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A US software engineer terminated in Texas after eight years receives a polite email and zero severance. The same engineer terminated in Brazil receives roughly 80% of their annual salary in mandatory payouts: FGTS deposit, 40% FGTS fine, prior-notice indemnity, proportional 13th-month, accrued vacation plus a one-third bonus. The same engineer in France gets one-fifth to one-third of monthly salary per year of service plus notice. In Mexico: three months’ salary plus 20 days per year of service.
Same employer. Same role. Same termination reason. Wildly different bills.
This is the part of global hiring that catches teams off guard. Severance isn’t a “nice to have” or a HR-side negotiation in most of the world — it’s statutory, calculated by formula, and enforceable through labor courts that lean toward employees. If you’re hiring across borders without modeling severance into your headcount cost from day one, you’re going to get a very expensive surprise the first time you need to part ways with someone.
This guide walks through statutory severance pay rules in 30+ countries — Americas, Europe, Middle East, Africa, and Asia-Pacific. For each market we cover when severance is owed, how it’s calculated, the tax treatment, and the gotchas. There’s a master comparison table you can scan, country deep dives you can search, and a section on how Employer of Record (EOR) services pre-fund severance reserves so you don’t end up wiring six figures on 48 hours’ notice.
If you only want one country, jump to it. If you’re scoping a global hiring plan, read straight through.
Use our severance pay calculator for a quick estimate, or browse our country pages for full employment guides.
What is Severance Pay?
Severance pay is money paid by an employer to an employee at the end of employment, usually triggered by termination without cause, redundancy, or mutual separation. It’s separate from final wages, accrued vacation, and notice-period pay — though all four often arrive in the same final settlement.
Severance has two flavors:
- Statutory severance is required by law. The amount, formula, and triggers are set by national labor codes. In most of Latin America, Europe, the Middle East, Africa, and Asia, statutory severance is the default — you owe it unless the dismissal is for serious misconduct.
- Contractual severance is whatever the employer voluntarily agrees to pay above the statutory minimum, usually in exchange for a release of legal claims. In the US — where statutory severance is essentially zero — almost all severance is contractual.
Severance vs Redundancy vs PILON
These terms get used interchangeably, sloppily.
- Severance pay is the umbrella term — money at the end of employment.
- Redundancy pay is a UK/Commonwealth term for severance triggered specifically by a position being eliminated. Most countries don’t distinguish.
- PILON (Pay In Lieu Of Notice) is money paid instead of working out the notice period. Some countries treat PILON and severance separately; others lump them together.
For the rest of this guide we’ll use “severance” to mean any post-employment statutory or contractual payout.
How Severance Pay Works
What Triggers It
Statutory severance is typically triggered by:
- Termination without cause — the employer ends employment for business reasons, not employee fault.
- Redundancy / position elimination — the role no longer exists.
- Mutual termination — both parties agree to part ways. Often paired with a settlement that includes severance.
- Constructive dismissal — the employer changes terms so badly the employee is forced to quit. Treated as termination without cause in most jurisdictions.
What usually does NOT trigger statutory severance: voluntary resignation, termination for serious misconduct (the bar is generally high), and end of a fixed-term contract at its natural end (in some countries).
How It's Calculated
Most statutory severance follows one of three patterns:
- Linear formula — X days/weeks/months of salary per year of service. Examples: Mexico (20 days/year + 3 months base), Spain (20-33 days/year), UAE (21 days/year capped at 2 years pay).
- Reserve account — the employer deposits a percentage of salary monthly into a fund the employee accesses on termination. Examples: Brazil (FGTS at 8% monthly), Italy (TFR at ~7.4%).
- Statutory schedule with caps — UK’s age + service formula, capped weekly amount and total weeks.
Add notice period, accrued vacation (often 1/3 bonus), proportional 13th month, and the bill grows quickly.
When It's Paid
Typically due on the last day of employment or within a statutory window — 14 to 30 days after separation in most countries. Late payment usually triggers interest and penalties. Brazil’s labor courts are particularly aggressive on this.
