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Severance pay

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When is severance pay due?

When an employment relationship ends, except of course in case of dismissal for an urgent reason, both the employer and the employee have to respect a notice period. This period depends on the period of time worked for the (ex-)employer and can be quite long. For example: An employee who joined before 2014 and who worked for the same employer for 20 years has a notice period of 62 weeks (if dismissed by the employer).

If one of the parties does not comply with the correct notice period, the law stipulates that that party must pay a notice fee to the other party.

In this way the goal of the notice period is still achieved and the dismissed employee will not be without income from one day to the next.

However, both parties can also consciously choose not to comply with the notice period and pay the severance payment in full to the other party. This can be interesting when the situation between employer and employee has become so uncomfortable, that working together has become virtually "impossible".

Amount of severance pay

The purpose of the notice period, and therefore of the severance pay, is to make sure that the dismissed employee does not suddenly run out of income. After all, the notice period gives him/her the time to look for another job. Therefore, the severance pay is equal to the salary that the employee would have received if the (correct) notice period had been respected. This severance pay not only includes the gross monthly salary, but also certain benefits which arise from the law or the CAO. This concerns for example holiday pay, year-end bonus or extra-legal benefits.

Because the notice period is expressed in weeks, the severance pay is also calculated based on the "weekly pay". It is therefore important that the employee's salary is expressed in weeks.

In practice, the severance pay is calculated as follows:

  • (Gross monthly salary of the employee at the time of dismissal x 3) : 13 = weekly salary.
  • The weekly wage must then be multiplied by the number of weeks that would normally be worked if the (correct) notice period were observed.

The severance pay will be paid out in full to the dismissed employee at once.

Distinction from compensation for wrongful dismissal

It is important to know that severance pay is the compensation the employee receives when the dismissal itself was 'correct', but the correct notice period was not respected. This compensation is equal to the salary that the employee would have received if the notice period had been correctly observed. The severance pay is therefore very clearly defined and should only be paid in the specific case where the notice period was not respected. Therefore, the judge has little or no margin of appreciation.

It is different with the compensation to which an employee is entitled as a result of his/her "manifestly unreasonable dismissal". When an employee who had a contract of indefinite duration is dismissed, he or she can go to court and request compensation for this dismissal if he or she does not agree with the reasons for it. The employee will have to prove that the reasons for the dismissal are not related to his behavior or his "suitability" for the job and that a "normal and reasonable" employer would not have dismissed him.

Here, contrary to severance pay, the judge has a margin of appreciation and it is the judge who determines the amount of the indemnity. Severance pay and compensation are therefore two different forms of compensation.

Advantages and disadvantages

In practice, severance pay will certainly be useful in cases where the atmosphere between the ex-employee and the employer is so bad that strict observance of the notice period has become impossible. By paying the severance pay, both the employee and the employer will be able to get on with their professional lives faster.

Nevertheless, there are also some important disadvantages to the payment of a severance pay instead of respecting the notice period. The fact that the amount is paid "in one go" means that the employee may be tempted not to use it sparingly. If he does not find a job immediately, there is a risk that the ex-employee will still run out of income. Once the severance pay is "spent", the person is no longer entitled to unemployment benefits for the period of the severance pay. Another disadvantage is that the severance pay that is paid out in one go is very heavily taxed. Third, the employee should certainly keep in mind that his former employer may also claim a severance payment from him if he does not respect the correct notice period.

Decision

Severance pay can be a very interesting way to undermine certain "conflict situations". Nevertheless, both employer and employee should take into account the often far-reaching consequences associated with this severance pay.

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Heidi Vergauwe

Dedicated and meticulous Payroll & HR Advisor, always willing to go for the extra (s)mile!