When Is an Employee Entitled to Severance Pay?

Severance pay is a benefit paid by the employer to the employee in certain circumstances when the employment relationship ends. While it is not always mandatory, in some situations, it is an important element of financial security for employees. In this article, we will explain when an employee is entitled to severance pay and what conditions must be met for the employer to be obligated to pay it.

1. Severance Pay in the Case of Employer-Terminated Contracts

In general, an employee is entitled to severance pay when the employer decides to terminate the employment contract, and the reason for the termination is related to circumstances on the employer’s side. The most common situations are:

• Job position liquidation
• Reductions in workforce
• Company reorganization

If the contract is terminated due to these reasons, the employer is obligated to pay severance pay. However, if the employee resigns (e.g., by submitting a notice), severance pay is not owed unless the employment contract stipulates otherwise.

2. Severance Pay and Length of Employment

Generally, the amount of severance pay depends on the length of the employee’s service with the company. According to the Labor Code:

• 1-month severance pay: For employees employed for less than 2 years.
• 2-month severance pay: For employees employed for 2 to 8 years.
• 3-month severance pay: For employees employed for more than 8 years.

It is worth noting that severance pay cannot exceed 15 times the minimum wage in the given calendar year.

3. Severance Pay in the Case of Employee-Initiated Termination

Severance pay may also be due when the contract is terminated due to reasons on the employee’s side, such as their death or incapacity to work resulting from an accident. In such situations, the severance pay is paid to the employee’s family members.

4. When Is Severance Pay Not Due?

Not every situation obligates the employer to pay severance pay. Among the cases where an employee is not entitled to severance pay are:

• Termination by mutual agreement: If both the employer and employee agree to end the employment relationship, severance pay is not mandatory.
• Resignation by the employee: If the employee independently submits their resignation, severance pay is also not due.

5. How Is Severance Pay Calculated?

Severance pay should be calculated based on the employee’s salary over the last 3 months prior to the termination of the contract. However, it is important to note that bonuses, rewards, or other allowances beyond the base salary are not included in the severance pay calculation.

6. Summary

Severance pay is an important benefit that can provide financial security for an employee when their employment ends. It is important to know when and under what conditions it is due in order to protect one’s interests in situations where the employment relationship might be terminated. Additionally, since each case may have its own specifics, it is always a good idea to consult a specialist in unclear situations.