Economics/Business

Severance pay/How do severance pay work/How to calculate

Severance payments are amounts that the worker is entitled to receive when his employment contract comes to an end. Severance pay

Labor relations generally have two important moments in their trajectory: the signing of the employment contract and its termination, when the professional is dismissed from the organization . It is at this time that the severance payments arise.

It is a responsibility regarding the payment of amounts recognized by law as a worker’s right.

Many people still have questions about what funds are involved in this payment and how to do the calculation correctly. This is because the values ​​are different depending on the type of layoff .

What are severance pay?

Before knowing what severance pay is, it is necessary to know what it is.

These are labor rights owed to the employee at the time of termination of their employment contract .

In other words, it is what the employee receives when he is fired or resigns . In general, possible severance pay are:

  • salary balance;
  • advance notice ;
  • missed vacations;
  • proportional vacations;
  • add ⅓ of vacation;
  • proportional salary;
  • indemnification of 40% of FGTS deposits;
  • indemnity for early termination of the contract for a specified period;

It is worth remembering, however, that these rights vary according to the type of contract dissolution .

How do severance pay work?

The amount, calculation and even some of these monies can vary depending on the type of layoff you have.

Check which ones they are before you know how to calculate them.

The severance pay in the employee’s resignation

It happens when the initiative for dismissal comes from the employee himself . In this case, he is entitled to:

  • salary balance;
  • proportional vacation plus ⅓;
  • overdue vacations plus ⅓ (if any);
  • 13th salary.

In the resignation, the employee must work the prior notice and there is no possibility of salary reduction.

Even if the employer waives the notice , must make the payment due , unless the professional is already active in a new job.

Dismissal by common agreement

As the name already gives, it is the breach of contract in which the employee and employer have this decision together .

In this case, it is the employee’s right to receive:

  • salary balance;
  • proportional vacation plus ⅓;
  • overdue vacations plus ⅓ (if any);
  • 13th salary.

Dismissal without just cause

This type of dismissal happens when an employee has his contract repeated by the company only .

It happens for a number of reasons, but none that can be framed as just cause . Thus, the employee is entitled to:

  • salary balance;
  • early warning;
  • proportional vacation plus ⅓;
  • overdue vacations plus ⅓ (if any);
  • 13th salary;
  • FGTS + 40% fine.

In cases where the employer requires compliance with the notice of work, it is the worker’s right to have the working day reduced by 2 hours a day , without discounting the salary.

Or that he works without the reduction, but must be absent for 7 calendar days, also without discounts.

The severance pay in dismissal for just cause

The dismissal for cause happens when the employee commits a serious failure or a situation that suits the grounds set out in Article 482 of the Labor Code .

As this is a breach of trust between employer and employee, the employee loses some rights, keeping only the main ones.

  • Salary balance;
  • Proportional vacation plus ⅓ ( ILO Convention 132 );
  • Overdue vacations plus ⅓ (if any);

Payment of severance pay on indirect termination

The indirect termination happens when the official “dismisses” the employer for cause. It’s a much lesser known type of termination, but it does exist.

The reasons for the employer’s just cause are provided for in article 482 of the CLT as well .

Even if foreseen, they need to be proven by the professional, such as the requirement for services superior to their strength or outside the contract, treatment with excessive rigor, non-compliance with contractual obligations.

Or even that the employer reduced the work in a way that appreciably affected the amount of your salary.

On indirect termination, the employee receives the following severance pay:

  • salary balance;
  • early warning;
  • proportional vacation plus ⅓;
  • overdue vacations plus ⅓ (if any);
  • 13th salary;
  • FGTS + 40% fine.

However, if there is a dispute and the Labor Court recognizes that there was a reciprocal one, there will be a 50% reduction in the severance pay, thus receiving half the amount of prior notice, 13th and proportional vacations.

Early termination of contract with a fixed term by resignation

It happens when there is a contract with a fixed term , but the employee resigns before the deadline .

The severance pay provided, in this case:

  • salary balance;
  • proportional vacation plus ⅓;
  • overdue vacations plus ⅓ (if any);
  • 13th salary;

Early termination of a fixed term contract without just cause

It happens when there is a contract with a fixed term, but the company decides to dismiss the employee before that time without having committed serious misconduct.

In this scenario, the severance payments are foreseen:

  • salary balance;
  • early warning;
  • proportional vacation plus ⅓;
  • overdue vacations plus ⅓ (if any);
  • 13th salary;
  • FGTS + 40% fine.

Early termination of contract with a fixed term for just cause

In this case, the contract is renewed early for any reason that qualifies as just cause . The employee will only receive:

  • salary balance;
  • overdue vacations plus ⅓ (if any);

Payment of severance pay upon termination of contract due to the employee’s death

This type of cancellation is certainly the most delicate of all. The employee termination by death is self – explanatory and is entitled in this case to the families to receive on behalf of the deceased contributor :

  • salary balance;
  • proportional vacation plus ⅓;
  • overdue vacations plus ⅓ (if any);
  • 13th salary;
  • FGTS.

