What Severance Pay Rules Must Employers Follow in Germany?

Which Employees Qualify for Severance Pay?

• Their employment is terminated as part of a mass layoff or restructuring covered by a social plan (Sozialplan).
• Their contract, collective bargaining agreement, or works council agreement includes a severance clause.
• The employer offers severance to avoid a dismissal dispute, usually in exchange for the employee waiving their right to sue for unfair termination.
• They are terminated for operational reasons and receive a statutory offer of severance under Section 1a of the Dismissal Protection Act (if applicable).
• The severance is awarded by a court ruling following an unfair dismissal claim.

What Are the Legal Timelines for Paying Severance?

There is no fixed statutory timeline for paying severance in Germany, since severance is not automatically required by law. However, when severance is due, whether under a contract, social plan, or settlement, it must generally be paid upon termination or by the next regular payroll date unless otherwise specified in writing.

In practice, most employers pay severance as a lump sum shortly after the termination date, ensuring closure for both parties. When a settlement is reached in labor court, the payment date is usually outlined in the agreement itself. Employers should clearly document the agreed payment date to avoid misunderstandings or claims of noncompliance.

What Penalties Apply if Severance Is Not Paid Correctly?

If an employer fails to pay agreed or legally required severance, the following risks may apply:

• Breach of contract claims from the employee.
• Labor court action and potential enforcement orders for payment.
• Interest charges on overdue severance amounts.
• Reputational damage and potential disputes with the works council or trade unions.

To mitigate these risks, employers should ensure all termination agreements, social plans, or settlements are clearly documented and executed on time.

Does Outsourcing Employment via an EOR Change Severance Liability?

Yes. When you engage workers in Germany through an Employer of Record (EOR), the EOR becomes the legal employer of record and is responsible for handling severance payments if they arise. This means the EOR assumes compliance with German employment law, including termination procedures, notice periods, and any severance obligations under applicable agreements.

The client company (you) directs the employee’s day-to-day work, but the EOR manages the formal employment relationship. This setup reduces your legal risk, ensuring that any severance due is calculated and paid in line with German regulations.

Be 100% Compliant in Offering Severance with Playroll

Severance rules in Germany can be nuanced, especially when navigating local agreements, works council requirements, and evolving labor laws. Missteps can lead to costly disputes or unexpected liabilities.

Playroll helps global employers stay fully compliant with German severance requirements. We ensure accurate calculations, timely payments, and complete documentation of all termination processes. Our platform tracks every change in German labor law, automating compliance so your business never misses a step. With Playroll managing your international employment, you can focus on your business while we handle the legal and payroll details confidently, compliantly, and on time.