The system for severance pay in Austria recently experienced a major restructuring with the implementing of the Corporate Staff Provision Act (BMVG, Betriebliches Mitarbeitervorsorgegesetz). German-speaking media calls this “Abfertigung Neu,” which translates as “new severance pay system“.
In this article we go over the most important elements of severance pay in Austria and the rules for employee termination that employers need to know. By knowing your employer responsibilities in the countries you operate in, you can ensure compliance and boost employees’ sense of security.
With the right professional partner giving you advice and aid, this process can be simple and cost-effective.
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Employee Termination in Austria – What You Need to Know
An employer can terminate employment contracts in Austria for the following reasons:
1. Consensual Termination of the Employment Agreement
2. Premature Resignation on the Employee's Part
An employee may terminate their contract by themselves with immediate effect. They don’t need to justify this decision, and it can often result from multiple reasons such as taking early retirement or accepting a new job offer.
3. Dismissal by the Employer
If there are fair grounds for dismissal, an employer may dismiss an employee with immediate effect.
These grounds include but aren’t limited to situations such as a breach of confidence, embezzlement, lack of willingness to perform given tasks, or fraud. In addition, it also include instances of workers not meeting targets (preferably over a number of years with evidence).
So, under these circumstances an employee can easily file for unfair dismissal.
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What Notice Period is Required in Germany?
The Salaried Employees Act specifies the required notice periods for salaried employees unless superseded by a collective bargaining agreement. The employee’s length of service determines these notice periods at the company.
- 1-2 years of service requires a 6 weeks notice period
- 3-5 years of service requires a 2 months notice period
- 6-15 years of service requires a 3 months notice period
- 16-25 years of service requires a 4 months notice period
- 26+ years of service requires a 5 months notice period
White-collar workers can only have their contracts terminated in this way at the end of each quarterly period unless otherwise specified in their collective bargaining agreement or employment agreement.
How Difficult is it to Terminate an Indefinite Contract in Austria?
An indefinite contract can be terminated by complying with a stipulated notice period. As a result, the employer may end the employment agreement without providing reasons orally or in writing.
In this way, Germany is fairly uncommon as a European country in that most others require evidence of extreme employee misbehavior like exposing trade secrets. Instead, a company simply needs to recognize an employee’s right to adequate notice.
How is Severance Pay Calculated in Austria?
All workers whose employment began after January 1, 2003, are lawfully entitled to severance compensation under the new severance model. Also, this applies if the employee resigns from the job without warning.
Businesses in Austria are obligated to contribute 1.53% of the staff’s gross wages, including bonus payouts, into a severance fund (“Abfertigungskasse”). This begins in the second month of an employment agreement.
Also, this fund is in charge of each staff members severance account. Because of this, employers should keep track of the necessary contribution limits.
If the employment relationship ends, the worker has options beyond receiving a lump sum from their severance fund contributions (after a length of employment of three years).
Is Severance Pay Taxable in Austria?
Under Austrian tax legislation, contributions to severance funds are fully deductible as company expenses. However, payouts are subject to a 6% income tax.
Start Managing Employees in Austria Today with INS Global
Having the right knowledge to maintain compliance with regional labor laws and managing practices can be complex. Accordingly, INS Global provides a solution that keeps you up-to-date with all regional employment agreements.
Understanding how to avoid fundamental problems, such as providing reasonable legally mandated severance, is critical. That’s why partnering with a Professional Employer Organization (PEO) ensures your company is prepared to explore Austria’s termination and severance payment structures.
We can manage all the necessary elements of HR that you need to succeed in the global market. From making calculation for federal income tax to managing vacation time and pay tax requirements, our experts have you covered. We are experienced in providing in-depth knowledge of local markets. This includes cost of living to employer and employee relationships, where we can guide and advise you in 80+ countries worldwide.
So, with INS Global, you can maintain HR and payroll and automate compliance across 80+ countries in less than 48 hours.
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