What Severance Pay Rules Must Employers Follow in Malawi?

Which Employees Qualify for Severance Pay?

• Employees who have completed at least one year of continuous service and are terminated for reasons other than serious misconduct.
• Employees whose roles are made redundant or who are retrenched due to economic, structural, or technological reasons.
• Employees on fixed-term contracts that are ended early by the employer without a valid lawful reason or agreed notice.
• Employees dismissed for reasons related to incapacity or operational requirements, where due process and fair reasons are established.
• Employees who are not on genuine probation and who have not resigned voluntarily or been lawfully dismissed for gross misconduct.
• Employees who have been continuously employed through business transfers or mergers where continuity of service is preserved.

What Are the Legal Timelines for Paying Severance?

Under the Malawi Employment Act, all terminal benefits, including severance pay, should be settled without undue delay once employment ends. In practice, your company should aim to calculate and pay severance on or before the employee’s final working day, or within a few days of the effective termination date. Many employers in Malawi align severance payment with the final payroll cycle to simplify tax and record-keeping. Where a termination is disputed, you should still pay any undisputed minimum severance while clearly documenting what remains under discussion. Always confirm any tighter timelines set out in collective agreements, contracts, or internal policies, and follow the most protective standard for the employee.

What Penalties Apply if Severance Is Not Paid Correctly?

If your company fails to pay severance correctly in Malawi, you risk statutory penalties, back-pay awards, and reputational damage. The Industrial Relations Court can order you to pay outstanding severance, interest, and sometimes additional compensation where the termination itself is found to be unfair. Non-compliance can also trigger inspections or enforcement actions from the Ministry of Labour.

• Courts may order payment of all outstanding severance plus interest from the date it fell due.
• You may be required to compensate the employee for unfair dismissal in addition to severance.
• Labour authorities can issue compliance directives and, in serious cases, pursue fines or prosecution.
• Disputes can lead to legal costs, management time, and disruption to your operations.
• Persistent non-compliance can damage your employer brand and affect future hiring.

Does Outsourcing Employment via an EOR Change Severance Liability?

Using an Employer of Record (EOR) such as https://www.playroll.com/employer-of-record does not remove the need to follow Malawi’s severance rules, but it can shift day-to-day compliance work to the EOR. In an EOR model, the EOR is the legal employer in Malawi and is responsible for calculating and paying severance according to the Employment Act. Your company, however, still drives business decisions like termination and redundancy, which can expose you to contractual or indemnity obligations if the EOR incurs liabilities due to your instructions. You should ensure your EOR agreement clearly allocates responsibility for severance calculations, funding, dispute handling, and documentation. Well-structured EOR arrangements help you avoid missteps while keeping ultimate strategic control over your workforce.

Be 100 Percent Compliant in Offering Severance with Playroll

Managing severance in Malawi means tracking service periods, contract types, reasons for termination, and any collective agreements that enhance statutory minimums. Playroll helps your team centralize this data so you can quickly see who qualifies for severance, what formula applies, and how to document each termination decision. With local expertise built into the process, you reduce the risk of overlooking entitlements or misclassifying a redundancy.

When you work with Playroll, severance calculations, payslips, and payment timelines are aligned with Malawi’s Employment Act and current practice. Our Employer of Record and global payroll solutions ensure that final pay, tax treatment, and statutory reporting are handled correctly, even when you are managing a distributed team. That lets your managers focus on fair, well-communicated exits while we handle the compliance details in the background.