Calculating Severance Pay

The issue of calculating severance pay when dismissing employees is an important topic for every employer who wants to comply with labour laws and maintain a positive image of their company. Severance pay is financial compensation paid to an employee in the event of dismissal of an employment contract. The amount of severance pay can vary depending on various factors, such as the reasons for dismissal, work experience, and internal company policies. Understanding the procedure for calculating severance pay not only helps to avoid legal risks but also helps to build trust with employees. This article will cover the main aspects of calculating severance pay, including government requirements, common practices, and recommendations for employers.

What is Severance Pay

Severance pay is monetary compensation that an employer pays to an employee upon dismissal in certain cases. This benefit can be provided for various reasons, including downsizing, company liquidation, or dismissal by agreement of the parties.

In What Cases does an Employer Pay Severance Pay

There are cases when state requirements provide severance pay to employees upon dismissal.

In other cases, the employer has the right to pay an employee severance pay upon dismissal when provided for by the company’s internal documents or an agreement concluded with the employee (for example, in an employment contract).

Severance Pay Amount

The Labor Code establishes the minimum severance pay amounts. Severance pay cannot be paid below these amounts. The employer can pay severance pay in an amount greater than required by legal regulations when an increased amount is provided for in the company’s local documents or in an employment contract or agreement with the employee.

The Main Aspects of Severance Pay:

1. Purpose
Severance pay is intended to support the employee during the transition between dismissal and finding a new job. It helps alleviate the financial difficulties an employee may face after losing their job.

2. Amount
The amount of severance pay may vary depending on several factors, such as:

State requirements regarding the amount of severance pay.
Work experience in the company.
Reasons for dismissal (e.g. layoffs or dismissal at one’s own initiative).
Internal rules and regulations of the company or a collective agreement, if any.

3. Legal Framework
Different countries and regions have laws and regulations governing the procedure and amount of severance pay. For example, in some countries, severance pay is mandatory by law, while in others, it can be determined by agreement of the parties.

4. Documentation
To receive severance pay, the employee must, as a rule, officially resign by signing the relevant documents. It is also important to ensure transparency of calculations and execution of all necessary documents regarding the dismissal.

5. Payment of Severance Pay by Agreement with the Employee
In some cases, employers may offer severance pay additionally as part of the compensation package for employees who resign on their own or by agreement of the parties.

Severance pay is not only a way to comply with state requirements and internal company rules but also to maintain the company’s reputation by demonstrating concern for its employees and respect for their contribution to the organization.

Mandatory Payment of Severance Pay and Its Minimum Amounts

The Labor Code of Belarus provides for cases of mandatory payment of severance pay upon dismissal and the minimum amounts of such benefits. The minimum amounts of severance pay and grounds for dismissal when it is necessary to pay severance pay:

Not Less than Two Weeks’ Average Salary

Not less than two weeks’ average earnings, severance pay is paid when:

1. The employer has violated the terms of the collective agreement, employment contract, and legal labour regulations, and the employee has been dismissed for this reason. Such violations by the employer must be recorded in a document of the state regulatory body that has the right to establish violations of legal regulations. For example, the labour inspection or the prosecutor’s office can establish the fact of violations on the employer’s part.
2. When the employee refuses to be transferred to work in another location with the employer. Another location is another settlement.
3. When the employee refused to continue working due to a change in essential working conditions.
Essential working conditions include remuneration systems, working hours, including the establishment or cancellation of part-time work, changes in guarantees, reductions in wages, an offer to enter into a contract with an employee working under an employment agreement concluded for an indefinite period, the establishment or cancellation of remote work, as well as other conditions that are established for the employee by the Labor Code.
The employer must notify the employee of changes in essential working conditions no later than one month in advance.
4. When the employee refused to continue working due to a change in the owner of the property and (or) reorganization (merger, accession, division, spin-off, transformation) of the company.
5. When the employee refused to work due to the lease of the company’s property.
6. When the employee refused to work due to transferring the company’s shares (shares in the authorized capital) into trust management.
7. When the employee’s health condition prevents him from performing the work he was hired for.
8. When it turns out that the employee does not have the qualifications to do his job.
9. When the employee is called up for military or alternative service.
10. When a court order reinstates the previous employee, the employee hired to replace the previous one is dismissed.

