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Severance pay
Severance pay upon termination of employment
Severance pay is like a pain killer: it masks the underlying problem and gives you false feeling of security. But you cannot buy a new job with your severance pay. That’s why it’s better to think of severance pay as a bridge you can cross to get to your new job. NewPlacement coaching will help to make this time as short as possible. Legislation regarding severance pay as compensation for damages for the early termination of employment or service relationship has changed several times since 1999.
Since 1 January 2006 severance pay must be taxed in full.
One-fifth principle For taxable severance pay there is the so-called “one-fifth principle”: for tax purposes, the severance pay is calculated over five years. The tax for income excluding severance pay is subtracted from the tax for income including severance pay. The difference is multiplied by five and added to the income tax in the year of the payment.
This information does not constitute legal advice and is without guarantee
