Severance pay: from how many years of service?

The years, however, directly determine the amount. The statutory anchor is § 1a para. 2 KSchG: 0.5 months’ salary for each year of the employment relationship. After 8 years on 3,500 euros gross that is 14,000 euros; our guide on severance pay after dismissal gives the full overview of the topic.

The essentials at a glance

• No law names a minimum number of years of service; length of service alone does not create an entitlement to severance pay.
• The years determine the amount: 0.5 months’ salary per year of employment (§ 1a para. 2 KSchG); more than six months is rounded up to a full year.
• There is no statutory upper limit for severance pay in a termination agreement; the caps in § 10 KSchG bind only the labour court.

Severance pay: from how many years of service?

Neither the Dismissal Protection Act nor any other law ties severance pay to a minimum period of employment. § 1a KSchG only addresses the case in which the employer offers severance pay in a redundancy dismissal and the employee lets the claim deadline in § 4 sentence 1 KSchG expire.

The grounds for a claim are instead a social plan, a collective agreement or employment contract, the offer under § 1a KSchG, a court-ordered dissolution under §§ 9, 10 KSchG, or a settlement before the labour court. All the routes in detail: Entitlement to severance pay: all the legal grounds (currently available in German only).

The years of service therefore mainly steer the amount of the sum that is negotiated or ruled on.

How the years of service determine the amount

The calculation is based on the formula in § 1a para. 2 KSchG: 0.5 gross monthly salaries for each year of the employment relationship. Which factors influence the amount of severance pay and how to negotiate is covered by a separate guide; this article is about calculating with the years.

Part years follow a rounding rule. A period of more than six months counts as a full year (§ 1a para. 2 sentence 3 KSchG); 7 years and 8 months become 8 countable years.

Monthly earnings include cash and benefits in kind that the employee is entitled to for regular working hours in the month in which the employment relationship ends (§ 10 para. 3 KSchG). A company car and allowances therefore increase the basis for calculation.

Severance pay after 8, 12, 13 and 14 years: table and examples

All the figures in the tables are calculation results from the formula 0.5 x gross monthly salary x years of service. They are guide values for the negotiation, not entitlements.

Calculation: years of service x 0.5 = factor in monthly salaries; factor x gross monthly salary = guide value. Example 13 years: 13 x 0.5 = 6.5; 6.5 x 3,500 € = 22,750 €.

The rounding rule affects the amount directly. Anyone who had been employed for 11 years and 7 months when the employment relationship ended is calculated with 12 years; at 3,500 euros gross, the guide value rises from 19,250 euros (11 years) to 21,000 euros.

For all other years of service, the large table shows the factor and an example value at 3,500 euros gross. Rows 8, 12, 13 and 14 are highlighted.

All amounts follow the formula in § 1a para. 2 KSchG: factor x 3,500 € gross monthly salary.

Whether the rule of thumb sets too low a figure in your case is clarified by a free initial assessment within 24 hours.

§ 10 KSchG: caps for severance pay set by the court

Statutory caps apply only in one special case: when the labour court dissolves the employment relationship against severance pay under § 9 KSchG, because continuation cannot reasonably be expected of the employee or productive cooperation is no longer to be expected. Freely negotiated severance payments are not covered by these limits.

The general rule is up to 12 months’ salary (§ 10 para. 1 KSchG). From the completed age of 50 and 15 years of service the cap rises to 15 months’ salary, from the completed age of 55 and 20 years of service to 18 (§ 10 para. 2 sentence 1 KSchG).

The increased caps do not apply if the employee has reached the standard retirement age of the statutory pension insurance at the time of the dissolution (§ 10 para. 2 sentence 2 KSchG). In the dissolution proceedings, long service works through the higher cap.

Amount of severance pay in a termination agreement

In a termination agreement the amount of severance pay is freely negotiable; there is no statutory factor there. The reference figure is the value in § 1a para. 2 KSchG, 0.5 months’ salary per year of employment. Whether the employer goes beyond that depends on its litigation risk in an unfair dismissal claim and on its time pressure.

The years of service work in two ways here. They increase the formula value, and they strengthen the negotiating position, because long service carries weight in the social selection for a redundancy dismissal.

Once signed, the sum is fixed. So have the termination agreement reviewed before agreeing, at the latest when the offer is below the formula value for your years of service.

Maximum severance pay in a termination agreement: is there an upper limit?

There is no statutory upper limit. Freedom of contract applies to the termination agreement; the caps in § 10 KSchG bind only the labour court in dissolution proceedings.

In practice, three factors limit the sum. First, the employer’s litigation risk: the real upper limit is the amount that a lost unfair dismissal claim would cost the company.

Then there is tax. Severance pay is fully taxable; the one-fifth rule in § 34 EStG softens the progression but does not remove it.

That leaves unemployment benefit. The termination agreement can trigger a suspension period of generally twelve weeks (§ 159 SGB III); if the statutory notice period is shortened at the same time, the claim is suspended under § 158 SGB III. More on this at Avoiding a suspension period for unemployment benefit.