How to calculate severance pay when terminating a labor contract

Severance pay is the amount of money the employee receives when terminating the labor contract according to the provisions of the Labor Code. The level of benefits depends on working time and average salary. This article guides customers on how to calculate severance benefits accurately according to current legal regulations.

What is severance pay?

Severance pay is understood as the amount of money the employer is required to pay to the employee upon termination of the labor contract in legal cases. This amount of money is intended to support workers while looking for a new job after losing their job.

Employees are entitled to severance pay when they meet the conditions of working time and reason for contract termination. The main subjects include employees who have worked regularly for 12 months or more, except in cases where they are eligible to receive pensions according to the provisions of law on social insurance and in cases where the employee voluntarily Quit work without a legitimate reason for 5 consecutive working days or more.

Based on the content of Article 46, Article 34 of the Labor Code 2019.

Conditions and level of severance pay

In cases of termination of labor contracts, severance benefits are provided

Employees are entitled to severance benefits in cases of termination of labor contracts according to regulations. The basic condition is that the employee has worked regularly for the employer for 12 months or more. Specific cases include:

• Expiration of the labor contract, except for the cases specified in Clause 4, Article 177 of the Labor Code 2019.
• Completed work according to labor contract.
• Both parties agree to terminate the labor contract.
• The employee is sentenced to imprisonment but is not entitled to a suspended sentence or is not eligible for release as prescribed in Clause 5, Article 328 of the Criminal Procedure Code, is sentenced to death or is prohibited from doing the work stated in the contract. Labor contract according to court judgments and decisions that have come into legal effect.
• Workers die; declared by the Court to have lost civil act capacity, to be missing or to have died.
• The employer is a deceased individual; declared by the Court to have lost civil act capacity, to be missing or to have died. Employers who are not individuals terminate their operations or are notified by the specialized business registration agency of the Provincial People’s Committee that they do not have a legal representative or authorized person to act. rights and obligations of the legal representative.
• The employee unilaterally terminates the labor contract according to the provisions of Article 35 of the Labor Code.
• The employer unilaterally terminates the labor contract according to the provisions of Article 36 of the Labor Code 2019.

In addition, severance pay does not apply to the following cases:

• Employees are disciplined and dismissed, employees unilaterally terminate contracts illegally;
• Employees are eligible to receive pensions according to the provisions of Article 169 of the Labor Code and the law on social insurance;
• The employee voluntarily quits his job without a legitimate reason for 5 consecutive working days or more as prescribed in Point e, Clause 1, Article 36 of the Labor Code. The case is considered to have a legitimate reason according to the provisions of Clause 4, Article 125 of the Labor Code.

Legal basis: Article 46 of the Labor Code 2019; Clause 1, Clause 3 to Clause 6, Article 8 of Decree 145/2020/ND-CP takes effect from February 1, 2021.

Time to calculate severance pay

Working time to calculate severance pay is the total time the employee has actually worked for the employer minus the time the employee has participated in unemployment insurance according to the provisions of law on insurance. Unemployment insurance and working time have been paid by the employer, severance pay and job loss benefits.

Probation, apprenticeship, and internship periods under the apprenticeship contract are not counted. Time off from work to enjoy social insurance benefits or leave without pay as agreed by both parties is also not counted. Working time is rounded up according to the principle that less than 6 months is counted as 1/2 year, from 6 months or more is counted as 1 year of work.

Legal basis: Clause 3, Article 8, Decree 145/2020/ND-CP.

Formula for calculating severance pay when terminating the labor contract

The formula for calculating severance pay according to the provisions of the Labor Code is as follows:

Severance pay = 1/2 x working time to calculate severance pay x salary to calculate severance pay.

In there:

• Working time for calculating severance pay is the total time the employee has actually worked for the employer, minus the time the employee has participated in unemployment insurance and the working time for which the employer has worked. Employers pay severance pay and job loss benefits.
• The salary used to calculate severance pay is the average salary of the 6 consecutive months under the labor contract before the employee quits his job.

Legal basis: Clause 3, Article 46 of the Labor Code 2019, Clause 3, Clause 5, Article 8, Decree 145/2020/ND-CP.

What is the penalty level for businesses that do not pay or do not fully pay severance benefits to employees?

The act of not paying or not paying enough severance pay to employees is a direct violation of the employee’s rights.

Pursuant to Clause 2, Article 12 of Decree 12/2022/ND-CP, enterprises that do not pay or do not pay enough severance pay to employees may be subject to administrative sanctions at the following amounts:

• From 1,000,000 VND to 2,000,000 VND for violations from 01 person to 10 employees;
• From 2,000,000 VND to 5,000,000 VND for violations from 11 to 50 employees;
• From 5,000,000 VND to 10,000,000 VND for violations from 51 to 100 employees;
• From 10,000,000 VND to 15,000,000 VND for violations from 101 to 300 employees;
• From 15,000,000 VND to 20,000,000 VND for violations of 301 or more employees.

In addition, businesses may also be forced to pay full severance pay plus interest on the unpaid amount according to the highest interest rate on demand deposits of state-owned commercial banks announced in time of punishment.

Consulting service on severance pay issues at Long Phan

Long Phan provides in-depth consulting services on severance pay and issues related to labor contract termination. Our team of experienced experts is ready to assist both employees and employers in calculating, implementing procedures and resolving disputes regarding severance benefits.

Long Phan’s consulting services include:

• Determine conditions for benefits;
• Calculate the exact benefit level for employees
• Instructions on procedures and necessary documents;
• Representation in the negotiation and dispute resolution process.

Severance pay is an employee’s right when terminating the labor contract. Employers must comply with regulations on severance pay. Long Phan provides in-depth consulting services on severance pay, unemployment insurance and related labor issues. We always strive to provide optimal solutions and protect our customers’ legal rights in all situations. Please call us immediately via Hotline 0906.735.386 for detailed advice.