What Severance Pay Rules Must Employers Follow in Djibouti?

Which Employees Qualify for Severance Pay?

• Employees hired under an indefinite (open-ended) contract who are dismissed for reasons other than serious or gross misconduct.
• Employees who have completed at least one year of continuous service with your company, unless a more generous collective agreement applies.
• Employees whose roles are terminated for economic, organizational, or technological reasons initiated by the employer.
• Employees who are dismissed for personal reasons that do not meet the legal threshold of serious misconduct under the Labour Code.
• Employees on fixed-term contracts that are ended early by the employer without a legally valid reason may be entitled to damages similar to severance.
• Employees covered by a sectoral collective agreement that grants severance or end-of-service benefits on more favorable terms than the statutory minimum.

What Are the Legal Timelines for Paying Severance?

In Djibouti, the Labour Code requires you to settle all termination-related payments, including any severance owed, promptly at the end of the employment relationship. In practice, this means paying severance on the employee’s final working day or within a very short period after the contract ends, often aligned with the final payroll cycle. You should document the calculation and payment date in the termination letter or a separate settlement statement. Where collective agreements or company policy set a specific deadline, you must follow the shorter, more protective timeline. To reduce disputes, keep proof of payment and obtain a signed receipt from the employee whenever possible.

What Penalties Apply if Severance Is Not Paid Correctly?

If your company fails to pay severance correctly in Djibouti, you risk financial, administrative, and reputational consequences. Labour inspectors and courts can order you to pay outstanding amounts plus additional sums, and non-compliance can complicate future workforce reductions or audits. Disputes often arise around length of service, wage used for calculation, and whether misconduct was serious enough to deny severance.

• Labour courts can order payment of all unpaid severance plus legal interest for late payment.
• Employees may be awarded additional damages for unfair or abusive dismissal.
• Labour inspectors can issue compliance orders and escalate persistent non-compliance.
• Disputes can lead to legal fees, management time, and potential reinstatement orders.
• Reputational damage can affect hiring, retention, and relations with unions or authorities.

Does Outsourcing Employment via an EOR Change Severance Liability?

Using an Employer of Record (EOR) such as https://www.playroll.com/employer-of-record can help you manage severance compliance in Djibouti, but it does not remove the underlying legal obligations. In most EOR structures, the EOR is the legal employer on paper and is responsible for calculating and paying severance in line with the Djibouti Labour Code and any collective agreements. However, your company, as the economic or controlling employer, may still be exposed if you instruct an unlawful dismissal or underfund severance costs. Contracts with the EOR should clearly allocate who bears the financial risk of severance errors and how disputes with employees will be handled. You should still understand the local rules so you can budget correctly and approve compliant termination decisions.

Be 100 Percent Compliant in Offering Severance with Playroll

Playroll’s global employment platform helps your team stay aligned with Djibouti’s severance rules by standardizing how you collect data on start dates, salary components, and contract types. With local expertise built in, you can quickly see when severance is likely owed, how it should be calculated, and what documentation you need before initiating a termination. That reduces the risk of overlooking key details like variable pay, allowances, or collective agreement provisions.

When you work with Playroll as your partner, you get structured workflows for notice, consultation, and final settlement so severance is paid on time and correctly. Our Employer of Record model can take on the day-to-day compliance burden, while your managers focus on business decisions and fair treatment of employees. You keep visibility and control over costs, and we help you avoid the penalties and disputes that come from mismanaging severance in Djibouti.