Termination of contract by closing the company

In this case, the contract is repeated by decree of bankruptcy of the company , and the employee is responsible for receiving:

  • salary balance;
  • early warning;
  • proportional vacation plus ⅓;
  • overdue vacations plus ⅓ (if any);
  • 13th salary;
  • FGTS + 40% fine.

​​​​​​​Termination of fixed-term contract

In this scenario, the employment contract meets its expected term. Here, the employee is entitled to:

  • salary balance;
  • proportional vacation plus ⅓;
  • overdue vacations plus ⅓ (if any);
  • 13th salary;
  • FGTS.

In this type of dismissal, the termination of the experience contract without hiring is also included.

Undisputed Termination Fees

Sometimes severance pay calculations may differ from one party to another . In these cases, this difference must be resolved by the Labor Court.

However, some of them are common in both calculations, with no discussion between the parties, and are called uncontroversial amounts, that is, without dispute.

In the case of uncontroversial severance pay, the employer must pay them at the first hearing, under penalty of an extra fine of over 50% on the value of the salary amounts.

How long does the company have to pay the termination?

The Law provides that the payment of severance pay must be made within 10 calendar days , to be counted from the termination of the contract, excluding the day of the beginning and including the maturity date.

This period is valid regardless of the type of notice, that is, whether it was worked or indemnified, or even what the method of dismissal was

In the event of non-compliance with the deadline, the employer must pay a fine equivalent to the employee’s nominal salary , without considering overtime, additional, commissions or bonuses.

Another important factor is that the fine will not be due in cases where the delay was due to the worker’s fault , which does not exempt the company from finding ways to pay, even if it needs to file a payment consignment action.

How to calculate the severance pay?

Now that you know exactly what severance pay is about, it’s time to calculate them.

As an example, in all cases we will consider a worker who earns a minimum wage of 2021, that is, R$1,100.00 , and has worked 10 days in the current month, which we will use as an illustration in May.

salary balance

Refers to the payment for the days the employee worked in the month of termination.

The calculation must be done by dividing the salary amount by 30 (days) . The result will be the employee’s daily rate. Then we must multiply by the number of days worked.

BRL 1100 /30 = BRL 36.66
BRL 36.66 x 10 = BRL 366.60

Therefore, the salary balance value will be R$ 366.60 for the 10 days worked.

Early warning

It is the communication from one party to the other about the termination , which must be done, obligatorily, 30 days in advance , when leaving the company.

If the prior notice is not fulfilled in a worked manner, the employer must indemnify the employee with the payment of one month’s salary , plus 3 days for each year worked at the company, up to a limit of 90 days.

Salary value + 3 days for each year worked at the company = prior notice.

In our example, the calculation will be:

BRL 1100 / 30 = BRL 36.66 (daily) x 3 = BRL 109.98

The amount of prior notice will be R$1,100.00 + R$109.98 for each year worked.

13th proportional

Due in relation to the number of months worked in the current year. To calculate it is necessary to divide the salary by 12 (months) and then multiply by the number of months the employee has been working – in our example, 5.

BRL 1,100.00 / 12 = BRL 91.66 x 5 = BRL 458.33

Thus, the value of the 13th proportional salary will be R$ 458.33 .

Vacation

The calculation is similar to the previous one, for the 13th salary, however, there is an increase of ⅓ of the salary.

Dismissal may take place before enjoying this right, and the employer must then pay for the full vacation not taken, as well as the proportional ones, which have not yet been acquired.

So there are two calculations:

Full vacation = Salary value + ⅓
BRL 1,100.00 / 3 = BRL 366.66 (⅓ vacation)
BRL 1,100.00 + BRL 366.66 = BRL 1,466.66 

The second form of calculation considers proportional vacations.

Proportional vacation = Amount of salary / 12 x months worked + 1 ⁄ 3
BRL 1,100.00 / 12 = BRL 91.66 x 5 = BRL 458.33
BRL 458.66 / 3 (⅓ vacation) = BRL 152.88
BRL 458.66 + BRL 152.88 = BRL 611.54

FGTS + 40% fine as one of the severance pay

Here, the first step is to check the value of the FGTS and the deposit. Suppose the employee worked for 1 year and 5 months at the company.

FGTS: Salary x 8% x number of months worked 

The FGTS due is equivalent to 8% of the worker’s salary. In our example, the monthly amount due is BRL 88.00.

As the professional worked for 17 months at the company, the deposited amount must be R$ 1,496.00.

40%
fine : amount of FGTS deposited x 40 / 100 R$ 1,496.00 x 40 / 100 = R$ 598.40

With these amounts you find the amount to be paid to the employee, depending on the type of termination.

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