What Severance Pay Rules Must Employers Follow in Iraq?

Which Employees Qualify for Severance Pay?

• Employees working under indefinite or fixed-term contracts governed by Iraqi Labour Law No. 37 of 2015.
• Employees terminated by the employer for reasons not related to serious misconduct or criminal acts proven under the law.
• Employees whose contracts end due to redundancy, economic or technical reasons, or closure of the establishment.
• Employees who are dismissed without valid cause and later found to have been arbitrarily terminated by a competent authority.
• Employees who complete at least one year of continuous service with your company, unless a more generous policy applies.
• Iraqi nationals and, in practice, most foreign employees where local labour law is declared applicable in the employment terms.

What Are the Legal Timelines for Paying Severance?

In Iraq, the Labour Law expects you to settle all end-of-service entitlements, including severance, promptly upon termination. In practice, employers aim to pay on the employee’s final working day or within a short administrative window, often not exceeding 7 to 14 days. Where a dispute is pending, you should still pay the undisputed minimum and document any balance clearly. Delays can trigger complaints to the Ministry of Labour and Social Affairs and increase the risk of penalties or interest. To stay safe, build internal processes so severance calculations are approved and ready before you issue the termination notice.

What Penalties Apply if Severance Is Not Paid Correctly?

If your company fails to pay severance correctly in Iraq, you risk financial, administrative, and reputational consequences. Labour inspectors and courts can order back payment of all outstanding entitlements, sometimes with additional compensation where dismissal is deemed arbitrary. Non-compliance can also complicate worksite inspections, licensing, and future disputes with employees.

• You may be ordered to pay the full severance plus additional compensation for arbitrary dismissal.
• Labour authorities can impose administrative fines for breaches of the Labour Law.
• Court judgments can add legal costs, interest, and enforcement expenses.
• Repeated violations may trigger closer inspections and reputational damage in the local market.
• Disputes can delay restructures and increase the cost of future terminations.

Does Outsourcing Employment via an EOR Change Severance Liability?

Using an Employer of Record (EOR) such as the service described at https://www.playroll.com/employer-of-record does not remove the need to follow Iraqi severance rules. In a typical EOR model, the EOR is the legal employer on paper and is responsible for calculating and paying statutory severance. However, your company usually funds these costs through service fees or pass-through charges, and local authorities may still look to your business if the arrangement is seen as an attempt to avoid labour protections. You should ensure the EOR’s contract clearly allocates severance liability, dispute handling, and documentation duties. Regular audits and alignment with your internal HR policies help avoid gaps between what the law requires and what the EOR actually delivers.

Be 100 Percent Compliant in Offering Severance with Playroll

Partnering with Playroll helps your company navigate Iraq’s severance rules without turning your HR team into local law experts. Playroll tracks statutory changes, typical market practice, and collective arrangements so your severance offers are both compliant and competitive. You get clear breakdowns of end-of-service costs before you confirm a termination, which reduces surprises for finance and leadership.

Playroll also standardises workflows around notice, documentation, and final-pay approvals, so severance is calculated and paid on time. With centralised records and local expertise, your team can handle restructures, performance terminations, and cross-border moves with more confidence. That means fewer disputes, cleaner audits, and a better offboarding experience for employees in Iraq.