for example, because of a reorganisation. If the employment relationship has lasted more than one year but less than two years, he is entitled to at least twice his average earnings. Finally, if the employment relationship lasted more than two years, severance pay of at least three times the average earnings may be claimed.
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Some time ago, there was a dispute in this matter, which went all the way to the Supreme Court. The Supreme Court confirmed that the severance pay is limited “only from below” by the minimums that the employer must comply with, but nothing prevents the employer from contractually agreeing with the employee on a higher severance pay, as well as newly (as of 1 January 2007) on other grounds of termination than those listed in the Labour Code (Case No. 21 Cdo 613/2011).
Will social security and health insurance contributions be deducted from the above-standard severance pay?
If the severance pay is due for statutory reasons, no deductions for compulsory contributions will be applied this year, even if it is granted in an amount higher than the minimum amount. For example, consider an employee, Mr Vomacka, who has been working for his employer as a turner for a year and a half. One day, he and his employer agree to split their trips, and to get Mr. Vomacek to accept, his employer promises him four times his average earnings instead of two. If the reason for this separation is that Mr Vomacka is redundant, the severance pay is not subject to any levies.
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When you quit your job, we can help you defend yourself against your employer’s actions and make sure you get everything you’re entitled to from them. This includes, for example, any wages or severance pay you are owed. We provide assistance throughout the country and at a predetermined price.
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