Severance Pay by Country: Comparative Table
Quick reference. Numbers are statutory minimums for termination without cause after 5 years of service, assuming a $5,000/month equivalent salary. Use the country deep dives for actual formulas.
| Country | Statutory severance? | Formula (typical) | 5-year illustrative | Notes |
|---|---|---|---|---|
| United States | No (federal) | Contractual only | $0 | Some states + WARN Act for mass layoffs |
| Canada | Yes (province-dependent) | 1-2 weeks/year + ESA notice | ~$10K-$20K | Wider common-law severance possible |
| Mexico | Yes | 3 months + 20 days/year | ~$30K | + 12 days/year capped at 2× minimum wage |
| Brazil | Yes (FGTS-based) | 8% monthly deposit + 40% fine | ~$32K + accrued | Plus 13th, vacation +1/3, prior notice |
| Argentina | Yes | 1 month per year (with cap) | ~$25K | One of LATAM’s most expensive |
| Chile | Yes | 1 month/year capped at 11 years | ~$25K | + 1 extra month notice |
| Colombia | Yes | 30 days/year for first year, then 20 days | ~$20K | + 4 months for unjustified dismissal |
| Peru | Yes (CTS reserve) | 8.33% monthly deposit | ~$25K | Plus indemnity if dismissal is illegal |
| United Kingdom | Yes (statutory redundancy only) | Age + service tiered formula, capped | ~£10-15K | Capped weekly amount (~£700) |
| Germany | No statutory; common in court | 0.5 month/year (typical settlement) | ~$12K | “Dismissal protection” forces negotiation |
| France | Yes | 1/4-1/3 month/year + notice | ~$15K | + collective agreement enhancements |
| Spain | Yes | 20 days/year (objective) or 33 days (unfair) | ~$15-25K | Ley Rider + recent reforms |
| Italy | Yes (TFR) | ~7.4% monthly deposit | ~$22K | TFR pays out at any termination |
| Netherlands | Yes (transition payment) | 1/3 month/year | ~$8K | Capped at €98,000 (2026) |
| Sweden | No statutory minimum; collective | Negotiated via union agreements | Varies | “LAS” notice protections instead |
| Portugal | Yes | 12-18 days/year | ~$12K | Reduced after 2012 reforms |
| Switzerland | Limited (age 50+, 20+ years) | 2-8 months for senior workers only | $0 (under conditions) | Most workers get notice only |
| Ireland | Yes (statutory redundancy) | 2 weeks/year + 1 bonus week | ~£10K | Tax-free up to thresholds |
| UAE | Yes (gratuity) | 21 days/year (first 5), then 30 days | ~$13K | Capped at 2 years of salary |
| Saudi Arabia | Yes | 0.5 month/year (first 5), then 1 month | ~$10K | Plus accrued benefits |
| South Africa | Yes | 1 week/year minimum | ~$5K | Mandatory consultation under LRA |
| Egypt | Yes | 2 months/year (after 5 years service) | ~$50K | One of Africa’s most generous |
| Nigeria | Yes (varies by sector) | 1 month/year (typical) | ~$25K | New Labour Bill in progress |
| Kenya | Yes | 15 days/year | ~$5K | + 1 month notice |
| India | Yes (Industrial Disputes Act) | 15 days/year (workmen) | ~$3-5K | “Workmen” definition matters |
| China | Yes | 1 month/year (capped at 12) | ~$25K | Doubled for illegal dismissal |
| Japan | No statutory; very common | Negotiated; often 2-6 months | Varies | Lifetime employment culture |
| South Korea | Yes (퇴직금) | 30 days/year | ~$25K | Mandatory if 1+ year service |
| Singapore | No statutory | Contractual / industry standard | Varies | Retrenchment benefit common (~2 weeks/yr) |
| Philippines | Yes | 1 month/year or 1/2 month/year | ~$25K | Depends on cause of separation |
| Indonesia | Yes (UU Cipta Kerja) | 1 month/year (years 1-9), 2 months (10+) | ~$20K | Plus long-service awards |
| Vietnam | Yes | 0.5 month/year | ~$12K | Plus unemployment insurance |
| Australia | Yes (Fair Work) | 4-16 weeks (service-tiered) | ~$20K | Small business exemption (<15 employees) |
| New Zealand | Limited (redundancy, contractual) | Negotiated; some collective minimums | Varies | No general statutory severance |
| Turkey | Yes (kıdem tazminatı) | 30 days/year | ~$25K | Capped at ceiling adjusted yearly |
Country-by-Country Deep Dive
Americas
United States
The US is the global outlier: there is no federal statutory severance pay. The Fair Labor Standards Act (FLSA) doesn’t require it, and most states don’t either.
