Severance pay after termination
Severance pay following dismissal – entitlement, amount and negotiation
Have you been made redundant and are wondering whether you are entitled to a severance payment? Contrary to popular belief, there is no general legal entitlement to a severance payment in Germany. In practice, however, the majority of unfair dismissal cases are settled with a severance payment – the key is having the right strategy. Our specialist employment lawyers in Augsburg will negotiate your severance pay before the Augsburg Labour Court and ensure that you achieve the best possible outcome.
When are you entitled to a severance payment?
There is no general legal entitlement to severance pay. This comes as a surprise to many employees, but it is a key feature of German employment law. Nevertheless, severance pay is regularly paid in practice – it all depends on the right approach.
The most common routes to a severance payment are: a court settlement as part of an unfair dismissal claim (by far the most common scenario), a severance offer from the employer under Section 1a of the German Unfair Dismissal Protection Act (KSchG) in the event of redundancy, a termination agreement with a severance payment clause, or a redundancy plan in the event of large-scale redundancies.
Under Section 1a of the German Unfair Dismissal Protection Act (KSchG), the employer makes an offer directly in the notice of dismissal: if you waive your right to take legal action, you will receive 0.5 months’ gross salary for each year of service. You can only accept or reject this statutory amount – negotiation is not possible here. You should seek legal advice to determine whether the offer is reasonable or whether taking legal action would be more beneficial.
Severance pay following an unfair dismissal claim – the most common route
In practice, an action for unfair dismissal is the most effective way to secure a severance payment. Around 80% of all cases brought before the employment tribunal end in a settlement – usually involving a severance payment in exchange for the termination of the employment contract. The reason is that a severance payment is often cheaper for the employer than a protracted legal battle with an uncertain outcome.
Your negotiating position is crucial to the amount of the severance payment. The more vulnerable the dismissal is, the more the employer must offer. Typical weaknesses include: failure to apply the social selection principle in redundancies for operational reasons, insufficient written warnings in dismissals for misconduct, procedural errors, or failure to consult the works council. Our specialist solicitors at the Augsburg Labour Court are familiar with these weaknesses and make targeted use of them during negotiations.
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Severance pay calculator: How much could your severance pay be?
Enter your gross monthly salary and the number of years you have been with the company. The calculator will show you the estimated range of severance pay – from the statutory standard severance pay to the maximum amount achievable through negotiation.
Severance pay amount – calculation and influencing factors
The standard rule of thumb is: 0.5 times the gross monthly salary for each year of service. For a gross salary of €4,000 and ten years’ service, this results in a standard severance payment of €20,000. However, this is only a starting point – with skilful negotiation, a significantly higher amount is possible.
Factors that increase the severance pay
The actual severance pay may be significantly higher than the rule of thumb. You can secure higher severance payments in the following circumstances: weak grounds for dismissal by the employer, flawed selection criteria, special protection against dismissal (pregnancy, severe disability, works council membership), long service, older age with poorer prospects on the labour market, or if the employer wishes to fill the vacancy quickly. In these cases, factors ranging from 1.0 to 1.5 times your gross annual salary are realistic.
Factors that reduce the severance pay
The severance pay will be lower in the following cases: short length of service, dismissal for valid reasons, demonstrable misconduct on the part of the employee, or a difficult financial situation at the company. Missing a deadline or failing to secure legal representation will also significantly weaken your position. Therefore, the sooner you consult a specialist solicitor, the better.
Severance pay and tax – what’s the take-home amount?
A severance payment is fully subject to income tax. Social security contributions are not usually payable. An important change has come into effect since 2025: employers no longer apply the ‘fifth rule’, but instead withhold the full amount of income tax initially.
The one-fifth rule from 2025
The ‘one-fifth rule’ (Section 34 of the Income Tax Act) remains in place, but since January 2025 it must be claimed via your income tax return submitted to the tax office. This means that when the payment is made, you will initially receive a lower net amount, but you will recoup the tax benefit via your tax return. Important: If you do not correctly declare this as compensation in your tax return, you will lose the benefit. Seek tax advice on this matter.
Severance pay and unemployment benefit
As a general rule, severance pay is not deducted from unemployment benefit. You will receive your severance pay and then the full amount of unemployment benefit. However, caution is advised in the case of mutual termination agreements: in such cases, the Jobcentre may impose a waiting period of up to twelve weeks if there was no valid reason for the termination. In contrast, there is no risk of a waiting period in the case of a court-mediated settlement following an unfair dismissal claim.
Frequently asked questions about severance pay following dismissal
Further information on employment law
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This information does not constitute legal advice in individual cases.
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