How to Handle Secure Severance Pay in Germany in 2023

How to Expertly Handle Severance Pay in Germany in 2023

How to Expertly Handle Severance Pay in Germany in 2023

May 19, 2023


Picture of INS Global



Picture of INS Global



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Key Takeaways

  1. Employers must provide a valid reason and written notice for dismissing an employee
  2. Notice periods range from 14 days to 7 months, depending on seniority
  3. Severance pay in Germany is calculated at half a month’s wages for every year of service


There are specific regulations in place for terminating an employee and arranging severance pay in Germany, and failure to comply can result in the company having to pay expensive fees and fines. Errors in these matters can mean your expansion is delayed or affected long-term. To help you stay secure, we’ve summarized the key points your need to consider regarding employee termination and severance pay in Germany.



The Fundamentals of Employee Termination in Germany


Part of the process of opening operations in a new country is becoming familiar with the legal system around contract termination and notice periods.

Firing an employee or making them redundant is never easy, but ensuring that the termination is handled smoothly and in line with local labor laws not only reduces the chance of costly mistakes (like when providing severance pay in Germany) but also reflects positively on your company’s reputation.

Ending a contract in Germany can be either by mutual agreement or by the individual decision of either party.

The German act that protects against unlawful dismissals is called Kündigungsschutzgesetz (KSchG). Any employee that has worked for more than six months in a company of more than five permanent employees is protected under this law and cannot be terminated without cause.


Operational dismissal


This is typically for cases where the position will no longer be available due to downsizing, restructuring, or other reasons. The employer must clearly state why the employee is being terminated, and should also make social considerations. This means removing the employee in a way that they are least likely to be socially disadvantaged by the termination. It also helps to clear up any potential misunderstanding related to when or if you will have to arrange severance pay in Germany.


Person-Related Dismissal


This type of termination is usually due to the employee not displaying the necessary skills to complete the job correctly, for contract violations like misusing company property, or if the employee is no longer able to perform their duties.

In every situation, the burden of proof for termination lies with the employer and their Human Resources team. Without providing a written explanation for terminating the employee the employer can be sued for unjust termination in labor courts.



Notice Periods in Germany


The employee’s length of service with the company determines the notice period. However, there are two circumstances under which a contract can be terminated without notice:


·      During probation, when either party can end the contract by simply informing the other

·      If the employee has committed extreme misconduct or a breach of company rules. The employer must provide evidence of this in order to successfully dismiss without notice.


For other types of termination, notice periods are required as follows:


·      Employees with less than 2 years of service: 14 days

·      Employees with 2-4 years of service: 30 days

·      Employees with 5-7 years of service: 60 days

·      Employees with over 8-9 years of service: 90 days


The notice period continues to extend as the number of service years increases, going up to 7 months for those who have worked for more than 20 years.

If there are existing collective bargaining agreements (CBAs) with different specifics for notice periods, then employee termination should adhere to the guidelines in the CBA.

Notice period time, any details around termination, and specific amounts of severance pay in Germany should always be stated clearly in the employment contract.



Calculating Severance Pay in Germany


Employees that are terminated for operational reasons are entitled to severance pay. If the employee is terminated for person-related reasons they may receive severance pay due to CBAs or a specific agreement with the employer, but it is not required by national labor law.

Standard severance pay in Germany is 50% of one month’s wages for every year of service. This increases to a maximum of 12 months’ salary for employees under 50 years old.

For employees over 50 and who have worked for 15 years, the maximum rises to 50% of 15 months’ salary.

Employees over the age of 55 and with 20 years of service may receive up to 50% of 18 months’ salary in compensation.

An employee who believes they have been unfairly terminated has three weeks after being dismissed to appeal the decision in court.

If the employee’s dismissal is found to be wrongful, the court can order the employer to pay back wages, reinstate the employee, or order the employer to give additional compensation or severance pay in Germany.

However, the employee may not be able to receive any compensation if there was sufficient cause for their termination, so it is important for the employee to seek legal advice before filing an appeal.


What Counts as Unjust Termination in Germany?


There are several reasons why a court might rule a dismissal as unjust. Some of these include:


-The employee could have filled another position in the company

-Social considerations were not taken into account, for example, seniority, age, disability, etc.

-No attempt to correct or improve the employee’s performance was made


If the court determines that the dismissal is unfair, the employer must provide severance pay in Germany. This should be calculated in accordance with their years of service. Reinstatement may be also mandated.