What you absolutely need to know when receiving a notice of termination or the suggestion from the employer to conclude a termination or settlement agreement for severance pay!
Short-time work is over. Time to breathe a sigh of relief for many employees? Unfortunately, no.
Because more and more employees are now being given notice by their employer and I suspect that the wave of layoffs is only just beginning.
Notice of termination is currently being given, and will certainly also be given in the near future, not only on the grounds of operational reasons, in order to be able to maintain the rest of the business. Rather, many employers are now using the supposed opportunity to part cheaply with employees who are actually too expensive for them or who they have always wanted to get rid of.
Many redundancies for operational reasons do not stand up to a review by the labor court in the context of a dismissal protection suit and the employees have a good chance of suing their job back. Would you like to find out which hurdles the employer has to overcome in the event of a compulsory dismissal and what your chances are of taking action against this: Here you will find all the necessary information on compulsory dismissal.
But do you always want that? Maybe complaining back to the workplace for a long time? Sometimes, after receiving a notice of termination, you simply don’t feel like standing up for your employer on a long-term basis. In addition, he obviously does not appreciate his own commitment.
Then just accept the termination? PLEASE DO NOT. If a termination for operational reasons could be ineffective even in the beginning, the chances are more than good that you can come to an agreement with the employer and receive a good severance payment from them so that you can leave for good.
Only those who fight or negotiate very well now take their chance of receiving more money from their employer. An adequate severance payment as compensation for the loss of your job makes it easier to leave.
1. What you basically need to know about severance pay
There is no automatic entitlement to termination, even in the event of termination. You are not automatically entitled to severance pay if you are given notice.
There is only one claim if the employer already offers you this in the termination in the event that you do not bring a dismissal protection suit. That happens extremely seldom and whether this severance payment is sufficient is a completely different matter.
Whether the employer is willing to pay a severance payment depends on various points, as well as how high the severance payment can be.
Do not sign a termination agreement or a settlement agreement without a detailed review! There is a threat of a blocking period for the employment office and thus even less money.
Do not get involved in the smallest of offers, only to have finally done the thing! Do not sign a settlement agreement or even a termination agreement without first checking it in detail. Bear in mind that this may result in a blocking period for unemployment benefit payments.
A blocking period of three months and therefore no payment of unemployment benefits for this period will be imposed by the employment agency at your expense if you yourself have contributed to the termination of the employment relationship for no reason. For example, because you voluntarily signed a termination agreement without the employer providing the reason for the termination of the employment relationship. Because otherwise he would not terminate you for operational reasons.
In a termination agreement must in any case clearly be that the termination of employment would have taken place by the employer otherwise by termination for operational reasons, so not a fault of the employee is based.
If you simply be by mutual agreement with the employer on termination of employment some and received a severance package, you will be unlucky have and then pay still on it. Is the severance pay you have negotiated enough to bridge this three-month lock-up period and still have something left over? And didn’t you actually finance your own severance payment yourself?
But even if the regular notice period, legally or contractually agreed, is not adhered to at your expense, you face the same misfortune. Employers often suggest that they receive more severance pay and that the employment relationship should be terminated earlier. In no case do you get involved in this.
This is because you are only indirectly reducing your severance payment, as you are entitled to your salary payments until the end of your employment relationship. Nice for the employer, he pays less salary and no social security contributions on the severance pay. Regardless of how this is to be assessed in terms of social law, you are annoyed afterwards and are also the stupid.
Personally, I am not particularly fond of termination agreements, unless you already have a new employment contract in your pocket that begins seamlessly when the old employment relationship ends, and the employer pays a correspondingly high severance payment.
So think twice if your employer offers you something like this. Also consider: Would the employer offer you a termination agreement if they could really terminate you properly?
Please also consider how you could act in the best possible way from a tax point of view. You can read more about this below.
2. How can you get a high severance payment?
The more ineffective a termination is and the less chance the employer has of getting rid of it by means of a termination, the greater your chance of receiving a high severance payment.
Are you a good negotiator? How do you think of arguments to increase the proposed severance payment? What would you plan to do?
What are your prospects for a new job, have you been with the company for a long time, do you have a family to support, how well the company is doing, what is its economic situation, what is the probability that the employer will lose a dismissal protection suit, how important is it is to the employer that you go? All of these play a role when it comes to the negotiation.
In the following, I am giving you important points so that you can perhaps assess for yourself what could be achievable.
3. Do you know what your minimum severance payment could be?
First of all, it is always relevant how long you have been with the company and what your income is.
There is a simple rule of thumb for calculating a minimum severance payment, sometimes called the standard severance payment, i.e. the severance payment that you could achieve in any case:
½ gross monthly salary per year of employment. You take your average gross salary, divide it by 2 and multiply it by your years of employment.