Three exceptions matter:
- WARN Act. Federal. Employers with 100+ employees must give 60 days’ notice for “mass layoffs” or “plant closings.” Failure to comply = pay employees for the missed notice period.
- State mini-WARNs. California (Cal-WARN), New York, New Jersey, Illinois, and others have stricter notice rules and higher penalties.
- Contractual severance. Almost every executive contract includes severance terms (commonly 6-24 months base + benefits + accelerated equity vesting).
For non-executives, severance in the US is a release-of-claims negotiation. A “typical” severance offer is 1-2 weeks per year of service, capped at 6 months. There’s no legal floor. For state-level nuance, see our existing post on severance pay tax treatment.
Canada
Provincial Employment Standards Acts (ESAs) set minimum statutory notice/severance: typically 1-2 weeks per year of service. Federal Canada Labour Code applies to federally-regulated industries.
The bigger payout often comes from common-law reasonable notice: judges award 1 month per year of service, scaled by age, position, and re-employment difficulty — capped around 24 months. Senior employees in Ontario routinely receive 18-24 months. Bottom line: budget more than the ESA minimum.
Mexico
The Mexican Federal Labor Law (LFT) requires:
- 3 months base salary as indemnification for unjust dismissal
- 20 days’ salary per year of service
- 12 days’ salary per year of service (seniority premium, capped at 2× minimum wage)
- Accrued vacation + vacation premium + proportional Christmas bonus (aguinaldo)
For a 5-year, $5,000/month employee that’s roughly $30,000-$35,000. Mexican labor courts strongly favor employees. Don’t try to dismiss “for cause” without a near-bulletproof paper trail.
Brazil
Brazil’s CLT (Consolidação das Leis do Trabalho) is the world’s most expensive severance regime. The mechanics:
- FGTS (Fundo de Garantia do Tempo de Serviço): 8% of monthly salary deposited into the employee’s account every month. The employee accesses the balance on termination without cause.
- 40% FGTS fine on top of the accumulated balance, paid by the employer at termination without cause.
- Prior notice (aviso prévio): 30 days minimum, +3 days per year of service, capped at 90 days. Either worked or paid in lieu.
- 13th salary (proportional) on month of dismissal.
- Vacation + 1/3 bonus (proportional and accrued).
For a 5-year hire at $5,000/month, total severance + accrued obligations approach 80% of annual salary. The math is why every guide on Brazil hiring eventually pivots to “use an EOR with severance reserves built into the monthly fee.”
Argentina
Article 245 of the Ley de Contrato de Trabajo: 1 month of salary per year of service or fraction greater than 3 months, based on the highest monthly salary in the last year. There’s a cap (3× the average industry wage), often litigated. Plus prior notice (1-2 months) and proportional 13th. With high inflation and frequent court interpretations, real severance often exceeds the formula.
Chile
1 month per year of service, capped at 11 years. Plus 1 month additional notice if not given. For long-tenured employees, the 11-year cap is the limit. If dismissal is unjustified, multiply by 1.3-1.5 depending on the cause.
Colombia
The current calculation:
- 30 days per first year, then 20 days per additional year for employees earning under 10× minimum wage.
- For higher earners: 20 days per first year, then 15 days per additional year.
Plus 4 months’ indemnity if dismissal is deemed unjustified by labor courts.
Peru
CTS (Compensación por Tiempo de Servicios): 8.33% of monthly salary deposited semi-annually into a CTS account. Employee accesses on termination. If dismissal is illegal: indemnity of 1.5 months per year of service, capped at 12 months.
Europe
United Kingdom
Statutory redundancy pay only — and only for redundancy (genuine position elimination), not most other terminations.
