Being made redundant is a drastic experience for most employees. In addition to concerns about their professional future, the question often arises: Am I entitled to severance pay? This question concerns millions of employees in Germany, but the answer is more complex than many people think. Contrary to widespread opinion, there is no automatic legal entitlement to severance pay every time an employee is dismissed. Nevertheless, there are various situations and legal bases that can lead to a severance payment. The amount and entitlement depend on various factors, which can result from legal provisions, contractual agreements or negotiations.
Is there an automatic entitlement to severance pay for every dismissal?
No, in Germany there is generally no statutory entitlement to a severance payment when an employment relationship is terminated. This widespread assumption is a misconception that surprises many employees. Instead, severance pay is a voluntary payment by the employer or arises from specific legal situations. The employer is not automatically obliged to pay compensation in the event of lawful dismissal. This applies to both ordinary dismissals and dismissals without notice, provided they are legally sound.
When am I still entitled to a severance payment?
Despite the lack of a general legal entitlement, there are specific situations in which an entitlement to severance pay may arise. The most important case is the regulation in accordance with Section 1a of the Dismissal Protection Act (KSchG). In this case, employees are entitled to a severance payment if the employer terminates the employment contract for operational reasons and explicitly states in the letter of termination that a severance payment will be made if an action for protection against dismissal is waived. Other bases for entitlement arise from social plans in the event of operational changes, collective agreements that contain severance payment provisions or individual employment contracts with corresponding clauses. Severance pay is also frequently agreed in the case of mutually agreed termination agreements. You can find more information on this topic here.
How is the amount of the severance payment calculated?
The calculation of the amount of severance pay follows a clear formula for statutory claims under Section 1a KSchG: The employee receives a severance payment of 0.5 months' salary per year of service. The last gross monthly salary is used as the basis for calculation. For example, if the employee has been with the company for 10 years and has a gross monthly salary of 4,000 euros, the severance payment would amount to 20,000 euros. However, other calculation bases can also be used in negotiations or out-of-court settlements. Factors such as the age of the employee, the prospects of success of an action for unfair dismissal or the economic situation of the company often influence the actual amount of severance pay.
What happens if I take legal action against the termination?
An action for unfair dismissal can have a significant impact on potential severance pay claims. If you take legal action against the dismissal within the three-week period, the claim under Section 1a KSchG automatically lapses. However, a successful or partially successful claim often opens up better negotiation opportunities for a higher severance payment. Many labor court proceedings end with a settlement in which a severance payment is agreed that is often higher than the statutory standard severance payment. The chances of success of the claim, the risk of legal costs and the duration of the proceedings should be carefully weighed up.
What tax aspects do I need to consider with severance payments?
Severance payments are generally subject to income tax, but there are important tax peculiarities to consider. Since 2025, the application of the so-called fifth rule has changed fundamentally. While employers were previously able to apply the one-fifth rule when deducting income tax, they must now initially tax the severance payment in full at the regular tax rate. Employees can only claim the tax savings from the one-fifth rule retrospectively in their tax return to the tax office. This regulation spreads the severance payment over five years and thus significantly reduces the progression effect. In addition, severance payments are generally exempt from social security contributions if they are paid due to the termination of the employment relationship.
Can a severance payment affect my unemployment benefit?
The effects of a severance payment on unemployment benefit must be considered in a differentiated manner. In principle, a severance payment is not counted as income towards unemployment benefit, as it is considered compensation for the loss of employment. However, unemployment benefit may be suspended if the employment agency assumes that you have terminated the employment relationship yourself without good cause by means of a termination agreement. This blocking period is usually twelve weeks, but can be shortened under certain circumstances. The situation is assessed particularly critically if the notice period is shortened by a termination agreement or if there is objectively avoidable unemployment.
When should I consult a lawyer for employment law?
The support of a specialist employment lawyer is recommended in various situations. Legal advice is particularly important in the case of legally questionable dismissals, complex severance negotiations or when considerable sums of money are involved. A lawyer can realistically assess the chances of success of a dismissal protection claim and develop the optimal negotiation strategy. Many legal expenses insurance policies cover employment law disputes, which minimizes costs. The initial consultation is also often inexpensive or covered by legal expenses insurance. Professional help is usually indispensable, especially when it comes to evaluating termination agreements or optimizing severance payments for tax purposes. If you have any questions about your individual situation or other employment law issues, please do not hesitate to contact us.
What alternatives are there to traditional severance pay?
In addition to the classic one-off payment, there are various alternative arrangements for severance payments. Payments in installments can offer tax advantages and reduce the financial burden for the employer. Benefits in kind such as the assumption of further training costs, the provision of a company car for a transitional period or support in finding a job can also be agreed. Another option is to agree a turbo clause, whereby the severance payment is increased if the employee finds a new job earlier than agreed. Comprehensive outplacement programs are often offered, especially for senior executives, which include professional advice on professional reorientation.
Conclusion: Severance pay is a matter of negotiation
Severance pay in the event of dismissal is by no means a matter of course in Germany, but results from specific legal situations or successful negotiations. While there is no general legal entitlement, various statutory regulations, collective bargaining agreements or contractual agreements do offer possibilities for severance payments. The amount is often based on the rule of thumb of 0.5 months' salary per year of employment, but can vary considerably depending on negotiating skills and the legal situation.
Timely and competent advice is particularly important, as deadlines under employment law must be strictly adhered to and strategic decisions can have far-reaching consequences. The tax changes from 2025 also require careful planning when filing tax returns. Ultimately, success in severance negotiations depends on a realistic assessment of the legal situation, professional preparation and skillful negotiation. If you find yourself in a redundancy situation or have questions about your severance entitlements, it is advisable to seek professional help at an early stage. Rotwang Law is at your side with many years of experience in employment law and can help you avoid costly mistakes. In addition to German-speaking entrepreneurs, we also specialize in expats who do not speak German
