For many employees, severance pay (Abfindung) is the real goal after a dismissal. However, there is a statutory entitlement only in a few cases. How much you ultimately receive depends above all on your negotiating position – and that can be strengthened in a targeted way.
Key points at a glance
- There is no automatic entitlement to severance pay; exceptions are § 1a KSchG, a social plan, a collective agreement and dissolution by the court.
- Rule of thumb: 0.5 gross monthly salaries per year of service – considerably more or less depending on the litigation risk.
- Severance payments are exempt from social security contributions but subject to income tax; the one-fifth rule can reduce the tax burden.
- Severance pay is not offset against unemployment benefit as long as the notice period has been observed.
- A strong negotiating position almost always requires an unfair dismissal claim (Kündigungsschutzklage) filed within the deadline.
When are you entitled to severance pay?
Severance pay is only legally enforceable in certain situations:
- Severance offer under § 1a KSchG: If the employer dismisses for operational reasons and states in the notice of dismissal that you can claim severance pay if you let the deadline for filing a claim pass, the severance amounts to 0.5 months’ earnings per year of service. Periods of more than six months are rounded up to a full year.
- Social plan: In the event of operational changes in establishments with a works council (Betriebsrat), severance payments are often set out in a social plan (Sozialplan) (§ 112 BetrVG).
- Compensation for disadvantages: If the employer deviates from a reconciliation of interests (Interessenausgleich) or does not even attempt one, those affected can claim severance pay (§ 113 BetrVG).
- Collective agreement or employment contract: Some collective agreements and contracts, for example those of executives, provide for severance pay.
- Dissolution by the court: On application under §§ 9, 10 KSchG, the court dissolves the employment relationship against payment of severance.
In all other cases, severance pay is a matter of negotiation – usually in the context of unfair dismissal proceedings or a termination agreement.
How much severance pay is usual?
Standard severance pay is based on the formula gross monthly salary × years of service × 0.5. In addition to the fixed salary, the monthly salary also includes a proportionate share of regular additional benefits such as a 13th month’s salary, bonuses or the taxable benefit of a company car – this alone offers plenty of room for negotiation.
| Gross monthly salary | Length of service | Factor 0.5 | Factor 1.0 |
|---|---|---|---|
| €3,500 | 6 years | €10,500 | €21,000 |
| €4,800 | 12 years | €28,800 | €57,600 |
| €7,000 | 20 years | €70,000 | €140,000 |
The factor is not fixed. In practice, severance payments often range between 0.25 and 1.5 monthly salaries per year. Important influencing factors are:
- the prospects of success of the unfair dismissal claim (formal defects, lack of a warning, flawed social selection)
- special protection against dismissal, for example due to severe disability, parental leave or membership of the works council
- the employer’s risk of having to pay back salary (default of acceptance, Annahmeverzug) if the proceedings last a long time
- age and job market prospects, the position within the company and the company’s financial situation
- the employer’s interest in a quick, discreet solution
Severance pay and unemployment benefit
The severance pay itself is not offset against unemployment benefit. However, two rules are important:
- Suspension of entitlement (§ 158 SGB III): If the employment relationship ends with severance pay without the ordinary notice period having been observed, the entitlement to unemployment benefit is suspended for a certain period. Part of the severance pay is then economically “used up”.
- Benefit suspension (Sperrzeit, § 159 SGB III): Anyone who contributes to the termination themselves by signing a termination agreement risks a suspension of benefits of up to twelve weeks, unless there is good cause. According to the technical guidelines of the Federal Employment Agency (Bundesagentur für Arbeit), good cause may exist if a lawful dismissal for operational reasons would have been issued to the same date anyway and the severance pay is between 0.25 and 0.5 months’ earnings per year of service.
A court settlement following a dismissal by the employer does not generally lead to a benefit suspension if it observes the notice period.
