Severance pay in Germany

Most dismissal claims in Germany end with a payment. But there is generally no statutory right to one — the amount depends on how risky the case looks to your employer, not on a formula.

The rule of thumb, and what it is worth

The customary starting point is half a gross monthly salary per year of service. This has no statutory basis whatsoever — it is simply where negotiations tend to open, because both sides need a number to argue from.

Where you end up relative to that figure depends on the strength of the case.

What increases the figure

• Formal defects in the termination letter
• Defective works council consultation
• A questionable social selection in an operational dismissal
• Special protection — pregnancy, parental leave, recognised disability
• Long service and older age
• Continuing pay exposure while proceedings run — the longer the case, the more a loss costs the employer
• A reason to settle quickly, such as a pending sale or restructuring

What reduces it

• Short service
• A small business outside the scope of the Protection Against Dismissal Act
• A carefully prepared, formally correct dismissal
• An employer in financial difficulty
• A new job already secured, which reduces the employer’s pay exposure

Tax and social security

Severance is subject to income tax but generally not to social security contributions. A tax relief provision may soften the progression depending on your other income in that year — which can make the payment date worth negotiating. Your tax adviser should look at the detail.

Will it affect unemployment benefit?

Severance on its own does not trigger a blocking period. The risk arises where the ordinary notice period is shortened in the settlement — your entitlement may then be suspended. And signing a termination agreement instead of filing a claim can trigger a blocking period in its own right.

Both can be managed in how the settlement is drafted — beforehand, not afterwards.

The money is not the only term

In practice the following are often worth more than a few thousand euros on the headline figure:

• The end date — it governs the transition to benefits, and it may matter for your residence status
• The reference — grade and closing paragraph
• Garden leave — with or without holiday offset
• The stated reason for leaving — it reaches the employment agency
• The full and final settlement clause — which claims disappear with it

The last one deserves attention. A broadly drafted clause can extinguish claims nobody thought about in the hearing — overtime, commission, holiday pay.

General information only, not advice on an individual case. Last updated: August 2026.