What Severance Pay Rules Must Employers Follow in Tanzania?

Which Employees Qualify for Severance Pay?

• Employees who have completed at least 12 months of continuous service with your company.
• Employees whose employment ends due to fair operational requirements, redundancy, or retrenchment procedures.
• Employees dismissed for reasons other than misconduct, incapacity, or incompatibility, where termination is substantively and procedurally fair.
• Employees whose fixed-term contracts are not renewed in circumstances that amount to unfair non-renewal under Tanzanian law.
• Employees who are not entitled to severance where they unreasonably refuse an offer of suitable alternative employment on similar terms.
• Employees are generally excluded from severance where termination is due to serious misconduct or where they resign voluntarily without constructive dismissal.

What Are the Legal Timelines for Paying Severance?

In Tanzania, severance pay should be settled as soon as reasonably practicable after the termination date, and in practice you should target payment together with the final salary and accrued benefits. Many employers align severance payment with the last normal payroll cycle following termination, typically within 7 to 30 days. Where a retrenchment process is involved, you should communicate the exact payment date in the written retrenchment agreement or termination letter. Delays can be treated as an underpayment of wages, exposing your company to disputes and interest awards. To stay safe, document the calculation, obtain written acknowledgment, and pay via traceable bank transfer within one payroll cycle.

What Penalties Apply if Severance Is Not Paid Correctly?

If your company fails to pay severance correctly in Tanzania, you risk statutory disputes, financial awards, and reputational damage. The Commission for Mediation and Arbitration (CMA) and labour courts can order payment of outstanding severance, additional compensation, and sometimes interest. Non-compliance can also trigger inspections and enforcement by labour authorities, especially in large-scale retrenchments.

• You may be ordered to pay the full unpaid severance plus interest.
• You can face additional compensation for unfair termination on top of severance.
• Your company may incur legal costs and management time defending CMA or court claims.
• Repeat or serious breaches can damage your standing with unions and regulators.
• Poor records or opaque calculations increase the risk of adverse rulings.

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 underlying obligation to respect Tanzanian severance rules. In most EOR structures, the EOR is the legal employer on paper and is responsible for calculating and paying severance in line with the Employment and Labour Relations Act. However, your company, as the client, typically bears the commercial and contractual cost of any severance and may be exposed if you instruct an unlawful or unfair termination. You should ensure your EOR contract clearly allocates severance funding, decision-making authority on dismissals, and responsibility for defending CMA or court claims. Treat the EOR as your compliance partner, not a shield against Tanzanian labour law.

Be 100 Percent Compliant in Offering Severance with Playroll

Managing severance in Tanzania means tracking length of service, lawful reasons for termination, and the correct formula under the Employment and Labour Relations Act. Your team also needs to coordinate consultation, notice, and documentation so that any redundancy or operational termination is both substantively and procedurally fair. Playroll helps you standardize these steps, so every Tanzanian termination follows a clear, auditable workflow.

With Playroll, you can centralize employment data, automate eligibility checks, and generate consistent severance calculations for Tanzanian employees. Our platform works alongside local legal experts and, where relevant, Employer of Record structures to ensure payments are timely, documented, and aligned with current regulations. That way, your company can scale in Tanzania with confidence that severance decisions are compliant, predictable, and budgeted.