Tax and social security
Severance payments for the loss of a job are exempt from social security contributions but are subject to income tax. To mitigate the progressive tax rate, the so-called one-fifth rule (Fünftelregelung, § 34 EStG) can be applied: for calculation purposes, the severance pay is spread over five years. This requires a “bunching” of income in the year of payment. Since 2025, employers no longer apply the one-fifth rule when deducting wage tax; it only takes effect through the income tax return.
There is room for structuring with regard to the timing of payment (e.g. postponement to the following year when income is lower) and the payment of parts of the severance into the company pension scheme. For tax optimisation, we are happy to work with your tax adviser on request.
How we negotiate a better severance package
- Secure the deadline: File an unfair dismissal claim within three weeks – it is the most important means of exerting pressure.
- Identify weaknesses: Form, works council consultation, social selection, warnings on file, special protection against dismissal.
- Consider the overall package: Garden leave on full pay, bonus, company car, payment in lieu of holiday, outplacement, reference grade, early-exit (“sprinter”) clause.
- Rules on when payment falls due: Word the severance pay as “accrued and inheritable” so that it is secured even in the event of unforeseen events before the termination date.
- Secure the settlement: As a court settlement, the agreement is immediately enforceable.
Practical examples
The following cases are simplified, typical scenarios from employment law practice. They are for illustration only; each individual case must be assessed separately.
Severance under § 1a KSchG – accept or sue?
Situation: A machine operator (gross salary €3,900, employed for seven years and eight months) is dismissed for operational reasons with reference to § 1a KSchG.
Legal assessment and approach: If he waived his right to sue, he would be entitled to 0.5 × €3,900 × 8 years (rounded up) = €15,600. However, the review revealed doubts about the social selection. After the claim was filed, a settlement of 0.8 monthly salaries per year was achieved. Had there been no prospect of success, accepting the offer would have been the safe choice.
Sprinter clause for a quick move
Situation: A project manager already has a new job in prospect, but her notice period still has five months to run.
Legal assessment and approach: A sprinter clause was agreed in the settlement: she can leave early by giving one week’s notice; the gross salary saved increases the severance pay. This allowed her to move sooner while still receiving the economic equivalent.
Social plan severance calculated too low
Situation: A long-serving employee receives severance pay under a social plan. In its calculation, the employer did not take the annual bonus payment into account and deducted a period of parental leave as “absence”.
Legal assessment and approach: Social plans are subject to judicial review, in particular against the principle of equal treatment and the AGG. The severance pay was recalculated and increased by a five-figure sum.
Payment postponed to the new year
Situation: A head of department leaves in November and takes a career break the following year. The severance pay amounts to €90,000.
Legal assessment and approach: Because the severance pay fell due in January of the following year, it fell into a year with little other income. Together with the one-fifth rule, this resulted – after consultation with the tax adviser – in a noticeably lower tax burden.
Frequently asked questions
Do I have to choose between severance pay and continued employment?
Not at first. Formally, the claim aims at the continuation of the employment relationship. You only decide whether to accept severance pay once a specific offer has been made.
Is severance pay offset against citizen’s income (Bürgergeld) or basic income support?
For basic income support, severance pay is generally taken into account as income or assets. For unemployment benefit (Arbeitslosengeld I), on the other hand, it is not offset as long as the notice period was observed.
Is there severance pay for employees in small businesses too?
An entitlement rarely exists there. However, if there are points of attack such as formal defects, discrimination or special protection against dismissal, severance pay can also be negotiated in a small business.
When is the severance pay paid out?
This is governed by the agreement. It usually falls due at the end of the employment relationship. An earlier or later date may make sense for tax reasons.
Can severance pay be seized?
Yes, in principle. However, on application, the enforcement court (Vollstreckungsgericht) can exempt part of it from seizure (§ 850i ZPO).
Would you like us to review your case? Send us your documents – we usually respond within 24 hours and tell you the expected costs in advance.
Note: This information provides a general overview of the legal situation (as of November 2026) and does not replace legal advice in an individual case.
This page is a translation of the German original. It is for general information only and does not replace legal advice on your individual case. German version