How to Calculate Severance Pay for Global Teams

Why Global Severance Pay Matters More Than Ever

Severance pay sits at the intersection of payroll, HR, and compliance. It protects employees from financial shock and protects your company from unnecessary risk. Yet global teams face increasingly complex requirements.

Remote work, multi-country employment, and tightening labor laws mean payroll professionals are under pressure to handle severance with computer-level precision. Much easier said than done, of course.

Here’s what makes it so challenging:

• Inconsistent Global Laws: Every country has its own severance rules. In the U.S., it’s mostly voluntary. In the EU and LATAM, it’s mandated by law. That means one global policy won’t fit everyone.
• Distributed Workforces: Your remote employees are governed by the laws of where they work, not where your company is based. That turns every offboarding into a compliance challenge.
• Operational Fragmentation: If you’re still juggling spreadsheets, email threads, and last-minute legal checks, one small oversight can turn into a big problem.
• High Stakes: A miscalculation or late payment introduces the risk of hefty fines and can damage trust, reputation, and employee morale.

When payroll and HR teams are stretched thin, severance becomes a bottleneck. You’re trying to do right by your people and protect the business – but without automation, the risk of human error increases.

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Get Expert-Level Severance Calculations

Playroll’s in-country payroll experts have unmatched knowledge of local severance laws, calculations, and currencies across more than 180 jurisdictions – giving your team confidence that every payout is compliant, accurate, and on time.

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Severance Pay Eligibility: What Is It and When You Need to Pay It

When an employee’s role ends involuntarily, severance is the payment made to support them through the transition and to protect your company from legal or reputational risk. It’s often the final signal of how responsibly your business handles employment relationships.

In many regions, severance pay is a statutory requirement under national labor law or a contractual obligation built into employment terms. Even in countries where it’s voluntary, offering severance demonstrates fairness, reduces the risk of disputes, and strengthens your brand  reputation.

You generally need to pay severance when:

• The termination is involuntary: Redundancy, layoffs, or restructuring typically trigger severance; voluntary resignations or dismissals for gross misconduct do not.
• The employee has met a minimum tenure threshold: Many countries activate severance rights after 6–12 months of continuous service.
• Local law or contract requires it: Employment contracts, collective agreements, or company policies may impose specific severance conditions or formulas.

International Severance Pay: Global Differences to Keep in Mind

Before issuing a final payment, your payroll team must verify which legal frameworks apply – because every jurisdiction defines severance differently. Here’s an overview of the key differences you should be aware of:

• United States: Severance isn’t mandated by federal law, but most companies offer it voluntarily to reduce litigation risk and maintain goodwill.
• United Kingdom: Redundancy pay is statutory under the Employment Rights Act, calculated using age, tenure, and weekly pay.
• Brazil: Labor laws require one month of salary per year of service, plus a 40% penalty on FGTS (employee severance fund) contributions.
• Germany: Standard practice grants half a month’s salary per year of service in redundancy situations.
• India: The Industrial Disputes Act provides 15 days of average pay per completed year of service.

The takeaway is simple:

There’s no global standard. Every jurisdiction – and often every contract – defines severance differently. That’s why global payroll teams can’t rely on a single formula or spreadsheet.

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Explore our Severance Pay Regulations Hub for more details

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Key Factors & Formulas to Determine Severance Pay

Severance pay isn’t one-size-fits-all. You’ll need to be aware of the specific blend of legal, financial, and policy-based factors for the country you’re operating in. Each of these elements interacts differently across jurisdictions, so getting familiar with the fundamentals is key to consistent, compliant calculations.

Here are a few of the foundational elements you should be aware of:

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Each of these factors has a direct impact on how you calculate and validate a severance payment. Missing even one detail – like an unaccounted notice period or a statutory cap – can put your team at risk of non-compliance.

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Step-by-Step Guide to Calculate Severance Pay For International Teams

Follow these steps to calculate severance accurately, consistently, and in line with local regulations.

Step 2: Review and Localize

Check your calculation against legal caps, statutory minimums, and local currency rates to make sure it aligns with local law. In some countries, like the UK or Spain, governments set maximum severance limits, while others (like Germany or Mexico) require specific minimum payouts tied to tenure.

Don’t forget to factor in tax withholding, mandatory deductions, and any notice pay or accrued leave before finalizing the total. Getting these details right ensures employees receive what they’re owed and your company stays fully compliant.

Step 2: Confirm Severance Pay Eligibility

Start by checking whether the employee actually qualifies for severance under local labor law or their contract. Eligibility depends on local labor laws, contract terms, and employment type, so this step is about confirming the “if” before you calculate the “how.” Gather the basics  – such as their start and end dates, total tenure, and the applicable jurisdiction.

It’s also worth watching for the exceptions that can trip teams up:

• In France, for example, parental leave extends an employee’s tenure for severance purposes.
• In Australia, the Fair Work Act adds extra protections for employees with disabilities. And if the role is unionized, collective bargaining agreements often override standard laws, so bring those into the picture early.

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Guide: The best way to approach local labor laws

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Step 3: Collect Key Inputs

Once eligibility is confirmed, gather the core details that determine the payout. The cleaner your inputs, the more accurate your calculation and payouts.