Formula:
- 0.5 week’s pay for each year worked under age 22
- 1 week’s pay for each year worked age 22-40
- 1.5 weeks’ pay for each year worked age 41+
Capped at 20 years of service and a statutory weekly maximum (~£700 in 2026, indexed). For a 5-year hire at age 35: ~£3,500 minimum. Add statutory minimum notice (1 week per year up to 12 weeks) and any contractual enhancement.
For other dismissal types (capability, conduct, “some other substantial reason”), severance is contractual or comes from a settlement agreement. UK employees with 2+ years of service can claim unfair dismissal at tribunal. Awards: basic award (calculated like redundancy) + compensatory award (capped at ~£105K or 1 year’s salary, whichever is lower). gov.uk redundancy pay calculator is the authoritative source.
Germany
Surprise: Germany has no statutory severance pay for most terminations. What it has is the Kündigungsschutzgesetz (Dismissal Protection Act), which makes dismissing employees with 6+ months of service in companies of 10+ employees genuinely difficult. You need “social justification.”
What happens in practice: the employer offers a termination agreement (Aufhebungsvertrag) with severance to avoid a labor-court fight. The market norm is 0.5 month’s salary per year of service, sometimes higher for older or longer-tenured employees. If the employer fires anyway and the employee wins at labor court, the court typically orders reinstatement or — at the employer’s request — severance under §9-10 KSchG (up to 12 months’ salary, more for age 50+ with 15+ years). Bottom line: budget half a month per year of service, even though no statute requires it.
France
Statutory severance under Article L1234-9 of the Labor Code:
- 1/4 of monthly salary per year for the first 10 years
- 1/3 of monthly salary per year beyond 10 years
Plus notice (typically 1-3 months), plus collective bargaining agreement (CCN) enhancements that can substantially increase the figure. Unjust dismissal: separate damages (typically 3-20 months’ salary) under the Macron caps.
Spain
Two tracks:
- Objective dismissal (economic, technical, organizational, or production reasons): 20 days per year of service, capped at 12 months.
- Unfair dismissal: 33 days per year of service, capped at 24 months. Pre-2012 service accrues at the old 45-days rate.
Plus the Ley Rider (2021) reclassification rules for platform workers. Plus collective dismissal procedures (ERE) for 10+ workers.
Italy
TFR (Trattamento di Fine Rapporto): ~7.4% of annual salary deferred and paid out at any termination — voluntary or involuntary. It’s essentially deferred wages. Annual accrual = (annual salary / 13.5) less a 0.5% social contribution. Employees can opt to keep TFR with the employer or transfer it to a pension fund. Taxed at separate rates (favorable). For unjust dismissal under the Jobs Act (post-2015 hires): increasing scale of indemnity — 2 months per year of service, with minimums and caps.
Netherlands
Transition payment (transitievergoeding): 1/3 of monthly salary per year of service. Capped at €98,000 (2026 figure, indexed annually) or one year’s salary, whichever is higher. Required for any termination including the end of a fixed-term contract. There’s no “no-cause” termination in NL — every dismissal needs UWV approval or court approval, which adds cost and time.
Sweden
No statutory severance pay. Sweden’s protection comes from LAS (Employment Protection Act): seniority-based notice periods (1-6 months) and “first in, last out” rules during redundancies. Most severance is set by collective bargaining agreements (CBAs) — Sweden has 80%+ collective coverage. Negotiation is via union, not individual.
Portugal
Reduced significantly after 2012:
- 12 days per year for contracts signed after Oct 2013
- 18 days per year for service before Oct 2013 (legacy)
Capped at 12 months’ salary or 240× minimum wage, whichever is lower.
Switzerland
Limited statutory severance. Article 339b of the Swiss Code of Obligations: 2 months’ salary minimum for employees aged 50+ with 20+ years of service, up to 8 months in some readings. Most other workers receive notice only (1-3 months by service tier). It’s one of Europe’s least-protective regimes.
Ireland
Statutory redundancy: 2 weeks per year of service + 1 bonus week. Capped at €600/week (2026 figure). Notice: 1-8 weeks based on service. Tax-free up to €10,160 + €765/year of service + lump-sum exemptions.
