What Severance Pay Rules Must Employers Follow in Malta?

Which Employees Qualify for Severance Pay?

• Employees whose contracts or collective agreements expressly provide for severance or an ex gratia termination package.
• Employees dismissed for redundancy where your company has committed in policy or past practice to pay a redundancy package.
• Employees on indefinite contracts who are entitled to pay in lieu if you do not allow them to work their statutory notice period.
• Employees whose termination is negotiated by mutual agreement and includes a settlement or separation payment.
• Employees with enhanced protections (for example, unionised staff) where sectoral agreements set out termination benefits.
• Senior managers or key employees whose individual contracts commonly include negotiated severance clauses.

What Are the Legal Timelines for Paying Severance?

In Malta, there is no single statutory deadline labelled as severance payment, but you must pay all outstanding wages, benefits, and any contractual severance promptly on termination. Best practice is to settle everything in the final payroll cycle, and no later than the normal pay date following the employee’s last working day. If you pay in lieu of notice, this is usually paid together with the final salary. Any accrued but unused vacation leave that is being cashed out should also be included in that payment. Where a settlement agreement is used, you should clearly state the payment date and method to avoid disputes.

What Penalties Apply if Severance Is Not Paid Correctly?

If you fail to pay what is due on termination in Malta, you risk claims before the Industrial Tribunal, inspections by the Department of Industrial and Employment Relations (DIER), and reputational damage. Non-compliance can lead to orders to pay arrears, interest, and in some cases additional compensation, especially if the dismissal is found to be unfair or discriminatory.

• Employees can file claims with the Industrial Tribunal for unpaid amounts or unfair dismissal.
• The Tribunal may order you to pay outstanding wages, benefits, and compensation.
• DIER inspections can result in administrative fines for breaches of employment law.
• Legal disputes increase legal fees, management time, and reputational risk.
• Persistent non-compliance can affect your ability to hire and retain talent locally.

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 Maltese termination and severance obligations, but it does not remove your underlying responsibility as the economic employer. In most EOR models, the EOR is the legal employer on paper and administers payroll, notice, and any agreed severance in line with Maltese law. However, your company usually directs day-to-day work and decisions to dismiss, so you can still be drawn into disputes or claims. You should ensure your EOR contract clearly allocates who funds severance-type payments, who handles disputes, and how local legal advice is obtained. Treat the EOR as a compliance partner, not a shield from Maltese employment law.

Be 100 Percent Compliant in Offering Severance with Playroll

Playroll helps your company navigate Malta’s complex termination landscape by aligning contracts, policies, and payroll processes with the Employment and Industrial Relations Act. Your team gets locally compliant employment agreements that clearly set out notice, redundancy handling, and any severance or ex gratia terms from day one. When a termination arises, Playroll coordinates timing, documentation, and final pay so you avoid accidental breaches.

Beyond documentation, Playroll’s platform centralises final salary, notice in lieu, and leave encashment calculations across all your Maltese hires. You gain clear workflows, audit-ready records, and access to local expertise so you can confidently manage redundancies, mutual separations, or performance dismissals. That way, you protect your company from avoidable disputes while offering departing employees a fair and timely exit experience.