Dismissal allowance for employees on a permanent contract

Verified 01 January 2024 - Legal and Administrative Information Directorate (Prime Minister)

The dismissed employee may be granted severance pay under certain conditions. Do you want to know how this compensation is calculated? We'll give you the information you need to remember.

The severance pay is granted, under certain conditions, to the employee in DTA: titleContent to make up for the loss of his job.

It may originate from:

  • Legal, that is to say provided for by the Labor Code
  • Conventional, that is to say provided by a collective agreement
  • Contractual, i.e. provided for in the contract of employment

This allowance is paid by the employer.

These conditions vary by pattern redundancy and employmentseniority of the employee in the company.

Grounds for dismissal

The severance pay is due to the employee in DTA: titleContent who is dismissed for personal motive, economic or for incompetence.

In the event of dismissal for gross or serious misconduct, the allowance shall not be paid. However, treaty provisions, the employment contract or a use in the company may provide for the payment of such compensation.

Compensation is also payable in the event of termination or dissolution of the company (except cessation for force majeure).

In case of death of an employee where the dismissal has been notified, the allowance shall be paid to rights-holders.

Seniority

In order to receive the allowance, the dismissed employee must have at least 8 months of uninterrupted seniority to the same employer. This calculation is carried out on the date of dispatch the letter of dismissal.

Of treaty provisions, the employment contract or a use in the company may provide for a shorter period of service.

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Less than 10 years of age

Amount of compensation

The statutory allowance is calculated on the basis of wages raw prior to termination.

The allowance may not be less than one fourth of the month's salary per year of service.

Whether the employee worked full time before moving to part-time (or vice versa), the allowance is calculated proportionally the duration of each period.

Example :

One employee worked 3 years full-time, then 2 years part-time. His average gross salary during the last 12 months is €1,000 (either €2,000 full-time). The calculation of the allowance is as follows: (2000 x 1/4 x 3) + (1000 x 1/4 x 2) = €2,000.

Please note

this principle does not apply if the full-time employee is dismissed for Parental leave for part-time education. His severance pay must be calculated on the basis of the remuneration he received when he worked full time.

Calculation of reference salary

The salary taken into account is called reference salary. It shall be determined by taking into account, according to the most advantageous formula:

  • This is the monthly average of the last 12 months prior to termination of employment
  • This is the monthly average of the last 3 months. In this case, exceptional or annual bonuses and rewards shall be taken into account in proportion of the working time completed. If an annual premium has been collected, add 1/12e the amount of the premium for each of the last three reference months.

Please note

if the employee has less than 12 months of seniority, the monthly average over all the months worked should be compared with that calculated over the last 3 months, and the most favorable one should be used.

Where the employee has been on sick leave in the last few months, the reference salary to be taken into account shall be that of the last 12 or 3 months preceding the sick leave.

Seniority calculation

Seniority shall be calculated until the effective date of termination of the contract of employment, i.e. at the end of the period of notice.

In the case of an incomplete year, the allowance shall be calculated proportionally the number of full months.

Example :

For a reference salary of €1,500, the minimum allowance with a seniority of 3 years and 6 months is: [(1 500 x 1/4) x 3] + [(1 500 x 1/4) x (6/12)] = €1,312.50.

Seniority over 10 years

Amount of compensation

The statutory allowance is calculated on the basis of wages raw prior to termination.

The compensation shall be at least equal to the following amounts:

  • 1/4 months of salary per year of service up to 10 years
  • 1/3 months of salary per year of seniority after 10 years

Whether the employee worked full time before moving to part-time (or vice versa), the allowance is calculated proportionally the duration of each period.

Example :

One employee worked 10 years full-time, then 3 years part-time. His average gross salary during the last 12 months is €1,000 (either €2,000 full-time). The calculation of the allowance is as follows: (2000 x 1/4 x 10) + (1000 x 1/3 x 3)= €6,000.

Please note

This principle does not apply if the full-time employee is dismissed for Parental leave for part-time education. His severance pay must be calculated on the basis of the remuneration he received when he worked full time.

