I. When must you pay retirement severance to an employee?
Severance from the employer is due to employees under circumstances detailed in the Labor Code.
According to Article 92^1 of the Labor Code, retirement (or disability) severance equivalent to one month's salary must be paid by the employer to an employee who:
Qualifies for a disability pension or retirement; Whose employment relationship ends in connection with their transition to disability or retirement, given there is a causal link; Has not previously received severance due to their transition to retirement (or disability). An employee is entitled to severance pay equivalent to one month's salary.
Additionally, retirement (or disability) severance can be more beneficial than specified in the Labor Code. Its amount can also be determined by internal company regulations, such as the remuneration regulations or collective labor agreements.
How do we calculate retirement and disability severance? The calculation of retirement or disability severance is based on the norms applied for determining the monetary equivalent for unused vacation days, which means it is based on the average monthly salary without dividing by the vacation coefficient and hours.
Parties can stipulate a more favorable method for determining the amount of severance in the employment contract. According to the Supreme Court ruling of July 5, 2007 (III PK 20/07, OSNP 2008, No. 17-18, item 253), if an employee's claim for more favorable retirement severance regulated in a collective labor agreement is unjustified, the court must assess the claim based on generally applicable regulations (Supreme Court ruling of June 29, 2010, I PK 33/10, OSNP 2011, No. 23-24, item 293).
It is important to note that retirement or disability severance is due to all employees regardless of their position within the company.
According to the Supreme Court ruling of March 2, 2010, case number II PK 239/09, LEX no. 585781, the decisive factor for acquiring the right to retirement or disability severance is the transition to retirement or disability combined with the definitive termination of employment, i.e., the change in the employee's legal status to that of a retiree or pensioner due to the end of the employment relationship.
Severance pay following employment termination is a one-time benefit since an employee can only acquire the right to it once during their career. An employee who has received severance cannot acquire the right to it again. Notably, the claim for retirement or disability severance is due from the date of employment termination.
II. Death Benefit Severance
In the event of an employee's death during employment, the deceased employee's family is entitled to death benefit severance from the employer.
The calculation of death benefit severance is based on the length of the employee's service with the given employer, generally amounting to:
One month's salary if the employee was employed for less than 10 years; Three months' salary if the employee was employed for at least 10 years; Six months' salary if the employee was employed for at least 15 years. The claim for death benefit severance does not belong to the deceased employee's estate but rather to the rights of their family members, as per the Labor Code.
Therefore, who is entitled to death benefit severance:
The spouse, Other family members meeting the requirements for a family pension according to the social security and pension laws. In the absence of eligible persons, the death benefit severance is not paid out by the employer, as it is only due to individuals specified in the Labor Code.
It is important to note that the spouse of the deceased employee is entitled to the death benefit severance even if they do not meet the necessary conditions to receive a family pension.
The death benefit severance is divided equally among all eligible family members. If only one family member is eligible, they are entitled to half of the calculated severance amount.
According to § 2 (1) (8) of the regulation of the Minister of Labor and Social Policy dated May 29, 1996, concerning the determination of remuneration during periods of non-performance of work and remuneration constituting the basis for calculating compensation, severance, and other benefits provided for in the Act of June 26, 1974, the death benefit severance is determined according to the principles applicable to determining the monetary equivalent for unused vacation days.
Here, I would like to mention that the death benefit severance is not considered income from employment, which means that social and health insurance contributions are not deducted from it. Additionally, it is exempt from income tax, according to Article 21 (1) (7) of the Personal Income Tax Act of July 26, 1991.
When do regulations allow the employer to be exempt from paying death benefit severance? In case of any doubts or questions, we encourage you to use our services, including financial and accounting outsourcing. Our specialists are ready to take your calls.
Death benefit severance is not due to family members if the employer has insured the employee's life. This is a significant piece of information from the employer's perspective.
However, compensation paid by an insurance institution cannot be less than the entitled death benefit severance.
If the compensation is lower than the death benefit severance, the employer is obliged to pay the family the difference between these benefits – Supreme Court ruling of December 20, 2017, III PK 10/17. In my opinion, this is a very important ruling from the employer's perspective, as employers are often unaware of when regulations allow them to be exempt from paying death benefit severance.
According to § 2 (1) (8), the death benefit severance is determined according to the principles applicable to determining the monetary equivalent for unused vacation days. For employees receiving only a fixed monthly salary, the death benefit severance is simply equal to the salary due to the employee in the month of their death, as the fixed elements are considered in the amount due in the month the right to the equivalent is acquired.
III. Severance for Employees Called to Military Service
Based on Article 306 (2) of the Homeland Defense Act, an employee called to territorial military service receives severance from the employer equivalent to two weeks' salary. This severance is calculated according to the rules for determining the monetary equivalent for unused vacation days.
The Homeland Defense Act does not specify how to interpret the term "salary for two weeks," whether it should be understood as calendar weeks or working weeks, and from which period it should be taken.
Therefore, it can be assumed that the correct approach is to consider the severance as half of the monthly salary calculated according to the rules for determining the equivalent for vacation, or the severance will represent the equivalent for 10 days (80 hours) of vacation.
It should be noted that severance is not due in case of re-appointment to the same service, according to Article 306 (2) of the Homeland Defense Act.
IV. Severance for Employees Dismissed for Reasons Not Attributable to the Employees
According to the regulations, the right to severance is due when dismissal occurs for reasons attributable to the employer. The amount of the severance ranges from one to three salaries, depending mainly on the employee's length of service with the company.
An employee, in connection with the termination of the employment relationship as part of group layoffs, is entitled to severance pay in the amount of:
One month's salary if the employee has been employed by the given employer for less than 2 years; Two months' salary if the employee has been employed by the given employer for 2 to 8 years; Three months' salary if the employee has been employed by the given employer for over 8 years. However, according to the regulations, severance is due if the employer employs more than 20 employees – this is important information for employers. If the employer employs fewer than 20 employees, the right to severance can also be regulated by the company's internal regulations.
However, if the termination of the contract by mutual agreement is initiated by the employer for reasons not attributable to the employee, such as job elimination or organizational changes, the employee is not deprived of the right to severance pay.
There are two conditions for acquiring the right to the aforementioned severance – the first is the termination of the employment relationship, and the second is a specific reason underlying this termination. Severance pay is due in case of termination of the employment relationship through termination by the employer, as well as by mutual agreement. It should be emphasized that the initiative for terminating the contract by mutual agreement must come from the employer. If the employee initiates this, there is no basis for severance payment.
Therefore, the condition is that the reasons which solely justify the termination of the employment relationship by mutual agreement are not attributable to the employee, e.g., job elimination meets this condition, and that the employer employs at least 20 employees.
It should also be mentioned that the employee is entitled to severance pay even if the termination of the employment contract results from the employee's refusal to accept new terms and conditions of employment and remuneration. All these topics can also be discussed with us, for example, by using our remote ad hoc assistance in accounting, HR and payroll, controlling, law, and taxes. We encourage you to contact us!