Middle East & Africa
United Arab Emirates
End-of-service gratuity (replaces traditional severance):
- 21 days’ basic wage per year for the first 5 years of service
- 30 days’ basic wage per year for years beyond 5
- Capped at 2 years’ basic wage total
Note “basic wage” — gratuity is calculated on basic, not total compensation. Allowances (housing, transport) typically don’t count. DIFC and ADGM employees follow separate rules with similar logic but different specifics.
Saudi Arabia
End-of-service award under the Saudi Labor Law:
- Half month’s wage per year for the first 5 years
- Full month’s wage per year beyond 5 years
Caveat: if the employee resigns before 2 years of service, no award. 2-5 years: 1/3 of award. 5-10 years: 2/3. 10+ years: full.
South Africa
1 week’s salary per year of service minimum, under Section 41 of the BCEA. Plus mandatory consultation with employees and unions for any operational requirements dismissal under Section 189 of the LRA. Get the consultation procedure wrong and the dismissal becomes “automatically unfair,” with separate compensation up to 24 months’ pay.
Egypt
2 months’ salary per year of service after 5 years’ service. Highly generous by global standards. Termination of indefinite contracts requires “valid grounds” — Egyptian labor courts interpret this strictly.
Nigeria
Currently sector-dependent: 1 month’s salary per year of service is the most common contractual benchmark. The pending Nigerian Labour Bill will codify statutory severance — watch this space.
Kenya
Under the Employment Act, 2007: 15 days’ pay per completed year of service for redundancy. Plus 1 month notice or pay in lieu.
Asia-Pacific
India
The Industrial Disputes Act, 1947, applies to “workmen” (largely manual/clerical workers earning under specified thresholds — definitions matter):
- 15 days’ average pay per year of service
- Plus 1 month notice or pay in lieu, for retrenchment
For management/senior employees outside the ID Act, severance is contractual. The Code on Industrial Relations (passed 2020, phased rollout) modifies several rules — expect changes through 2026-27.
China
Severance under Article 47 of the PRC Labor Contract Law:
- 1 month’s salary per year of service, with periods of 6-12 months counting as 1 year
- Capped at 12 years of service for high earners (3× local average wage)
For illegal termination: double the standard severance. Probationary employees can be terminated more easily but still need cause documented.
Japan
No statutory severance. But Japanese employment culture, seishain (regular employee) protections, and the “abuse of right to dismiss” doctrine make termination very difficult and expensive. In practice: severance offers of 2-12 months are common to facilitate voluntary resignation. Litigation = often more expensive than the largest severance offer.
South Korea
Mandatory retirement allowance (퇴직금): 30 days’ average pay per year of service, paid for any termination including resignation, after 1+ year of service. Equivalent to ~8.3% of total wages — most companies fund this monthly into a Defined Benefit or Defined Contribution retirement plan.
Singapore
No statutory severance under the Employment Act. Retrenchment benefit is industry standard via the Tripartite Advisory: 2-4 weeks’ salary per year of service for retrenched employees of companies that have been profitable. Companies in financial distress can pay less (or nothing) but should consult MOM and the unions.
Philippines
Separation pay under the Labor Code:
- 1 month per year of service for redundancy or installation of labor-saving devices
- 0.5 month per year for retrenchment to prevent losses or closure
Whichever is higher between the formula amount and 1 month’s pay.
Indonesia
UU Cipta Kerja (Omnibus Law, 2020) revised the formula:
- 1 month pay per year for years 1-9
- 2 months pay per year for years 10+
- Plus long-service award (uang penghargaan): 2-10 months based on tenure
- Plus compensation for rights (uang penggantian hak): vacation, relocation, etc.
Total can reach 30+ months’ salary for very long tenured employees.
Vietnam
0.5 month’s salary per year of service, calculated on average of last 6 months. Years before 2009 don’t count (offset by mandatory unemployment insurance contributions).