Unless there is a social plan and a balance of interests. The calculation of the possible severance payment is already specified in these. But here too there can still be room for improvement. Or you have already stipulated in your employment contract what you will receive as severance pay in the event of a termination. This is usually not the case.
Years of employment
Years of employment include all the times in which you were employed by the employer. Regardless of whether they were on parental leave, were ill for a longer period, only worked part-time or took a break/sabbatical. You have already been employed for 5 years and 6 months, round up to 6 years.
The longer you have been with the company, the higher the severance payment. The older you are and the worse your chances of finding the job are, the more severance pay you can get.
How do you determine your average gross monthly salary?
Monthly gross salary x 12 (not the net salary that you get paid monthly)
- Bonus payments
- Possible special payments,
Such as Christmas bonus, vacation bonus
- Possible benefits in kind/benefits in kind,
Such as monthly train tickets, private use of a car, fuel vouchers, food costs
- If you regularly work overtime, you should also take these payments into account
You divide this total amount by 12 and you get the average gross monthly salary, based on which the basic severance payment is calculated.
You should not add to the severance payment if you have any existing entitlements on your part to payment of holiday compensation for leave that you can no longer take until the end of your employment relationship, existing payment entitlements to Christmas bonuses, existing entitlements to overtime payments, existing entitlements to bonuses, special payments.
The employer has to make these payments anyway, along with social security contributions and you have to specify these points in writing with the employer as his further payment obligation.
Please also note! Tax liability on severance payments
You have to tax the severance payment as taxable income as normal! The severance payment is therefore also shown as a gross payment. The severance payment will therefore not be paid to you in the amount of the agreed sum.
This is only different if you agree with the employer that the agreed severance payment will be paid net. Then the employer has to add the taxes etc. to the net amount and pay them himself. However, this is unusual.
However, no social security contributions have to be paid on the severance payment. The severance payment is not a salary that is subject to social security contributions. You will receive this as compensation for the loss of your job.
4. What tax structuring options are there?
Do not have the severance paid until the new year
This is interesting for everyone whose employment contract ended on December 31st. of the year should end. Arrange the payment so that the employer can only pay it at the beginning of the new year in January and not before, e.g. the employer will not pay the severance payment to the employee before January 2nd, 2021, or by January 15th at the latest. 2020.
The advantage for you is that the severance payment is no longer counted towards the income in 2020 and is taxable, i.e. it does not lead to a higher tax burden in 2020. If you do not receive a new salary in January due to a lack of new jobs, the tax burden is definitely lower.
The severance payment can be taxed according to the so-called fifth rule if the following conditions are met: You have not given notice yourself and the severance payment will be paid to you in one calendar year. In addition, the severance payment is higher than the wages that you would otherwise have received by the end of the year. It must also be a pure severance payment.
How is the fifth rule calculated:
Calculation step 1:
Severance payment: 5
+ annual salary
-> Calculation of income tax on this salary
Calculation step 2:
Annual salary received without severance pay
-> Calculation of income tax on this salary
Calculation step 3:
Difference between calculation step 1 and 2: 5
= Reduced income tax payable on the severance payment.
You should have this calculation done by your tax advisor.
5. What do you need to know about severance pay if you are paying maintenance or are living in a divorce?
You should also know that your severance payment may be offset against your maintenance obligations.
This is the case, for example, if you subsequently receive a lower income than at the beginning of your payment obligations for maintenance. In order to then maintain the previous maintenance payments, your severance payment would be offset.
This would of course be to your disadvantage. You would lose your job and have none of your severance pay because you have to use it to pay maintenance to your children, spouse, etc. Paying constant maintenance for children would usually not be an issue for most fathers or mothers, it would be different for the former partner. Without evaluating this for me, other possible solutions could also be considered here.
If your entitlement to severance payment arose before the application for divorce was sent, i.e., it does not have to be paid out, please note that a severance payment in the event of a divorce can increase your assets within the scope of the profit compensation; divorce lawyer Las Vegas can better explain you about this matter. In that case, the former spouse would also be entitled to part of the severance payment, as they made more assets during the marriage.
6. Engage a lawyer you trust
Please do not waste valuable time in negotiating effectively. You only have three weeks to react after receiving a notice of termination and, in case of doubt, to bring an action for protection against dismissal.
Even if you would now like to think about it in peace, weigh up all the pros and cons and consider whether you want to argue at all. There is still enough time for this if you know what the legal situation is and what you could achieve if you act quickly now.
In this case, the saying really applies: “If you come too late, life punishes you”. Rather, you belong to those who seize your chances even in this supposedly bad situation and get the best out of yourself.
Are you still unsure what is really feasible?
Would you like to be certain of how you are acting legally correctly?
Estimate the chances of getting a good severance payment with a lawyer, such as Right Lawyers.
Feel free to contact me by phone on 089/599 478 37 and arrange a quick initial consultation with me.