When is severance pay due? A guide for workers and employers

When is an employee entitled to severance pay? According to the ZDR-1, an employee receives severance pay in the following cases:

• Regular dismissal by the employer for business reasons or reasons of incapacity (Article 108).
• Extraordinary dismissal of an employee for reasons attributable to the employer (Article 111).
• Termination of a fixed-term contract (Article 79), if the conditions are met and none of the exceptions apply.
• Retirement of an employee (Article 132).
• Special cases of termination with offer of a new contract (suitable / unsuitable employment).

Termination by the employer for business reasons or incapacity (Article 108)

If the employer regularly terminates the contract:

• for business reasons (economic, organizational, technological), or
• due to incapacity (failure to achieve results, permanent medical disability), the employer must pay severance pay to an employee who has been employed by the employer for more than 1 year .

Basis: average monthly gross salary of the employee in the last 3 months before termination.

Severance pay amount:

• more than 1 year to 10 years: 1/5 of the basis for each year ,
• more than 10 to 20 years: 1/4 of the basis for each year ,
• more than 20 years: 1/3 of the basis for each year .
• Work for the employer's legal ancestors is also considered.
• Severance pay is capped at a maximum of 10 times the base salary , unless the collective agreement stipulates more.
• It must be paid no later than upon termination of the employment relationship , unless the collective agreement provides otherwise.

Extraordinary dismissal of an employee (Article 111)

An employee may terminate the contract for cause if the employer seriously violates his rights (does not pay wages or contributions, does not provide security, tolerates harassment or discrimination). These reasons are listed in Article 111 of the ZDR-1. In this case, the employee has the right to:

• severance pay , as if it were a termination for business reasons, and
• compensation at least in the amount of the lost payment for the period of notice .

Procedure:

• the employee reminds the employer in writing of the violations and gives him a deadline (3 working days) to correct them,
• inform the Labor Inspectorate ,
• extraordinary dismissal must be given within 30 days of the reason being established , but no later than 6 months from the occurrence of the reason (Article 109).

If an employee resigns regularly ("classic" resignation through no fault of the employer), he is not entitled to severance pay and, as a rule, unemployment compensation.

Severance pay upon retirement (Article 132)

An employee is entitled to severance pay upon retirement if:

• has been employed by the employer for at least 5 years and
• retires and his insurance with this employer ceases.

Severance pay amount:

• 2 average monthly salaries in the Republic of Slovenia for the past 3 months or
• 2 average salaries of the worker for the last 3 months - the more favorable option for the worker is used.

Special features:

• If the employee worked part-time , severance pay is in principle paid proportionally , except in special cases of reduced working hours (Article 67 of the ZDR-1).
• Upon partial retirement (termination of the old contract and conclusion of a new contract for a shorter period) , a proportional part of the severance pay is due.

An employee is not entitled to severance pay upon retirement if:

• immediately re-employed upon retirement, or
• has already received severance pay due to dismissal for business reasons/incapacity or the employer has paid him/her a pension purchase - in this case, he/she can claim any difference if the severance pay upon retirement would have been higher.

Fixed-term contract – severance pay (Article 79)

ZDR-1 from 12 April 2013 also grants the right to severance pay upon termination of a fixed-term contract .

An employee is entitled to severance pay if the contract ends with the expiration of time, unless:

• it was about replacing a temporarily absent worker ,
• it was seasonal work , shorter than 3 months,
• whether it was public works or active employment policy measures ,
• the employer employs him for an indefinite period during the term of the contract or after its expiry,
• the employee continues to work on the basis of a permanent contract,
• the employee refuses a permanent contract for suitable work offered to him by the employer.

Amount of severance pay for a fixed-term contract:

• contract for 1 year or less : 1/5 of the base ,
• contract longer than 1 year : 1/5 of the base + proportional part (1/12 1/5 of the base for each month over 1 year) .

Base = average monthly salary of a full-time employee from the last 3 months.

If multiple fixed-term contracts are concluded with the same employer, the periods are added together from the first to the last contract.

Cancellation with offer of a new contract

When the employer terminates the contract for business reasons/incapacity and at the same time offers a new contract :

• if the employee refuses suitable employment for an indefinite period - he/she is not entitled to severance pay;
• if the employee accepts an unsuitable job (lower paid, lower level of education) - he/she has the right to a proportional part of the severance pay (agreement with the employer);
• The same applies if he refuses unsuitable employment for a fixed term – he is entitled to severance pay.

Tax treatment and treatment of contributions ZDoh-2, Article 44 :

• Severance pay due to termination of an employment contract (business reasons/incapacity) is not subject to income tax , but up to a maximum of 10 average monthly salaries of employees in Slovenia ;
• severance pay upon retirement is tax-free up to a specific amount in EUR (from 1 March 2024: EUR 6,662.85 – the amount is periodically adjusted);
• Severance pay due to the termination of a fixed-term contract is tax-free up to the amount determined by ZDR-1 , but not more than 3 average salaries .

Contributions: if severance pay is paid in the amount and under the conditions of ZDR-1 , contributions are not paid up to the limits stated above - excess and "above-standard" parts of the severance pay are treated as income from employment (income tax + contributions).

What if the employer does not pay severance pay?

• first a written warning to the employer,
• then apply to the Labor Inspectorate of the Republic of Slovenia or
• lawsuit in the labor court ,
• It is also possible to file an enforcement action based on an authentic document (salary statement with the amount of severance pay shown).

Author: Danijela Uran, RRA Koroška doo – SPOT Consulting Koroška