Planning severance payments realistically – what helps companies do this

Severance payments are commonplace in the case of termination of employment contracts by mutual agreement. But what are the right legal steps to take and, above all, what sums should employers expect to pay their employees?

When companies want to part with an employee, they often consider the possibility of an amicable termination through a cancellation agreement instead of a dismissal. In many cases, a severance payment is made as compensation for the loss of the job. But what amount of severance offer is likely to make the employee agree to a termination so that a dismissal protection court case can be avoided?

Rule of thumb with factor 0.5 only rough guide value

Since there is no general statutory entitlement to severance pay under German law, the amount is a matter of negotiation. As a rule of thumb, an amount of 0.5 gross monthly salary per year of employment is often quoted. However, this is only a rough guideline.

Take individual circumstances into account

Other factors may apply if the chances of success in the dismissal protection proceedings would be significantly higher for one of the parties than for the other, for example because

  • Special protection against dismissal exists,
  • compliance with the requirements of the Dismissal Protection Act is uncertain,
  • the business is a small business,
  • or grounds for extraordinary termination exist.

Our team of experts has been advising on employment law for many years and accompanies our clients from the initial assessment to the concrete, individual drafting of a severance agreement.

Would you like to make an initial assessment of the situation yourself? A specially developed severance calculator from Osborne Clarke Solutions (OC Services GmbH) which we provide to you free of charge will help you to do so.

Quick and realistic assessment of the severance amount

This interactive tool takes into account the existence of the above-mentioned (and other) individual circumstances and enables you to quickly and realistically assess the appropriate severance amount. In addition, it provides recommendations on how to proceed if you are seeking a cancellation agreement to end the employment relationship. The offer is rounded off with background knowledge about terminations and severance pay.

Click here for the severance calculator.