Not Less than One Average Monthly Salary

Such severance pay is paid to the employee when he refuses to continue working due to a change in a certain essential working condition: working hours, namely, when the employee has been assigned working hours less than half the normal working hours.

The normal working hours for healthy adult employees without special family obligations is 40 hours per week. Accordingly, less than half of such employees have less than 20 working hours per week.

Not Less than Three Average Monthly Salaries

Severance pay in the amount of not less than three average monthly salaries is paid:

1. To the employee when he is dismmised in connection with the company’s liquidation, the closure of a branch or representative office in another locality, or staff reduction.

The liquidation or layoff procedure must be formalized with documents. In particular, employees must be notified about the layoff at least two months in advance and offered another job when there is a staff reduction.

2. When dismissing the head, his deputies, and the company’s chief accountant in connection with a change in the company’s owner, leasing the company as a property complex, or transferring shares (interests) in the company to trust management, the new owner or manager pays the severance pay.

In the Amount of Two Average Monthly Salaries

In the amount of two months’ average earnings, severance pay (compensation) is paid to the employee under the following conditions, which must be met simultaneously:

1. The company is going into liquidation or laying off staff.
2. The parties to the employment contract have agreed to replace the notice of dismissal with compensation.

When the employee has already been notified of the layoff 2 months in advance or earlier, and the employer initiates the compensation payment, the compensation amount is calculated in proportion to the time remaining until the end of the two-month notice period.

Situation and Calculation Example:

Let’s assume that an employee was informed on October 1 that his position would be cut in two months, i.e., his last working day is November 30. According to the Labor Code, the employee was warned for two months. However, on November 1, for example, the employer offered to dismiss the employee early, paying compensation for the remaining time until the end of the notice period (from November 1 to November 30).

The amount of compensation is calculated based on the employee’s average salary and the remaining time.

Calculation example:

1. The average monthly salary of the employee is 2,000 rubles.
2. There is 1 month until the end of the notice period (from November 1 to November 30).
3. Compensation is equal to 2,000 (average monthly salary) / number of days in the month (November has 30 days, so 30) x days until the end of the dismissal period (30 days) = 2,000 rubles.

Thus, if the employee agrees to early dismissal from November 1, he is paid compensation of 2,000 rubles for the remaining period until the end of the notice.

When Severance Pay is Not Paid

Severance pay is not paid when it is not required in accordance with legal regulations or local documents of the employer, and there is no agreement with the employee on the payment of severance pay.

A direct ban on the payment of severance pay to part-time workers is established. Part-time workers are employees who, in their free time from their main job, do paid work for the same employer (internal part-time work) or for another employer (external part-time work). An employment agreement is concluded with part-time workers, which specifies that the employee works part-time. A part-time employee can work for several employers.

Why is it Important for an Employer to Correctly Calculate Severance Pay

Correct calculation of severance pay is an important aspect of human resources management for an employer for several reasons:

1. Compliance with Legislation
In most countries, laws regulate the rules for paying severance pay. An incorrect calculation can lead to legal consequences, such as fines, lawsuits, or the need to make additional payments.

2. Maintaining Reputation
Correct calculation of severance pay demonstrates the company’s willingness to fulfil its obligations to employees. It helps to form a positive image of the company and increases trust among current and potential employees.

3. Avoiding Conflicts
Incorrect calculations can lead to dissatisfaction among dismissed employees, which can cause conflicts, negative reviews about the company, government agency inspections of the company’s work, and staff dissatisfaction. This, in turn, can affect the atmosphere within the team and the attraction of new personnel.

4. Financial Planning
Correct calculation of severance pay allows the company to plan its financial expenses better. Unforeseen payments can negatively affect the business’s financial condition and budgeting.

5. Coordination with Labour Policy
Correct calculation of severance pay can be an important part of the company’s overall HR policy. It may include dismissal standards, increased severance pay, additional grounds for severance pay (for example, upon dismissal due to retirement, with a long period of service in the company), support for employees in difficult situations and forming a corporate culture.

Thus, calculating severance pay correctly is not only a legal requirement but also a strategic step that can impact the company’s corporate culture, financial stability and reputation in the long term.