Calculate severance pay

How do you calculate severance pay? The most commonly used formula to calculate severance pay is the subdistrict court formula. If the employer and employee have a difference of opinion about the amount of the severance payment, they will go to the subdistrict court, which will then use a certain formula.

Dismissal by mutual consent

A dismissal case is often resolved between the employer and the employee without the intervention of the subdistrict court judge. This then concerns dismissal by mutual consent. It is not mandatory to use the subdistrict court formula when determining the amount of a severance payment, but it is customary.

When are you entitled to severance pay?

Not in all cases you can claim severance pay. Situations in which you have a small chance of receiving severance pay are:

  • dismissal during the trial period
  • expiry of a fixed-term contract

Situations in which you have a greater chance of receiving severance pay from an employer are:

  • culpable actions of the employer
  • changes in the company

Culpable actions of the employer

If an employee is dismissed without good reasons by the employer, the employee can take action. The dismissal can then be challenged in the subdistrict court. If the employer’s actions are culpable, there is a good chance of severance pay. Even if the employer has made it impossible for the employee to function properly, the employee can have the employment contract terminated by the subdistrict court. At the same time as submitting a termination request, you also submit a compensation claim, based on the employer’s culpable behavior.

Changes in the company

Because a company physically moves to another area, it can become very difficult for the employee to travel from home to work and moving is not always an option. Sometimes this travel takes an unreasonable amount of time, or the employee is suddenly confronted with high travel costs. Dissolution of the employment contract is then possible and reasonable compensation can also be awarded to the employee.

What is the subdistrict court formula?

Another name for the subdistrict court formula is the ABC formula. The formula consists of three parts that are multiplied together. The following three components appear in the subdistrict court formula:

  • A: the number of weighted years of service
  • B: the monthly reward
  • C: the correction factor

The number of weighted years of service (A)

Not all years of service are taken into account equally in the calculation. The longer you have worked somewhere and the older you are, the more heavily the years of service are counted. The following division into years of service and age is used:

  • years of service up to 35 years count for ½
  • years of service between 35 and 45 years count for 1
  • years of service between 45 and 55 years count for 1½
  • years of service over 55 years count for 2

The monthly reward (B)

The monthly salary component of the subdistrict court formula refers to the monthly gross salary. You also add fixed allowances such as overtime compensation and irregularity allowances. You must also include a thirteenth month and the holiday allowance in the calculation. Variable components of the gross salary are not taken into account, unless they are structural in nature.

The correction factor (C)

When determining the correction factor, the situation between the employer and the employee is taken into account. Initially the correction factor is set to 1, a neutral situation. If the dismissal is attributable to the employer, the correction factor can be adjusted upwards in favor of the employee. If the employer cannot be blamed for anything (a forced reorganization) or if the employer can demonstrate that financial compensation is difficult to pay, the correction factor can be adjusted downwards in favor of the employer. When can the correction factor increase?

  • in the event of culpable behavior by the employer
  • in the event of the employee’s disability as a result of working conditions
  • in competition: the employer has ‘bought away’ the employee
  • there is a non-competition clause
  • with a very short employment contract
  • in the case of a fixed-term employment contract without an early termination option

When can the correction factor decrease?

  • in the event of culpable behavior by the employee
  • the employer’s financial circumstances are very poor
  • the employee is well positioned on the labor market
  • the employee has been allowed to follow good training courses by the employer

Calculate severance pay

You can calculate the amount of a severance payment on various websites. You can enter most data except the correction factor. The correction factor is determined by the subdistrict court judge and depends entirely on the situation in which the employer and employee find themselves. Due to the amount of this factor, the outcome of a calculation for a severance payment can vary considerably. To get a more accurate picture of the amount of compensation, you can consult an employment law expert.