Protection against dismissal in Germany is very employee-friendly. Terminations by the employer therefore often violate protection against dismissal. Anyone who defends themselves against dismissal with a dismissal protection claim can often obtain severance pay. But how much is the severance payment after termination? We answer these and other questions in this article.
By filing a dismissal protection lawsuit, the lawyer can ensure that those who have been terminated return to their old employment relationship. However, since the “climate” between employee and employer is bad at this time, a severance payment is agreed in most cases.
The standard severance payment is 0.5 gross monthly salary per year of employment. Depending on the individual case, significantly higher severance payments can also be negotiated.
“The factor of 1.0 or even 1.5 per year of employment is not uncommon,” says Christian Lange, a lawyer from Hanover. “A factor of 2.0 has also been achieved.”
The length of service factor is rounded up or down to full years.
Example: If termination occurs after six months in the middle of the year, the severance payment will be rounded up to a full year. If the termination occurs at the beginning of the year, the entitlement will be rounded off.
The length of service is rounded up or down to full years. If termination occurs during the year, it will be rounded up to a full year after six months.
This is how high the severance payment must be in the event of an illegal Termination at least fail:
Worked in the company (years) Monthly salary Average earnings* East Average earnings* West 1 0.5 1,330 euros 1,488 euros 2 1 2,660 euros 2,975 euros 3 1.5 3,990 euros 4,462 euros 4 2 5,320 euros 5,950 euros 5 2.5 6,650 euros 7,438 euros 6 3 7,980 euros 8,925 euros 7 3.5 9,310 euros 10,412 euros 8 4 10,640 euros 11,900 euros 9 4.5 11,970 euros 13,388 euros 10 5 13,300 euros 14,875 euros
Without pressure, most employers will not offer severance pay. “Many bosses assume that the employees are not aware of the Dismissal Protection Act. In fact, many people who have been laid off forfeit their right to severance pay,” says Lange.
The deadline is also short: Those who have been terminated must take action against the termination within 3 weeks. To do this, those affected should contact a labor law specialist.
Holiday and Christmas bonuses upon termination
“Vacation and Christmas bonuses, bonus payments, bonuses and commissions that would still be paid in the current year are taken into account when calculating the severance payment,” reports the lawyer.
Does severance pay have to be taxed?
If a severance payment is paid, the employee does not have to pay any social security contributions. However, the severance payment must be reported to the tax office and taxed as income.
The good news, however, is that only a fifth is used in the calculation – regardless of the tax bracket. This means that only a fifth of the severance payment paid is used to calculate the annual income.
According to Section 34 of the Income Tax Act (EstG), the full amount of the severance payment cannot be taken into account in the annual income tax return. Instead, only a fifth of it is taken into account.
The calculation is very simple: the total severance pay paid by the previous employer is divided by five.
Only a fifth is counted towards the annual income. Then you compare the payroll tax incurred with the payroll tax without severance pay.
The difference is now multiplied by five. This is how you get the amount that has to be paid to the tax office for the payment. These calculation examples simplify the calculation:
Fifth rule after severance pay with additional income
Mr. Müller has an annual income of EUR 40,000 in 2022. He received a severance payment of EUR 60,000.
1. Income tax for 40,000 8,246 2. Income tax for 52,000
(40,000 + 1/5 of the severance payment) 12,662 3. Difference in tax amounts 4,416 4. Tax for severance payment
(5 × 4.416)
22.080
But what if no further income was generated? Then something changes in the calculation.
Fifth rule after severance pay without further income
Mr. Meyer will no longer have a job and no income in 2022. He received a severance payment of EUR 100,000 from his former employer:
1. Income tax for 0 0 2. Income tax for 20,000
(0 + 1/5 of the severance payment) 2,207 3. Difference in tax amounts
(= tax for 1/5 of the severance payment) 2,207 4. Tax for severance pay
(5 × 2.207)
11.035
However, unemployment benefit 1 is often received after termination. How is the fifth rule calculated?
Fifth rule with unemployment benefit 1 receipt
Mr. Sommer had an annual income of EUR 20,000 in 2022 and received a severance payment of EUR 100,000. In addition, Mr. Sommer received unemployment benefit 1 in the amount of 5,000 euros.
1. Income tax for 20,000 2,207 2. Notional income tax for 25,000
(20,000 + 5,000 unemployment benefit) 3,562 3. Fictitious tax rate (3,562 of 25,000) 14.248% 4. Income tax from 20,000 to 14.248% 2,850 5. Fictitious income tax. for 45,000
(20,000 + 5,000 + 1/5 of the severance payment) 10,014 6. Notional tax rate (10,014 of 45,000) 22.2533% 7. Income tax of 40,000 at 22.2533%
(20,000 + 1/5 of the severance payment) 8,901 8. Difference in tax amounts (4th and 7th)
(= tax for 1/5 of the severance payment) 6,051 9. Tax for severance pay
(5 × 6.051)
30.255
Severance payment: Calculated as if the severance payment were achieved over 5 years
With this rule, the severance payment is treated as if it had been earned evenly over 5 years. If this rule were not applied, the severance payment would have to be taxed all at once. There would then be hardly anything left of the severance payment, which is why the fifth rule makes a lot of sense.
Compensation in the event of a termination agreement
“This calculation basis is also important if the employee is presented with a termination agreement,” warns Lange.
The first rule here is: “Don’t sign anything! Allow the emotions to subside and examine the circumstances before making final arrangements that cannot easily be changed.
Remember that a termination agreement can result in a 12-week suspension of unemployment benefits because, legally speaking, you have caused the unemployment yourself.”
Those affected should first check whether the severance payment offered corresponds to the assessment basis.
If the amount is significantly less, a lawyer should be hired to take over the negotiations with the employer.
The lawyer can accurately assess the employment contract and the operational situation and negotiate the amount accordingly.
A dismissal protection claim is the first route to severance pay
If no termination agreement with corresponding severance payment is offered: “Check the dismissal protection claim!”
The chances of success in a dismissal protection claim are often very good. Many employers make mistakes when giving notice of termination that result in the termination being invalid,” said the lawyer.
Register as a job seeker immediately
You must contact the employment agency as a job seeker by telephone or online no later than three days after termination in order to avoid periods of suspension when receiving social benefits.
If you have been dismissed, you can also apply for unemployment benefit (ALG I) if you were employed for twelve months before the dismissal. Alternatively, an application for citizen’s benefit should be submitted if the unemployment benefit entitlement is too low.
Sebastian Bertram is a trained social worker and has managed a therapeutic facility for over 10 years. He is the founder and main person responsible for Gegen-Hartz.de. His main topics are social law, corporate law and politics. Sebastian is active in unemployment counseling.
2024-02-17 19:13:11
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