Severance pay in Germany — entitlement, formula & how to negotiate it
A statutory right to severance does not exist in Germany — but in practice, severance is paid in over 80% of dismissal cases through court settlements. We show the formula, the leverage points and the realistic numbers.
In Germany, there is no general statutory right to severance pay after a dismissal. The standard rule-of-thumb negotiated in court settlements is 0.5 gross monthly salaries per year of service (§ 1a KSchG, §§ 9, 10 KSchG). In practice, more than 80% of unfair-dismissal proceedings end in a settlement that includes severance, frequently between 0.5 and 1.5 monthly salaries per year — depending on tenure, age, social context and the legal flaws in the dismissal.
Written and reviewed by Fatih Bektas, German employment-law specialist (APOS Legal Heidelberg).
The standard severance formula
The classic German severance formula is 0.5 × gross monthly salary × years of service. It is not a hard statutory rule, but the labour courts and most employers treat it as the baseline. Length of service of more than six months counts as a full year.
| Years of service | Severance at €3,000 gross/month | Range (0.5×–1.0×) |
|---|---|---|
| 1 year | €1,500 | €1,500 – €3,000 |
| 2 years | €3,000 | €3,000 – €6,000 |
| 3 years | €4,500 | €4,500 – €9,000 |
| 5 years | €7,500 | €7,500 – €15,000 |
| 7 years | €10,500 | €10,500 – €21,000 |
| 10 years | €15,000 | €15,000 – €30,000 |
| 15 years | €22,500 | €22,500 – €45,000 |
| 20 years | €30,000 | €30,000 – €60,000 |
These figures are illustrative only — your actual settlement value depends on the flaws in the dismissal, social factors and your negotiation strategy. Use the severance calculator for a tailored estimate, or send us your dismissal letter for a free review.
What lifts severance above the rule of thumb
Formal errors in the dismissal letter
Missing signature, wrong notice period, no works-council consultation — any of these makes the dismissal invalid and dramatically improves the settlement value.
Special dismissal protection
Pregnancy (§ 17 MuSchG), severe disability (§ 168 SGB IX), works-council membership (§ 15 KSchG) or parental leave (§ 18 BEEG) shift the leverage sharply in your favour.
Flawed social selection
In redundancy dismissals the employer must select on tenure, age, dependants and disability (§ 1 III KSchG). Errors in the social selection are among the most common winning arguments in court settlements.
Long tenure & high salary
Older employees and long tenures attract higher factors. For tenures above 10 years, factors of 1.0× or more are routinely achievable.
Statutory severance under § 1a KSchG — the exception
The only direct statutory severance entitlement outside collective agreements and social plans sits in § 1a KSchG. If the employer dismisses you for operational reasons (redundancy) and expressly offers severance in exchange for you not filing an unfair-dismissal claim, the statutory amount is 0.5 gross monthly salaries per year of service. Years of six months or more count as a full year.
In practice this clause is only triggered when the employer actively signals it in the dismissal letter. If you file a claim within the 3-week deadline (§ 4 KSchG), you forfeit the statutory offer — but almost always obtain a higher settlement in the court proceedings. The § 1a offer is therefore more of a floor than a ceiling.
Related statutory severance paths: court dissolution under §§ 9, 10 KSchG (where continued employment is unreasonable), social plans (Sozialplan) under the Works Constitution Act, and sector-specific collective agreements.
Tax on severance pay (Fünftelregelung)
Severance pay is fully taxable as ordinary income, but the German Tax Code mitigates the progression effect through the „one-fifth rule“ of § 34 EStG. Mathematically, the lump sum is treated as if it were paid in equal parts over five years, which softens the spike in marginal tax.
Rough example — Fünftelregelung effect
Base annual income €55,000 + severance €30,000. Without the one-fifth rule the full €30,000 would be taxed at the top marginal rate. With the rule, the Tax Office calculates the tax burden as if €6,000 (one fifth) were added to each of five years — then multiplies the resulting incremental tax by five. For many mid-income earners this reduces the effective tax on severance by ~15–25%. Exact savings depend on your individual tax bracket.
No employer or employee social-security contributions are usually levied on severance paid in connection with the termination of employment.
Severance pay — most common questions
Is there a statutory right to severance pay in Germany?
No, German law does not grant an automatic right to severance pay. A statutory claim exists only in narrow cases: §1a KSchG (where the employer offers severance with a redundancy dismissal), social plans (Sozialplan) or collective agreements (Tarifvertrag). In practice, severance is negotiated in more than 80% of unfair-dismissal proceedings as part of a court settlement.
How is severance pay calculated?
The most common formula is 0.5 gross monthly salaries × years of service. With €4,000 gross monthly salary and 8 years of service, that gives €16,000 as a starting point. Depending on the strength of your case, the factor commonly lies between 0.25 and over 1.5.
Do I have to pay tax on severance pay?
Yes — severance is taxable. However, the “one-fifth rule” (Fünftelregelung, §34 EStG) reduces the tax burden significantly by spreading the lump sum mathematically over five years. Social-security contributions usually do not apply to severance paid in connection with the end of the employment relationship.
Can I negotiate a higher severance?
Yes. The amount depends heavily on your negotiating leverage: formal errors in the dismissal letter, flawed social selection (Sozialauswahl), missing works-council consultation or special protection (pregnancy, severe disability, works council membership) all substantially strengthen your position.
Do I still get severance after a summary (without-notice) dismissal?
Yes — counterintuitively, severance prospects are often particularly high after a summary dismissal under § 626 BGB, because the legal hurdles for a valid summary dismissal are strict. Many summary dismissals are unlawful, which leads to favourable settlement outcomes.
Does severance count against unemployment benefit (Arbeitslosengeld)?
A straight severance payment does NOT reduce your Arbeitslosengeld I entitlement — it is not treated as wages. However, if you accept a termination agreement with a notice period shorter than the statutory one, the employment agency can impose a 12-week suspension period (Sperrzeit, § 159 SGB III) during which no benefit is paid. Always check the notice-period compatibility of any offer before signing.
When should I file an unfair-dismissal claim to secure severance?
Within 3 weeks of receiving the dismissal letter (§ 4 KSchG). Missing this deadline makes the dismissal legally watertight — and strips away the leverage that typically produces severance. A free initial review with a specialist within the first days is strongly recommended.
Tell us about your case
Fill in the form — we will review your situation. Free of charge, typically within 48 hours. We handle German labour-law matters in English.
What happens next?
After your enquiry we review the details and reply with an initial assessment — whether the dismissal can be challenged, how high a likely severance could be and which next steps make sense.
bektas@apos.legal
+49 6222 9599 2400
Response time: we reply within 48 hours on working days. If you have already received a dismissal, please mention it — deadline-sensitive cases are prioritised.
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