Severance pay after dismissal – the most important information

Dismissal from work is a very difficult event, but it is worth knowing that after such a decision, you can apply for the payment of specific funds. We are talking about severance pay that an employee is entitled to in a specific situation. What exactly does this issue look like? Who can apply for severance pay?
What is severance pay after dismissal? Definition and background information
At the outset, we must point out that the Labour Code does not provide for such a thing as severance pay for a dismissed employee. However, pension and death severance pay are included. Severance pay related to redundancies is provided for in the Act on Special Rules for Terminating Employment Relationships with Employees for Reasons Not Attributable to Employees. This is the Act of March 2003.
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Is severance pay taxable? Key messages
Taxes are a very important topic. It is not surprising that employees receiving severance pay for termination of employment wonder whether this benefit must be taxed. The answer is: yes, it must be and should be taxed with PIT.
There are some discrepancies that could suggest that there is no such compulsion, but the Act of 13 March 2003 clearly defines this. In a situation where the exemption occurs for reasons not attributable to the employees, this type of benefit is not exempt from tax.
3-month severance pay – date and amount
The amount of severance pay is influenced by the length of service and the amount of remuneration that the employee received before dismissal. An employee who has received a notice of termination of employment or has terminated cooperation by mutual agreement in connection with collective redundancies must receive their severance pay in accordance with the rules set out in the Act.
What severance pay can you count on? The act provides for one, two or three months’ salary depending on the length of service in the company. Remember that we are still talking about a situation in which the contract was terminated for reasons not attributable to employees. In this case, the employer should pay the severance pay no later than on the last day of work (according to the agreement) and the internal rules of payment for employees.
After this period, the employee may claim interest for delay along with the remaining amount, of course, if he or she asserts his or her rights before the Labour Court.
If the employer refuses to pay, the employee has the right to issue an appropriate letter, which will be a pre-trial request for payment. If such a letter does not help, then it is worth resolving the situation in court.
Can the employer set its own conditions for the payment of severance pay?
Of course, the employer may set more favourable severance pay conditions for employees on the basis of internal labour regulations. The word more beneficial is very important here. If the employer employs fewer than 20 people, it can also establish internal regulations in the company, according to which employees will be able to receive severance pay for termination of employment.
In addition, employers may include additional issues related to severance pay in employment contracts, i.e. the proverbial allowances. This is allowed by the jurisprudence of the Supreme Court. Therefore, the payment of additional money guaranteed by the employer for reasons not attributable to the employees is permissible by law. It also does not violate the Act on Collective Redundancies and the Labour Code.
Is an employee entitled to severance pay if he or she dismisses himself/herself?
This is an interesting example and it is worth taking a closer look at. The dismissal is most often made by the employer, but there are also situations in which the employee decides to leave the current workplace. Is such a person entitled to severance pay? Yes and no. In a situation where an employee resigns from work and it is not related to violations on the part of the employer, he or she is not entitled to severance pay.
If there is a situation in which the employer does not pay remuneration on time, then we speak of a serious breach of basic obligations. Therefore, this may be the sole reason for terminating an employment contract, and as we can see, it results from resignation from work for reasons not attributable to the employee. Therefore, the severance pay should be paid.
How to obtain severance pay at the end of cooperation by mutual agreement?
In such a situation, the moment of signing the agreement is important. It is crucial to take into account in the agreement that it results from a proposal made by the employer, not the employee. It is also worth including information that both parties indisputably recognize the right to pay severance pay. It is also good to include its exact date.
In this situation, it may be helpful to hire an attorney who will negotiate convenient terms for the employee. There is no denying that the employer will be reluctant to include such records.
Severance pay on dismissal without notice of employment contract
An employer hiring employees may try to avoid payment of severance pay by stating that the dismissal occurs for reasons attributable to the employee. It often happens that this is not true and the contract is terminated in a disciplinary procedure. What to do in such a situation?
First, the employee must prove during the court trial that the reason indicated by the employer was false. Secondly, it must prove that the dismissal was due to reasons not attributable to the employee. Only then can the employee demand payment of severance pay. Of course, after a previous judgment of the Labour Courts.
After the decision, the amount of the severance pay may be increased by appropriate compensation, and the total amount of these benefits may amount to up to 6 months’ salaries.
