Compensation: entitlement, amount and taxation

What does a severance payment mean?

A severance payment is an amount of money that your employer pays you for the loss of your job. In this way, disadvantages of the employee such. B. a setback in career planning or a loss of prestige can be mitigated or compensated for. Employers often use the severance payment as a means to encourage "annoying" employees to conclude a termination agreement and thus get rid of them without major complications such as dismissal protection proceedings.

When is there an entitlement to severance pay?

Ein Rechtsanspruch auf eine Abfindung besteht nur in be­sonderen Fällen. Allerdings bleibt es dem Arbeitgeber unbe­nommen, einem aus dem business ausscheidenden Mitarbeiter aus bestimmten Gründen eine Abfindung zu zahlen, z. B. wegen langjähriger guter Zusammenarbeit oder weil er frei­willig bereit ist, seine Stelle aufzugeben, um in einer Betriebs­niederlassung in einer anderen Stadt eingesetzt zu werden. Zu den Fällen, in denen Ihnen eine Abfindung gesetzlich zusteht, gehören

· The claim according to S 9 Dismissal Protection Act (KSchG) and

· The severance payment based on a social plan within the meaning of Section 112 of the Works Constitution Act (BetrVG).

A severance payment according to § 9 KSchG comes into consideration if the employer has given you notice and the labor court determines on the basis of your dismissal protection suit that the dismissal was not justified. In principle, this would mean that the employment relationship would continue to exist unchanged. However, the relationship between you and the employer, e.g. B. by a previous insult, be so excited that you cannot be expected to continue working in this company. In this case, you can apply at the court hearing that the employment relationship is to be terminated in exchange for a severance payment. The amount of the severance payment is then determined by the court.

Für den Anspruch auf eine Abfindung auf Grund eines Sozialplans gilt folgende Voraussetzung: Im Rahmen einer Betriebsänderung (z. B. Stilllegung einer Abteilung in der Firma) wurde zwischen dem Arbeitgeber und dem Betriebsrat ein Ausgleich bzw. eine Milderung der damit für die Arbeit­nehmer verbundenen Nachteile vereinbart. Dies sind insbe­sondere wirtschaftliche Einbußen durch den Verlust des Ar­beitsplatzes. Eine derartige Regelung ist ein so genannter social plan im Sinne des § 112 BetrVG.

Another use case for the payment of severance pay, which often occurs in practice, is the settlement of lawsuits before the labor court. Such a case exists when an employee sues his dismissal because he considers it to be unjustified and it turns out during the legal proceedings that the outcome of the process is uncertain. In this case, due to the risk of litigation, the court or the employee can propose to end the legal dispute with a settlement. If the court settlement comes about, the amount of the severance payment will be recorded in the court record.

In what other cases is it usual to pay a severance payment?

The most common case in practice in which the employer pays the employee a severance payment is the termination of the employment relationship by way of a termination agreement. In this way employers often try to offer an incentive to leave the company, especially employees who would be difficult or impossible to terminate.

If your boss approaches you with such an offer, you should be careful at first. Do not let yourself be rushed to conclude a termination agreement and do not sign anything between the door and the hinge. Ask yourself at least a time to think about it. For example, tell your boss that you need to discuss the matter with your partner or family first. During this time, you should have a lawyer or your trade union examine the offer proposed by your boss.

Termination contracts can be associated with considerable disadvantages for employees (e.g. being barred from receiving unemployment benefits). Do not sign until you have clarified that you will not be harmed by the termination agreement. You can find out more about this under the point of termination agreement.

Often, employers also pay severance payments if an employee has been given a change of notice and the employee continues the employment relationship under the changed conditions.

Attention: The usual tax-free amounts for severance payments do not apply to such severance payments.

In addition, some collective agreements regulate the payment of severance pay upon termination of the employment relationship. You can find out more about this from your works council.

How much is the severance payment?

The amount of the severance pay as part of a dismissal protection process is staggered according to age in accordance with Section 10 KSchG. If you are under 50 years of age, the severance payment can amount to up to 12 months' earnings. If you are older than 50 and have worked in the company for at least 15 years, you can expect up to 15 monthly salaries.

For employees who have reached the age of 55 and who have been employed in the company for at least 20 years, a severance payment of up to 18 monthly salaries can be set. Otherwise, the following rule of thumb applies to all severance payments agreed out of court: Half a month's salary is paid as severance payment for each year of employment. In this case, however, the actual amount of the severance payment is mostly a matter of negotiation, and it can be helpful to call in a lawyer.

How is the severance pay taxed?

Severance payments are only exempt from income tax within the framework of certain allowances (S 3 Paragraph 1 No. 9 EStG). The following maximum amounts currently apply:

For employees under the age of 50 who have been with the company for less than 15 years, the severance payment allowance is DM 16,000.

If an employee is older than 50 and has worked for the same company for more than 15 years, the exemption for his severance payment is 20,000 DM.

From the age of 55 and employment of more than 20 years, the severance payment allowance for employees is 24,000 DM.

The part of your severance payment that exceeds the tax exemption must then be taxed as normal. At best, you can achieve a small tax saving by making use of the "fifth rule" taxation. Inquire about this with your tax advisor.

Severance Pay - Important Judgments

Severance payment agreement "gross equals net"
If the employer wants to undertake in the context of a settlement settlement to assume the income tax in the internal relationship with the employee for the part of the settlement that exceeds the statutory exemption, this will of the parties must be clearly evident from the settlement agreement.
The frequently used clause "gross = net", on the other hand, cannot be regarded as such an agreement. In this case, the employee would still be obliged to bear the income tax incurred.
LAG Baden-Württemberg, April 17, 1997 - AZ: 11 Sa 132/96

Compensation in the event of company relocation
If a company relocates a company to another city and for this reason some of the workforce voluntarily resigns, while termination agreements with the payment of severance pay are agreed with the other employees, the employees who have terminated themselves have no retrospective claim on a severance payment.
This does not constitute a violation of the principle of equality, because there is a special situation for employees who continue to work there until the company moves, which justifies a special severance payment arrangement.
BAG, B. 3. 1995 - AZ: 5 AZR 869/93

Unemployment benefit is not taken into account
If an employee receives a severance payment on the basis of a social plan in accordance with the provisions of the collective agreement on rationalization protection for white-collar workers, then he does not have to count the unemployment benefit against this.

The reason for this is that the unemployment benefit has a wage replacement function and therefore serves other purposes than the severance payment. This is supposed to compensate for the loss of a job.
BAG, February 20, 1997 - AZ: 6 AZR 760/95

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