Australia
Under the Fair Work Act:
| Period of continuous service | Redundancy pay |
|---|---|
| <1 year | None |
| 1-2 years | 4 weeks |
| 2-3 years | 6 weeks |
| 3-4 years | 7 weeks |
| 4-5 years | 8 weeks |
| 5-6 years | 10 weeks |
| 6-7 years | 11 weeks |
| 7-8 years | 13 weeks |
| 8-9 years | 14 weeks |
| 9-10 years | 16 weeks |
| 10+ years | 12 weeks (counterintuitive cap) |
Plus notice (1-5 weeks). Small business (<15 employees) may be exempt.
New Zealand
No general statutory severance. Redundancy compensation comes from employment agreements — individual or collective. Some industries (e.g., teaching, public sector) have established benchmarks. A “fair redundancy process” is mandatory: genuine reason, consultation, redeployment consideration.
Turkey
Kıdem tazminatı (severance compensation): 30 days’ gross salary per year of service, with the daily ceiling indexed to civil-servant pay (adjusted twice yearly). Triggers: termination by employer (most cases), resignation due to military service, marriage of female employee, retirement age, disability, employee death, employer breach.
How is Severance Pay Calculated
Three formula patterns dominate.
1
The “X days/months per year of service” formula
The most common globally. Examples: Mexico (20 days + 3 months base), Spain (20 or 33 days), UAE (21-30 days), South Korea (30 days), Turkey (30 days), China (1 month). Multiply daily/monthly salary by the days/months and the years of service. Most countries use the last salary or average of last 12 months.
2
Reserve account / deferred wage
Employer deposits a percentage of monthly salary into an account in the employee’s name. Employee accesses the balance on termination.
- Brazil FGTS: 8% of monthly salary, deposited monthly. + 40% fine at termination without cause.
- Italy TFR: ~7.4% of annual salary deferred, paid at any termination.
- Peru CTS: 8.33% deposited semi-annually.
This model effectively pre-funds severance. EORs in these countries roll the percentage into your monthly fee — you pay throughout, not in a single termination shock.
3
Tiered statutory schedule
Used by UK, Australia, parts of Europe. A table maps service length to weeks of pay, often capped both per year and total.
Worked example: 5-year, $60,000-salary engineer in Brazil
| Component | Amount |
|---|---|
| FGTS balance accumulated (8% × 60 months) | ~$24,000 |
| 40% fine on FGTS | ~$9,600 |
| Prior notice (90 days, paid in lieu) | $15,000 |
| Proportional 13th salary | ~$2,500 |
| Accrued vacation + 1/3 bonus | ~$3,300 |
| Total | ~$54,400 |
That’s ~91% of annual salary. This is why Brazilian EOR pricing pre-funds these obligations into the monthly fee.
Tax Treatment of Severance Pay
United States
Severance is ordinary income, subject to federal and state income tax plus FICA. Withholding is at the supplemental rate (22% federal for amounts under $1M, 37% above). Severance is taxable even if the employee receives unemployment benefits — though it can delay UI eligibility in many states.
United Kingdom
The first £30,000 of a non-contractual termination payment (genuine ex-gratia / redundancy) is tax-free under ITEPA 2003. Above £30,000, taxed as ordinary income at marginal rate. Class 1A NIC applies to the employer side on the excess. PILON, holiday pay, and bonuses are fully taxable.
Germany
Severance is taxable income. Fünftelregelung (one-fifth rule) provides limited relief: spreads the tax burden across five years for calculation purposes only. Net effect: meaningful but modest tax saving.
France
Statutory severance is tax-free up to certain ceilings (typically the higher of statutory minimum or twice annual salary, capped at €246K in 2024). Above the ceiling: taxable. Social contributions also have separate ceilings — get this wrong and the bill grows.
Quick Reference Tax Table
| Country | Tax-free portion | Above the threshold |
|---|---|---|
| US | None (federal) | Ordinary + supplemental withholding |
| UK | £30,000 (genuine ex-gratia) | Ordinary income |
| Germany | None; Fünftelregelung relief | Ordinary income |
| France | Up to ~€246K (2024 cap, varies) | Ordinary income |
| Spain | Statutory minimum (objective) tax-free | Ordinary income |
| Brazil | FGTS withdrawal tax-free; rest taxable | Special rate |
| Mexico | 90× daily minimum wage tax-exempt | Ordinary income |
| Canada | Limited rollover to RRSP | Ordinary income |
| Australia | Genuine redundancy: tax-free thresholds | Ordinary income |
⚠️ Tax rules change frequently. Confirm with a local tax adviser before finalizing any termination package.
