How Statutory Severance & Redundancy Pay Is Calculated
Statutory severance pay equals your service tenure multiplied by your monthly salary base and the statutory formula multiplier (e.g. 1.0 month/year in South Korea, 0.33 month/year in the Netherlands, or 0.5–1.0 month/year standard in Germany). Final settlements also include mandatory cash-outs for accrued unused vacation days and statutory notice pay.
1. Baseline Severance Payout
Continuous employment duration (including prorated days) multiplied by statutory monthly or weekly wage rates established under labor codes.
2. Unused Vacation Cash-Out
Earned paid annual leave that has not been taken prior to the termination date must be liquidated at the employee's daily wage rate.
3. Notice Period Indemnity (PILON)
If an employer waives the mandatory 30-day or contractual advance notice period, they must pay wages in lieu of that notice period.
Step-by-Step Severance Package Calculation
Consider an employee terminated after 4.5 continuous years of service, earning $4,000 monthly gross ($184.62/day), with 10 days of unused leave under a standard 0.5 month per year formula:
Jurisdiction-Specific Severance Models
Review statutory dismissal legislation, tenure thresholds, and tax exemption thresholds across supported countries:
Severance Pay & Termination FAQs
How is statutory severance pay calculated?
Statutory severance is calculated by multiplying years of continuous service by monthly salary and the national statutory formula multiplier. For example, in South Korea, employees receive 30 days of average wage per year of service. In the Netherlands, employees receive 1/3 of a month's gross pay per year.
Are employees entitled to severance pay if they resign voluntarily?
In most Western jurisdictions (US, UK, Germany, Netherlands), employees who resign voluntarily receive no statutory severance. However, in South Korea (퇴직금) and Brazil (FGTS fund balance), statutory retirement severance is an absolute earned legal right payable regardless of whether the departure is voluntary resignation or company termination.
How are unused vacation days handled upon dismissal?
In virtually all jurisdictions, employers are legally required to cash out all accrued but unused annual leave days at the employee's regular daily pay rate alongside the final settlement paycheck.
Is severance pay subject to income tax and social security?
Tax treatment varies significantly: the UK provides a £30,000 tax-free exemption for genuine redundancy payments. South Korea applies concessional retirement income tax (퇴직소득세) with tenure deductions. In the US, severance is taxed as supplemental wage income subject to regular withholding.