mr. Nathalie Geradts
“With my extensive experience, I know what matters most to employees.”
How should severance pay be included in a settlement agreement?
In brief: state the gross amount, basis, payment date and any conditions separately in the settlement agreement. Make clear whether the amount equals the statutory transition payment or includes an additional severance payment.
Termination by mutual consent does not automatically create the same statutory payment obligation as formal notice or dissolution by the court. The payment must therefore be agreed expressly. A vague reference to “the statutory payment” may result in a later dispute.
Also prevent salary, holiday allowance, unused holiday, bonus, commission, pension or share rights from disappearing into a single total amount. Identify and settle these entitlements separately.
Gross is not the same as net
A severance payment is generally agreed as a gross amount and taxed through payroll deductions. Do not include a guaranteed net amount without specialist tax advice.
At a minimum, record:
The transition payment as a benchmark
The statutory transition payment applies to certain ways in which employment ends. Under a settlement agreement, it is usually used as a minimum or mathematical starting point.
Additional severance payment
The parties may agree an additional payment above that starting point. The amount may depend on the dismissal position, the employer’s file, culpable conduct and specific loss of income.
Use clear descriptions
The agreement should state which part is the statutory transition payment and which part is an additional payment.
Please note: the description of a payment is less important than the precise arrangements concerning the amount, tax, payment and full and final discharge.
Template settlement agreement
See how arrangements concerning payment and other terms are recorded in writing.
€ 24,50
Sample letter: responding to the proposal
Respond to the initial offer without immediately accepting the amount or terms.
€ 19,50