If an employee has been rightfully dismissed without notice, then of course he will not receive severance pay. We also do not recommend claiming the right to severance pay in a situation where you are at fault. You are then at a loss.
What is a collective redundancy?
It is time for a few words about group redundancies. Remember that not every dismissal of a larger number of employees has to be a group redundancy. Such an exemption must meet several conditions.
- The employer must employ at least 20 employees. If there are fewer of them, there is no question of collective redundancy.
- Collective redundancies must include at least 10 employees when the employer has fewer than 100 employees, 10% of employees when the employer has at least 100 and fewer than 300 employees, 30 employees when the employer has at least 300 or more.
- Employees must be terminated within a period not exceeding 30 days.
- The termination of the contract must take place for reasons not attributable to the employees and may take place on the basis of termination of the contract by the employer or by mutual agreement. However, for employees to be defined as a group, there must be at least 5 of them.
When is severance pay due?
When you are entitled to severance pay is strictly regulated by law. First of all, the dismissal cannot be due to the employee’s fault. His reason should be completely independent of his work. The provisions on severance pay can be applied in establishments with at least 20 employees. Termination of employment on the basis of notice must then relate to collective redundancy.
However, it is worth remembering that collective dismissal can only be said when the employment relationship is terminated with a certain number of people. It all depends on the size of the company. Sometimes, however, it is also possible to apply for severance pay if the dismissal concerns one employee. This is the case when the company employs fewer than 20 people, but the dismissal took place solely due to the employer’s fault. If the necessary conditions are met, employees can apply for the benefit payment.
Most often, you can apply for severance pay when the dismissal is related to:
- liquidation of individual positions,
- declaration of bankruptcy,
- unfavorable financial situation of the company.
There is also an option to take advantage of severance pay also in a situation where the employer has terminated the existing working conditions and proposed new ones. If the employee does not agree to such a solution, he or she may apply for the benefit to be paid.
Not everyone knows that they have the opportunity to apply for severance pay. Employers do not inform about such an option, waiting for the employee to ask for it himself. For this reason, it is a good idea to use the help of specialists and make sure that you are entitled to the benefit in a given situation. It is also worth reading the information for employees in our Employee Zone.
When is severance pay not due on dismissal?
It is also worth knowing when you are not entitled to severance pay when you are dismissed. These are primarily situations in which the employment relationship will be interrupted due to the employee’s negligence. Severance pay cannot also be obtained if the contract simply expires on a specific date specified in the document. If it is not extended, the employee cannot count on the payment of the benefit.
It is also important to know that severance pay is only due to people employed under an employment contract (both for a definite and indefinite period). This means that people working on the basis of other documents cannot apply for the payment of money.
Severance pay for an employee
In the case of temporary employment, a situation such as dismissal. Briefing In such cases, it cannot be granted to the employee. This is related to the law, so then a person who has lost their job is deprived of the possibility of obtaining additional money. Temporary work is a specific type of employment, so the details of how benefits are paid are different from when you are under an employment contract.
How much is the severance pay for an employee?
Severance pay on dismissal is a benefit whose value has not been determined in advance. It all depends on the length of employment with a particular employer. In a situation where a person has worked in a given place for less than two years, the severance pay usually takes the value of one month’s salary. Over a period of two to eight years, this is twice that amount. However, if the employee has been employed for more than 8 years, he or she can apply for payment of money worth three months’ salary.
However, there are limits imposed by the current law. They refer to the limit value of the severance pay. It should not exceed 15 times the minimum wage. This means that some people will not be able to take advantage of the three-month salary due to the fact that the sum of payments exceeds the indicated value. In such a case, the employee will receive only 15 times the minimum wage, assuming that he has worked for the company for a certain amount of time.
However, the law is changing dynamically, which is why in 2020 a provision created with the pandemic in mind was introduced. According to its wording, the severance pay for an employee may be reduced to 10 times the minimum wage in a situation where the dismissal occurred in connection with the coronavirus, and this relationship is proven.
When can you apply for severance pay?
Severance pay for dismissal is a benefit that can be obtained immediately after receiving notice. However, some people forget to apply for money withdrawals or do not know that they have the right to do so. Fortunately, severance pay is available for 3 years after the termination of the employment relationship. If the employee does not exceed this deadline, he or she can expect to receive a benefit calculated on the basis of the presented rules. After 3 years, the case is time-barred and there is no longer an option to pay the severance pay.