Should you pay severance pay immediately or not?

When an employee is dismissed, the employer may opt for immediate dismissal, without the employee in question having to carry out any more work, or for dismissal with the employee having to work their notice. During a notice period, the employment contract continues as usual and the salary is paid at the normal times. In the event of immediate dismissal, the employer is held to pay a severance payment.

Immediate payment in practice
If an employer dismisses an employee without the employee having to work their notice, the
employer must pay a severance payment. In principle, this is payable by the employer
immediately after the last day of work. In practice, this payment is made at the time the next
wage is paid by the finance department or the social payroll secretariat, i.e. usually at the end
of the current month.

Late payment of the severance pay
An employer who pays a severance pay late may be held to pay interest on the amount due.
The interest owed by an employer for late payment of the severance pay amounted to 2% in
both 2017 and 2018. Until 1 July 2005, it was generally assumed that this interest was
calculated on the net amount of the severance pay. The net amount is obtained by deducting
from the gross amount both the social security contribution at the rate of 13.07% and the
withholding tax due.
As a result of an Act of 26 June 2002, since 1 July 2005, the interest must be calculated on the
gross amount, which significantly increases the penalty for employer who is late paying.

Exception to the rule
This general rule of immediate and full payment of the severance pay is subject to one
fundamental exception under Article 39a of the Employment Contracts Act. In the event of
immediate dismissal, companies in difficulty or companies facing exceptional or unfavourable
circumstances may pay the severance pay in monthly instalments. These include companies
that have suffered very heavy losses, as is evident in the last two annual accounts before the
dismissal, or companies that decide on collective dismissal. This exception may also be
invoked by employers who have experienced days of unemployment that account for at least
20% of the total number of working days during the year preceding the year of dismissal.

Written warning
A company which wishes to make use of this derogation must inform the dismissed worker in
writing, whilst referring to Article 39a. In that letter, the employer must also expressly state
the exact exceptional situation to which it refers. In order to avoid problems of proof, it is
advisable to notify the dismissed worker by registered letter.
If, during the period of payment in instalments of the severance pay, the wages of the
company’s non-redundant workers are indexed, these new indexations must also be applied to
the instalments of the severance pay still to be paid.

 

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