What Severance Pay Rules Must Employers Follow in Madagascar?

Which Employees Qualify for Severance Pay?

• Employees on open-ended contracts dismissed for reasons other than serious or gross misconduct generally qualify for severance.
• Employees with at least one year of continuous service usually benefit from statutory severance protections.
• Workers terminated for economic, organizational, or technological reasons are typically entitled to severance if legal procedures are followed.
• Employees dismissed for non-culpable reasons such as incapacity or role redundancy may qualify, subject to proper documentation.
• Fixed-term employees may be entitled to compensation if the contract is ended early without a valid legal reason.
• Employees who resign for employer fault recognized as constructive dismissal can, in some cases, claim severance-like compensation through the courts.

What Are the Legal Timelines for Paying Severance?

In Madagascar, the Labor Code expects you to settle all termination-related payments, including severance, at the end of the employment relationship or within a very short, reasonable period. In practice, employers aim to pay severance on or shortly after the employee’s final working day, together with salary, unused leave, and other entitlements. Any delay should be clearly justified and documented, for example while finalizing calculations or returning company property. To reduce disputes, your company should confirm the severance amount in writing and obtain a signed receipt upon payment. When in doubt, align with the shortest payment timelines mentioned in collective agreements or internal policies.

What Penalties Apply if Severance Is Not Paid Correctly?

If your company fails to pay severance correctly in Madagascar, you risk financial, administrative, and reputational consequences. Labor inspectors and courts can order back payments, apply statutory interest, and in some cases impose fines. Disputes can escalate quickly, especially where procedures for dismissal were not followed or documentation is weak.

• Courts can order payment of outstanding severance plus legal interest.
• You may face additional damages for unfair or abusive dismissal.
• Labor authorities can impose administrative fines and require corrective measures.
• Non-compliance can trigger audits and closer monitoring of your HR practices.
• Reputational damage can affect hiring, retention, and relations with unions or staff representatives.

Does Outsourcing Employment via an EOR Change Severance Liability?

Using an Employer of Record (EOR) such as https://www.playroll.com/employer-of-record in Madagascar does not remove the need to comply with the Malagasy Labor Code, but it shifts who is the legal employer of record. The EOR is typically responsible for drafting compliant contracts, calculating severance, and executing payments in line with local law. However, your company still drives business decisions, including terminations, and may be exposed to contractual liability if your instructions breach legal standards. A well-structured EOR agreement should clearly allocate responsibilities for dismissal procedures, documentation, and dispute handling. This helps ensure that both you and the EOR manage severance risk consistently and transparently.

Be 100 Percent Compliant in Offering Severance with Playroll

Working with Playroll, your company gets local employment expertise in Madagascar without needing to become a labor law specialist. Our team tracks updates to the Malagasy Labor Code, collective agreements, and case law so your severance decisions reflect current rules, not outdated assumptions. We help you structure terminations, document reasons, and calculate entitlements in a way that stands up to scrutiny from labor inspectors and courts.

Playroll’s Employer of Record model lets you hire in Madagascar while we handle compliant contracts, payroll, and end-of-service payments. When a termination is necessary, we guide you through notice, consultation, and severance calculations, then execute payments on time and with clear records. That means fewer surprises, lower dispute risk, and a smoother experience for both your HR team and your departing employees.