Is your employer going to give you notice? Make sure you are not entitled to severance pay. When does the entitlement arise, how is severance pay calculated and what happens to the levy afterwards? We’ve looked at this in detail in our article.
Is your employer going to give you notice? Make sure you are not entitled to severance pay. When does the entitlement arise, how is severance pay calculated and what happens to the levy afterwards? We’ve looked at this in detail in our article.
The Labour Code clearly states that an employee is entitled to severance pay upon termination of employment without fault. The basic rule is that entitlement to severance pay arises only on termination of employment for cause on the part of the employer, not on termination by the employee.
But even that is not the final answer. One of the situations listed in the Labour Code must occur. These are:
In such cases, it is irrelevant whether the employer gives notice to the employee or whether the employee concludes a termination agreement for the same reasons.
In practice, we can imagine situations where one of the three branches that the employer has in the Czech Republic is closed down, or the branch moves from Prague to Brno, or there is some internal change, for example, new automatic sorters for returned bottles are installed and there is no longer a need for a worker to manually sort the bottles.
Mrs. Zdeňka, who worked for a clothing manufacturer, contacted the office of an available attorney. However, he did not stop the situation during the cover-up and closed his operation. The boss suggested to Ms. Zdeňka that they enter into a termination agreement together, while being very accommodating to her and allowing her the equivalent of a notice period. No reason for the termination of the employment relationship was mentioned in the agreement. We have advised Ms Zdeňka that, given the situation, the employer’s offer is not as accommodating as it appears at first sight and that she should demand that the reason for the termination of the employment relationship be stated and, above all, that the severance pay be paid. Zdeňka brought this to the employer’s attention and, although reluctantly, the employer paid her severance pay.
You may be entitled not only to severance pay, but also damages – for example, for loss of earnings, loss of amenity or pain and suffering. We can help you find out if and how much you are entitled to and make sure your employer or insurer pays you everything you are legally entitled to.
In the above cases, the severance pay is based on years of service. It is relevant whether the employment relationship lasted less than one year, one to two years or more than two years.
A very specific case that can also lead to severance pay is if you are no longer able to work because of an occupational disease or accident at work and you have given notice or entered into a severance agreement with your employer for these reasons.
Since your health has been damaged here, and in addition in direct connection with the exercise of your current occupation, the statutory compensation will be significantly higher than in the above cases.
Tip: Have you had an accident at work? What are you entitled to, what is pain and suffering and how is it determined? Is the procedure different if you caused the injury in part by your own breach of duty? And why is your employer allowed to give you notice in connection with an accident at work? We answer all this in our article on the website.
As mentioned above, the minimum amount of severance pay in the event of termination of employment for organisational reasons is guaranteed according to the number of years of service. The calculation of severance pay is based on the rules laid down in the Labour Code, with the key role played by the decisive period for calculating severance pay. This period includes the last completed quarter from which average monthly earnings are determined. An employee who has been with his employer for less than one year shall receive a severance payment of at least one average monthly earnings. If the employment relationship lasts for more than one year but less than two years, he shall be entitled to at least twice the 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.
In cases of long-term disability (e.g. as a result of a work-related accident or occupational disease), the traditional severance pay may no longer be paid – compensation of 12 times average earnings, paid by the employer’s insurance, may be applied instead of severance pay.
Average earnings are determined from gross wages. Basically, it is the average of the earnings for the last completed quarter. This means that if the average earnings at the end of September, for example, are considered, the quarter April to June is assessed. If the end of October is addressed, then July to September is assessed, etc.
Calculators for calculating severance pay can also be found on the internet. Here, you just need to enter how long your employment lasted, whether there was a medical termination, and then you need to know your gross pay and the number of hours worked in the last three months. All this information can be found on your payslip. The severance calculator will calculate your severance more or less accurately so that you have at least a rough idea of what you are entitled to.
Severance pay is subject to ordinary income tax. The amount of severance pay is added to your other income in the month and taxed at 15%.
When a company or part of it is dissolved, employees are legally entitled to severance pay. The Labour Code clearly stipulates that when an employer or its organisational unit is dissolved, the employee is entitled to severance pay upon the dissolution of the company, regardless of whether the employment relationship was terminated by notice or by agreement. The amount of severance pay in such a case depends on the duration of the employment relationship – for employment of less than one year, the severance pay is at least one times the average monthly earnings, for employment of one to two years, twice the average monthly earnings, and for longer employment, at least three times the average monthly earnings.