Calculation of reference salary

The salary taken into account is called reference salary. It shall be determined by taking into account, according to the most advantageous formula:

  • The monthly average of the last 12 months preceding the dismissal,
  • This is the monthly average of the last 3 months. In this case, exceptional or annual bonuses and rewards shall be taken into account in proportion of the working time completed. If an annual premium has been collected, add 1/12e the amount of the premium for each of the last three reference months.

Where the employee has been on sick leave in the last few months, the reference salary to be taken into account shall be that of the last 12 or 3 months preceding the sick leave.

Seniority calculation

Seniority shall be calculated until the effective date of termination of the contract of employment, i.e. at the end of the period of notice.

In the case of an incomplete year, the allowance shall be calculated proportionally the number of full months.

Example :

For a reference salary of €1,500, the minimum allowance with seniority of 12 years and 9 months is: [(1 500 x 1/4) x 10] + [(1 500 x 1/3) x 2] + [(1 500 x 1/3) x (9/12)] = €5,125.

FYI  

of treaty provisions, the contract of employment or a usage may provide for a more advantageous calculation formula for the employee. In this case, the employee receives the highest compensation.

A simulator allows you to estimate the amount of the minimum severance pay:

Estimate the amount of severance pay

Yes severance pay, whether legal, conventional or provided for in the employment contract, may be combined with the following allowances:

Please note

the severance pay for termination of employment by agreement or contract shall apply if it is more favorable to the employee than the statutory allowance. In this case, they do not accumulate.

Compensation paid in the event of dismissal (out of job protection plan) is partly exempt income tax.

The amount corresponding tocompensation fixed by law or convention collective east fully exempt.

If you received more, the exemption shall be limited to one of the following amounts:

  • 2 times the amount of gross pay you received in the year before your termination
  • Half of the severance pay you received

Tax services will choose the solution that works best for you.

Warning  

the exemption shall be limited to a maximum of €263,952 for allowances received in 2023 (€278,208 for 2024 allowances).

Example :

An employee shall receive severance pay of €120,000 of which €70,000 is the compensation provided for in his collective agreement. His gross remuneration for the calendar year preceding the dismissal is €40,000.

The severance pay shall be exempt up to the amount provided for in the collective agreement, i.e. €70,000.

This amount is greater than 50% of the compensation received (€120,000/2 = €60,000) but less than twice the annual gross remuneration, equal to €80,000 (€40,000 (x 2).

The compensation is therefore exempt up to the sum of €80,000.

The surplus of 40 000 (€120 000 - €80,000) is taxable.

The severance pay may be exempt from social security contributions, CSG: titleContent and CRDS: titleContent under certain conditions.

Social contributions

The income tax-exempt portion of the severance pay is also exempt from social contributions, up to €92,736.

Example :

if an employee receives severance pay of €40,000 exempt from tax, the allowance is also exempt from social contributions.

On the other hand, if he receives an allowance of €100,000 exempt from tax, the allowance shall then be exempt from social contributions up to €92,736.

The portion of the allowance that exceeds that amount, or €2,736 (€100,000 - €92,736), is subject to social security contributions.

Warning  

if the severance pay paid is more than €463,680, it shall be subject to contributions in full. No exemption is applicable.

CSG and CRDS

The severance pay shall be exempt from CSG: titleContent and CRDS: titleContent the smallest of the following 2 boundaries:

  • Amount of the legal or contractual redundancy payment due to the dismissed employee
  • Amount of the allowance exempt from social contributions

Example :

an employee receives severance pay (legal compensation + supra-legal allowance) by an amount of €40,000 exempt from income tax and social security contributions.

However, the amount of the legal compensation received (excluding the supra-legal compensation) is fixed at €15,000.

The CSG and CRDS exemption shall apply up to €15,000.

CSG and CRDS are due to the €25,000 remaining (€40,000 - €15,000).

Warning  

if the severance pay paid is more than €463,680, it shall be subject to CSG and CRDS in its entirety. No exemption is applicable.

Estimate the amount of severance pay

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