Negotiating Severance: What's Statutory vs What's Up for Grabs
In countries with statutory severance, the floor is set by law. In countries without (US, Singapore, Sweden, NZ, Japan), it’s all up for negotiation. Most of the world is somewhere in between.
What’s always negotiable on top of statutory minimums:
- Notice period — often paid in lieu, sometimes longer than statutory in exchange for a release.
- Continued benefits — health insurance for 6-12 months is common, especially in the US (COBRA subsidy).
- Outplacement services — career coaching, resume help. Cheap to offer; high goodwill.
- Equity vesting acceleration — unvested options/RSUs accelerated for senior employees.
- Non-compete duration — sometimes shortened in exchange for a lower lump sum.
- Non-disparagement — almost always included.
- References — agreed reference text in writing.
What’s usually off the table: statutory minimums, mandated benefits like accrued vacation pay, proportional 13th-month, or pension contributions, and notice period below statutory minimums.
Are Companies Required to Pay Severance
Countries Where Statutory Severance is Essentially $0
- United States (federal level — except WARN Act notice for mass layoffs)
- Sweden (collective agreements only; no statute)
- New Zealand (negotiated; no general statute)
- Japan (cultural norm; no statute)
- Switzerland (only for age 50+, 20+ years)
Countries Where Statutory Severance is Mandatory and Substantial
- All of Latin America (Brazil, Mexico, Argentina, Chile, Colombia, Peru, et al.)
- Most of Europe (UK, France, Spain, Italy, Netherlands, Germany via court practice)
- Most of Asia-Pacific (China, South Korea, Indonesia, Philippines, Vietnam, Australia)
- Middle East / GCC (UAE, Saudi Arabia, Qatar, Kuwait)
- Major African economies (South Africa, Egypt, Kenya, Nigeria)
The Grey Zone: Collective Dismissals
Even in countries with no individual severance statute, mass layoff triggers usually invoke separate rules:
- US WARN Act: 60 days’ notice for layoffs of 50+ (or 1/3 of workforce) at a site. Failure = pay 60 days’ wages.
- EU Collective Dismissal Directive: consultation with worker reps for layoffs of 10-30+ depending on company size.
- Most countries’ equivalents: notice to labor ministry, consultation periods, additional severance multipliers.
If you’re laying off 5+ people in any country, get local employment counsel involved before making any announcements.
How EOR Handles Severance Across Borders
Severance is the single biggest reason CFOs eventually accept the EOR fee.
Severance Reserves in EOR Pricing
In countries with mandatory deposit-based severance (Brazil FGTS, Italy TFR, Peru CTS), the EOR rolls the percentage into your monthly fee. You’re paying the future severance obligation as you go — no termination-day shock.
In other countries, EORs typically maintain a severance reserve — a percentage of monthly cost set aside against the eventual termination liability. Some EORs charge this transparently as a line item; others bake it into the headline fee.
Always ask:
- Is the statutory severance obligation pre-funded month-to-month, or due at termination?
- What does the EOR’s termination cost look like — and how is it billed?
- Who handles the labor-court risk if dismissal is challenged?
What Happens at Termination
When you decide to part ways with an EOR-employed worker:
- You notify the EOR. Reason for termination, target end date.
- EOR consults local labor law. Some terminations require notice periods, consultation, or court approval (Netherlands, Germany).
- EOR drafts the termination documentation — settlement agreement, non-disparagement, release of claims, all in compliant local format.
- EOR processes the final settlement — accrued wages, vacation payout, 13th-month proportional, statutory severance, contractual severance.
- EOR invoices you for the total termination cost minus any pre-funded reserve.
- EOR carries the legal risk if the worker challenges the dismissal — that’s part of what you’re paying for.
For an honest comparison of EOR fee structures vs setting up your own entity, see EOR vs legal entity and EOR cost & pricing breakdowns.