You’ll need: tenure (in years, prorated for partial years), base pay (weekly or monthly), and the local multiplier or statutory formula that applies in that country. For instance, the UK ties redundancy pay to age and tenure, Japan often bases it on months of service, and Brazil includes a 40% FGTS penalty. Don’t forget add-ons like notice pay, unused leave, or contractual extras.

Step 4: Apply the Severance Pay Formulas

Now it’s time to calculate the severance payout. Because each country defines “severance” differently, treat the following as a general framework that should always be adapted for local laws, collective agreements, and individual contracts.

To avoid payroll errors, it’s best practice to manage all severance payments through one centralized or automated ledger – this ensures consistent calculations and prevents accidental double payments across jurisdictions.

General Severance Formula:

• Severance Pay = (Base Rate × Tenure × Multiplier) + Benefits & Accruals + Notice Pay

Formula Unpacked:

• Base Rate: Regular weekly or monthly pay (e.g., annual salary ÷ 52 or ÷ 12)
• Tenure: Total years of service (rounded per local rules)
• Multiplier: Local or policy-based rate per year of service

1. Example: 1 week per year (U.S. typical policy)
2. Example: 0.5 month per year (Germany)
3. Example: 1.5 weeks per year for employees aged 41+ (U.K.)

• Benefits & Accruals: Unused leave, prorated bonuses, or commissions owed
• Notice Pay: Any statutory or contractual notice period required in addition to severance

Example 1: U.S.

(Typical company policy, since U.S. federal law doesn’t mandate severance)

• Annual Salary: $80,000
• Weekly Base Pay: $80,000 ÷ 52 = $1,538
• Tenure: 3 years
• Multiplier: 1 week per year

Severance = $1,538 × 3 = $4,614 (Add any unused PTO or bonus accruals if applicable.)

Example 2: U.K. (Employee aged 45)

• Weekly Base Pay: $1,538
• Tenure: 3 years
• Age-Based Multiplier: 1.5 weeks per year (for age 41+)
• Statutory Notice Entitlement: 4 weeks

Severance = $1,538 × 1.5 × 3 = $6,921 + 4 weeks’ notice ($1,538 × 4 = $6,152)
Total = $13,073

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How is Severance Pay Taxed for Remote Workers?

Tax rules depend on the employee’s work location, not the labor laws of the country where your company is headquartered.

• U.S.: Severance is subject to a flat 22% federal withholding (up to 37% for high earners).
• UK: Treated as earnings and subject to income tax and National Insurance contributions.
• Brazil: Exempt up to certain thresholds but subject to IRRF beyond those limits.

For EOR users, global payroll compliance means automatic withholding at the correct local rates — Playroll manages this, including cross-border reporting under the 2025 OECD Pillar 2 rules. These introduce a global minimum corporate tax rate and new reporting requirements to increase transparency across jurisdictions.

For more details on severance pay taxation rules, see our comprehensive global guide.

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Best Practices for Severance Pay In Distributed Payroll

Managing severance across countries is a balancing act between compliance, fairness, and efficiency. Getting it right means putting structure around the process, keeping communication clear, and applying policies consistently – no matter where your employees work.

1. Build a Global Policy with Local Flexibility

Start with a clear global framework – for example, one or two weeks of pay per year of service – and adapt it to meet each country’s legal and cultural expectations. Document eligibility criteria, calculation methods, and local exceptions so teams have a common reference point. This helps maintain consistency without ignoring regional differences.

2. Automate and Standardize Where Possible

Manual severance calculations are time-consuming and prone to error, especially when dealing with multiple currencies and legal systems. Wherever you can, automate data collection and standardize formulas to reduce risk and save time. Tools that update local regulations automatically can make a big difference in staying compliant.

3. Align HR, Legal, and Payroll Workflows

Severance decisions touch multiple teams – HR manages employee data and communication, Legal ensures compliance, and Payroll executes payments. Aligning these workflows in a shared system or checklist helps ensure nothing slips through the cracks and everyone works from the same information.

4. Communicate Clearly and Respectfully

Severance is sensitive by nature. Provide employees with a simple, written explanation of how their payment was calculated, what it covers, and when it will be paid. Clear, respectful communication builds trust and reduces the chance of disputes later.

5. Forecast And Plan Ahead

Unexpected severance costs can disrupt budgets. Track potential liabilities by region and role so finance teams can plan ahead for restructuring, renewals, or organizational changes. Treating severance as part of regular workforce planning – not a one-off event – helps keep both financial and people impacts under control.

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Simplify Severance & Terminations with Playroll

Severance is one of those parts of global payroll that no one enjoys dealing with. Every country has its own rules, currencies fluctuate, and one small mistake can snowball into something much bigger. It’s stressful, sensitive, and time-consuming – especially when you’re trying to do right by your people.

Playroll makes it easier by being your one-stop shop for compliant onboarding and offboarding. From welcoming new hires to managing final payouts, we handle every detail – fairly, compliantly, and right on time. With expert Employer of Record and global payroll services, you get real-time visibility into costs, local compliance taken care of automatically, and smooth workflows that keep HR, payroll, and legal perfectly in sync.

Book a demo with our team today and see how Playroll can help you focus on offboarding with care, knowing your people and your brand are protected.

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