The current situation caused by the coronavirus epidemic and the business problems associated with it put many employers in front of the decision, whether to fire or fail. Therefore, it is good to know the procedure for terminating an employment contract for business reasons and the associated severance pay. An employer who terminates an employment contract for business reasons is obliged to pay the employee severance pay. Severance pay is a professional term in the field of labor law and means a one-time monetary amount that the employer must allocate to the employee in the (certain) case of termination of the employment relationship.
The basis of severance pay, in the case of an indefinite-term contract, is defined by Article 108 ZDR-1
The basis for the calculation of severance pay is the average monthly salary, which the employee received or which the employee would have received if he had worked in the last three months prior to termination. The amount of severance pay is determined according to the number of years of work for the employer. If the employee has been employed by the employer for more than one year to ten years, he is entitled to 1/5 of the base, if he has been employed for more than ten to 20 years, he is entitled to ¼ of the base, and if he has been employed for more than 20 years, he is entitled to 1 /3 bases for calculating severance pay. Work for the employer is also considered work for his ancestors. The amount of severance pay may not exceed ten times the base severance pay (average monthly salary received by the employee or which the employee would have received if he had worked in the last three months before termination) .
The basis of severance pay, in the case of a fixed-term contract, is defined by Article 79 ZDR-1
The basis for calculating the severance pay is the average monthly salary that the employee received or that the employee would have received if he had worked in the last three months before termination. An employee whose fixed-term employment contract concluded for one year or less has expired has the right to severance pay in the amount of 1/5 of the base. An employee whose fixed-term employment contract concluded for one year or more has expired has the right to severance pay in the amount of 1/5 of the base from the previous paragraph, increased by a proportional part of the severance pay for each month of work.
Severance pay and working hours
“Since the severance pay is paid upon termination of the employment contract, when determining the amount of the severance pay for the employee, the period of service with the employer from the service of the termination of the employment contract to the date of termination of the employment relationship is also taken into account, as the employee actually worked until then.” (Scortegagna-Kavčnik Nina, Severance, Legal practice, No. 24, 2016, pp. 8-9). This means that the time from the service of the notice of termination to the end of the notice period is also included in the length of service.
Severance pay and reduced working hours
In the case of a part-time employment contract, it is necessary to take into account the provision of Article 65 of the ZDR-1, according to which an employee who has concluded a part-time employment contract is entitled to all contractual and other rights and obligations from the employment relationship, as an employee, who works full-time, and applies them proportionally to the time for which he concluded the employment contract. If the employee has concluded an employment contract for half of the full-time working time, he/she is therefore entitled to half the rights.
Maximum and minimum amount of severance pay
Article 108 of the ZDR-1 stipulates that the maximum amount of severance pay may not exceed ten times the basic severance pay (average monthly salary) that the employee received or that the employee would receive if he worked in >last three months before termination).
When calculating the maximum amount of severance pay, attention must also be paid to Article 44 Zdoh 2, which stipulates that severance pay is not included in the tax base when the amount of severance pay does not exceed ten average monthly salaries of employees in Slovenia. Therefore, if ten times the basic severance pay is higher than ten monthly average salaries in Slovenia, on the day the severance pay is calculated, contributions and income tax are calculated from the difference.
In Article 108 of the ZDR-1, the law also determines the minimum legal amount of severance pay, which can be negotiated more favorably for the employee through a collective agreement or an employment contract. If so, the employer must pay a higher amount, which is specified in the aforementioned legal bases.
Date of payment of severance pay
The day of payment of severance pay is upon termination of the employment contract. For example, if the employee’s employment contract ends on Monday, March 8, 2021, this is also the day of payment of severance pay. If the day of termination of the employment contract is a Saturday, Sunday or holiday, payment is due on the first following working day.
Severance pay is income from employment that is not included in the tax base
Article 44 of the Income Tax Act (Zdoh-2) stipulates, that the severance pay due to the termination of the employment contract, which is determined as a right from the employment relationship and is paid under the conditions set by ZDR-1, in the amount of the severance pay, as determined due to the termination of the employment contract for business reasons, which the employer is obliged to be paid out on the basis of ZDR-1, but up to ten average monthly salaries of employees in Slovenia, it is not included in the tax base of the income from the employment relationship. The last known data on the amount of the average salary are published on the website of the Statistical Office.
Severance pay for business reasons and REK forms
If severance pay is paid in an amount that is not included in the tax base of income from employment and contributions and income tax are not calculated, REK1, income type 1190 – Other income from employment, is submitted to FURS.
If severance pay is paid in an amount that is included in the tax base of income from employment and from which contributions and income tax are calculated, REK1, type of income 1101 – Severance pay for business reasons, is submitted to FURS.
Can an employee waive severance pay?
The employee cannot waive the right to severance pay. The meaning and purpose of the right to severance pay is to ensure social security in the event of unemployment, which is derived from the principle of the welfare state.
“Although the law does not explicitly state that an employee cannot waive the right to severance pay, this follows from the purpose and meaning of the statutory regulation of severance pay, which falls within the framework of the statutory determination of the content of the constitutionally guaranteed right to social security and the right to labor protection. Among other things, it follows from these constitutional provisions that in case of possible unclear or incomplete legal regulation, or in case of doubt, the provision on the right to severance pay must be interpreted in favor of the employee.” , pp. 8-9)
Consequences of non-payment of severance pay for the employer
In the event that the employer does not pay the employee severance pay, it is recommended to first remind the employer in writing. If no agreement is reached, the employee can report the employer to the Labor Inspectorate of the Republic of Slovenia or file a lawsuit against the employer in the labor court. In relation to the right to severance pay, the courts mostly rule in favor of the employee, so in such a case the employer would have to pay court costs and interest in addition to the severance pay.
An employer – a legal entity, a self-employed individual, or an individual who is self-employed, is fined between 3,000 and 20,000 euros if he fails to pay severance pay to an employee whose employment contract is terminated in accordance with Article 108 of this Act. A fine of between 1,500 and 8,000 euros shall be imposed on a small employer – a legal entity, a self-employed individual, or an individual who is self-employed, if he does not pay severance pay to an employee whose employment contract is terminated in accordance with Article 108 of this Act. A fine of between 450 and 2,000 euros is also imposed on the responsible person of the employer of the legal entity and the responsible person in the state authority or local community.
If you are interested in calculating the severance pay or need advice, you can call us or contact us at info@promotiv.si
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Sources:
- Labour Relations Act (ZDR-1)
- Law on Income Tax (Zdoh-2)
- Scortegagna-Kavčnik Nina, Severance pay, Legal practice, no. 24, 2016
- So also Šercer, M., Counting of working years and the amount of severance pay, Pravna praksa, 2015, no. 3–4, p. 26
- https://www.fu.gov.si/davki_in_druge_dajatve/podrocja/dohodnina/ rek_forms/#c4632
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Urška Jerič
payroll and personnel services