Common Mistakes US/UK Companies Make Hiring Globally
A short list of recurring errors:
1. Modeling international hires at US-baseline severance. A “$100K hire” in Brazil isn’t $100K + 22% employer load — it’s $100K + 75% load including pre-funded severance.
2. Treating notice and severance as the same thing. They’re often separate statutory obligations. PILON in the UK isn’t severance. Aviso prévio in Brazil isn’t FGTS. Stack them, don’t substitute.
3. Trying to fire “for cause” without documentation. In most of Europe and Latin America, “performance issues” don’t qualify as serious misconduct. You’ll likely lose at labor court and pay full unfair-dismissal damages.
4. Skipping consultation in collective dismissals. EU collective dismissal procedures + South African Section 189 + similar regimes can void the entire dismissal if you skip the formal process.
5. Thinking a US-style “release of claims” overrides statutory rights. It doesn’t. Most countries treat statutory severance as non-waivable. Get a separate release on contractual / discretionary amounts only.
6. Forgetting accrued vacation, 13th-month, and notice. Final pay isn’t just severance. It’s severance + accrued vacation + proportional 13th + notice. Budget all four.
7. Underestimating litigation costs. A wrongful-dismissal suit in Brazil, Mexico, or France can drag on 18+ months and cost more than the original severance offer.
The Bottom Line
If you’re hiring globally, severance is not optional — it’s pre-funded mathematics with country-specific formulas. The right approach is to model fully-loaded employment cost from day one, including severance reserves, and treat termination cost as a known liability you’re amortizing monthly rather than a surprise expense.
For most companies hiring in fewer than 10-15 countries, an Employer of Record handles severance as part of the monthly fee — pre-funded in the deposit-based countries, reserved against in the rest, and operationally handled when the time comes.
For larger global headcount, build your own legal entities where the math justifies, and budget severance reserves into your headcount finance model.
Either way: don’t run a 5-country team without a country-by-country severance liability number on a spreadsheet somewhere. The first time someone leaves, you’ll want it.
Last updated: April 2026. This guide is general information, not legal advice. Severance laws change — confirm specifics with a qualified labor lawyer or your EOR provider before any termination decision.
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Calculate severance for any country or compare EOR pricing across markets. For full country employment guides, see our country pages.
Frequently Asked Questions
Severance is the umbrella term. Redundancy pay is a UK/Commonwealth term for severance specifically tied to position elimination. In most countries, the statute makes no distinction — termination without cause triggers severance regardless of whether the role is being eliminated.
In most countries, statutory severance can’t be waived — even if the employee signs a release. Contractual severance above the statutory minimum can be negotiated and conditioned on a release of claims. Always handle the two separately.
In the US: yes, in most states. Severance can delay or reduce unemployment insurance eligibility, depending on whether it’s paid as a lump sum or salary continuation. Consult state-specific rules. In most other countries with separate unemployment insurance: severance is treated as a one-time payment that doesn’t affect monthly UI eligibility, though it may delay the start date.
Globally: roughly 1-2 months per year of service is the median across countries. Some countries are lower (UK statutory minimum, Vietnam), some are dramatically higher (Egypt, Brazil with FGTS, South Korea). In the US (where it’s contractual): the most common offer is 1-2 weeks per year of service, capped at 6 months.
In countries with statutory severance: usually yes, with limited exemptions. Australia exempts businesses under 15 employees from redundancy pay. UK statutory redundancy applies regardless of size. Germany’s dismissal protection doesn’t apply to companies under 10 employees. In the US: no federal requirement at any size. Some state mini-WARNs only apply at 50-100+ employees.
Country-specific. In the US, ordinary income with 22% supplemental withholding. UK provides £30K tax-free for genuine ex-gratia payments. Germany has the Fünftelregelung. France has tiered exemptions. See the tax table above and consult local advisers — rules change.
You can negotiate above statutory minimums (extended notice, continued benefits, higher payout in exchange for a broader release). You cannot negotiate below the statutory floor — that’s unenforceable.
PILON (Pay In Lieu Of Notice) is wages paid for the notice period the employee doesn’t actually work. Severance is compensation for the termination itself. Most countries owe both. Some (UK) treat PILON as taxable employment income while genuine severance gets the £30K exemption.