If the company is dissolved without a legal successor (e.g. in the event of liquidation), the employer is obliged to pay the full severance pay to the employees before the termination of employment. In practice, the employee receives not only the salary for the last period worked, but also the severance pay in the event of the company’s dissolution in the statutory or contractually higher amount. In cases where the employer is bankrupt and is unable to pay the severance pay, the employee can turn to the Labour Office, which, as part of the statutory protection of employees, will ensure the payment of compensation from state funds.
The amounts of severance pay are set as a minimum. Therefore, no one and nothing prevents an employer from paying an employee a higher severance payment, possibly in cases other than those provided for in the Labour Code. However, the employer must comply with the minimums set out in the table in any event.
If you want to be sure of the amount of severance pay you are entitled to, the severance pay calculator can help you by entering the length of employment and other data to calculate an indicative amount.
The basic rule is that an employee is not entitled to severance pay if he or she resigns or resigns during the probationary period. There is no entitlement to severance pay even if the employee works under a performance or employment agreement.
Thirdly, there is no right to severance pay if the employer terminates the employment for other reasons, such as gross misconduct. In such a case, you will not be entitled to severance pay even if you have previously been given notice of termination of employment, for example for redundancy.
Severance pay is mutually beneficial, especially because it is not subject to social security and health insurance contributions (this does not apply to taxation, as mentioned above). In practice, this means that the employer saves and the employee gets more. This applies not only to the minimum amount of severance pay specified in the law, but also to the total severance pay you and your employer agree on.
However, you will have to pay social security and health insurance contributions if you receive severance pay for a reason other than the statutory reason. You will also always have to pay income tax.
The fact that you have been paid severance pay can affect another important thing, namely unemployment benefit. If you receive any financial compensation of this type from your employer, the start date of your Jobseeker’s Allowance will be delayed according to the amount you have been paid. This means that if your severance pay was one month’s salary, you will not start receiving benefits until one month has passed. If you were paid three months’ pay, you will not start receiving support until after three months.
However, some clients come to us when their employer suddenly closes down, and although they are entitled to severance pay, the employer is unable to pay it for financial reasons. In this case, they can turn to the Labour Office, which can provide them with compensation. This compensation is neither taxable nor insured.
Employees are reimbursed part of their severance pay if they return to the same job before three months have elapsed since the end of the original employment relationship. The amount of the severance payment will be based on what the average salary was.
Severance pay is paid to an employee when the employment relationship is terminated for reasons on the part of the employer, such as termination, relocation or redundancy. The amount of the severance payment depends on the length of the employment relationship – it is one times the average monthly earnings for employment of up to 1 year, two times for employment of 1-2 years and three times for employment of more than 2 years. In the event of an accident at work or occupational disease, severance pay is 12 times the average earnings. Severance pay is subject to income tax but is not subject to social security and health insurance contributions and may affect unemployment benefits. If the employee returns to the same employer before the end of the period for which the severance pay was received, he or she must repay a pro rata portion of it.
Yes. If the employer or part of it is dissolved without a legal successor, the employee is automatically entitled to severance pay. It is irrelevant whether the employment relationship ended by termination or by agreement – it is the reason for the termination that matters. The employer must pay the severance pay at the latest when the employment relationship ends.
The amount of severance pay depends on the length of the employment relationship.
up to 1 year – 1 times the average monthly earnings,
1 to 2 years – 2 times,
over 2 years – 3 times.
If the reason for termination is an occupational accident or illness, the severance pay may be up to 12 times the average earnings.
If your employer does not pay you severance pay when the company closes down, you can apply to the Labour Office, which can pay the amount on your behalf and then recover it from your employer. As a last resort, severance pay can also be recovered through the courts – our lawyers can help you do this quickly and efficiently.
You don’t have to. You are entitled to severance pay by law, you do not need to apply for it separately. If your employer notifies you that your employment is terminated because the company is closing down, it should automatically pay you severance pay. However, in practice it often happens that they do not fulfil this obligation – in this case it is advisable to contact a lawyer.
Yes, he can. If you received severance pay when you closed your company, your unemployment benefits from the Labour Office will not start until the period corresponding to the severance pay has elapsed. For example, if you receive three months of average monthly wages, your benefits will not start until three months have passed.
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Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.
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