📄 How much severance am I owed if I am dismissed for business reasons?

With conditions

Quick answer

It depends on the reason: severance under Article 108 of the Employment Relationships Act (ZDR-1) is due when the employer terminates the contract for a business reason or for incapacity, but not on a fault dismissal or when the worker resigns. The base for the calculation is the worker's average monthly pay over the last three months before the dismissal. The amount depends on length of service with the employer: 1/5 of the base for each year from one to ten years, 1/4 of the base for service over 10 to 20 years, and 1/3 of the base for service over 20 years. Total severance may generally not exceed ten times the base, unless a branch collective agreement provides otherwise. The widespread myth that severance is due on any departure from a job is wrong - anyone who resigns or is dismissed for fault is not entitled. It must be paid on termination of the employment contract.

📋 The rules

Severance is due on dismissal for a business reason or incapacity (Article 108 ZDR-1).
The base is the worker's average monthly pay over the last three months before the dismissal.
Shares: 1/5 of the base per year (1-10 years), 1/4 (over 10-20 years), 1/3 (over 20 years of service).
The upper limit is generally ten times the base; a collective agreement may set more favourable terms.
It is paid on termination; fixed-term contracts have a separate, lower severance (Article 79).

🔓 Exceptions

There is no severance on a fault or extraordinary dismissal by the employer for a breach, nor when the worker resigns.
A worker offered a suitable new job who unjustifiably refuses it loses the right to severance.
A fixed-term contract (over 1 year) carries a lower severance under Article 79, except on renewal or the worker's fault.

⚠️ Penalties & fines

If the employer fails to pay the statutory severance on termination, the worker can recover it in court together with statutory default interest and report the breach to the Labour Inspectorate, which fines the employer. Severance enjoys favourable tax treatment: up to the amount set by tax rules it is not added to the tax base, while any excess above that threshold is taxed. If the employer becomes insolvent, part of the unpaid severance is covered by the public guarantee fund up to a statutory ceiling. Severance set too low (for example ignored service or a wrong base) means the worker can claim the difference even after the job has ended. Accepting the paid severance does not in itself mean the worker gave up the right to challenge the lawfulness of the dismissal in court, for which a separate short deadline applies.

📎 Official sources

Last verified: 2026-07-12

❓ Frequently asked

When is severance actually due?

Severance is due when the employer terminates your contract for a business reason or for incapacity. It is not due if you resign, if you are dismissed for fault, or extraordinarily for a serious breach of duties.

How do I work out the amount?

The base is your average monthly pay over the last three months before the dismissal, multiplied by the relevant share for your service. That is 1/5 of the base per year up to ten years, 1/4 over ten to twenty years, and 1/3 over twenty years of service.

Is there an upper limit?

Yes, total severance may generally not exceed ten times the calculation base, that is ten average monthly pays. A branch collective agreement, however, may set more favourable terms for the worker, such as a higher cap or higher shares per year.

Is severance taxed?

Severance has favourable tax treatment and, up to the amount set by tax rules, it is not taxed at all. The part of any severance that exceeds that statutory threshold is added to the tax base and taxed as ordinary income.

What if they do not pay it?

You can report unpaid severance to the Labour Inspectorate and recover it in court together with default interest. If the employer is insolvent, part of the severance is covered up to a limited amount by the public guarantee fund.

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