Germany has no general statutory right to severance pay. The number you ultimately receive is the result of a negotiation, driven by how strong your dismissal-protection claim is. That said, courts and lawyers have developed a customary starting point — the Regelabfindung — that anchors most discussions.
The Regelabfindung formula
The standard formula is:
0.5 × gross monthly salary × completed years of service
So an employee with a €5,000/month gross salary and 6 years of service would expect roughly €15,000 (5,000 × 0.5 × 6) as a starting point. The formula derives from § 1a KSchG, which sets it as the statutory amount where the employer offers severance in the dismissal letter for waiver of the claim. In practice, both parties’ lawyers use this as the negotiation anchor even where § 1a was never formally invoked.
What counts as „gross monthly salary”? Base salary, plus regular non-discretionary components averaged over the last 12 months (regular bonus, target-attainment commission, fixed allowances, the cash value of benefits in kind like a company car for private use). One-off payments and discretionary bonuses generally do not count. The exact calculation matters when severance gets large — a €500 difference in the monthly basis times 10 years times 0.5 is €2,500.
What counts as „completed years of service”? Continuous service with the same employer (and predecessor entities through a Betriebsübergang under § 613a BGB). Partial years can be rounded up if more than 6 months under the customary settlement practice — though this is negotiation, not statutory law.
What moves the number up
- A weak dismissal. If the substantive grounds look poor (e.g. no proper social selection, missing alternative-position check), severance can climb to one full monthly salary per year of service or more.
- Procedural defects. Missing works-council consultation under § 102 BetrVG, missing wet-ink signature, wrong signatory — each adds leverage.
- Long notice still to run. Every month of notice period left adds leverage — the employer would otherwise have to pay you that anyway.
- Special protection. Pregnant employees, parental-leave employees, severely disabled employees, and works-council members can routinely negotiate well above the standard formula. 1.0–2.0 monthly salaries per year is common.
- Senior age and long tenure. Employees over 55 with 10+ years of service tend to achieve significantly higher numbers — both because reemployment is harder and because the social-criteria score is higher.
- Employer in a hurry. If the employer needs the position vacated immediately (acquisition, restructuring, replacement hire already started), they pay more for a fast exit.
- Public-profile risk for the employer. Reputation-sensitive industries (banking, consulting, professional services) often pay above-formula to avoid litigation publicity.
What moves the number down
- A strong operational case. Clean restructuring with a proper Sozialauswahl, full alternative-position check, and complete works-council consultation.
- Behavioural grounds. Where the employer has a documented chain of warnings and a recent breach, severance is harder to extract.
- Short tenure. Most settlements respect the Regelabfindung floor only loosely below two years.
- Sozialplan in place. If the works council has agreed to a Sozialplan that fixes severance amounts, individual negotiation is constrained.
- Probation-period dismissals. KSchG protection has not yet vested — severance is typically 1–2 monthly salaries flat, not formula-based.
- Small business (< 10 staff). KSchG does not apply — severance is typically modest, driven by form-defect or special-protection arguments alone.
Real-world severance ranges by tenure and salary
| Tenure | Weak dismissal (high payout) | Typical Regelabfindung | Strong dismissal (low payout) |
|---|---|---|---|
| 2 years | ~1.5–2 monthly salaries | ~1 monthly salary | ~0.25–0.5 monthly salaries |
| 5 years | ~4–6 monthly salaries | ~2.5 monthly salaries | ~1 monthly salary |
| 10 years | ~9–14 monthly salaries | ~5 monthly salaries | ~2.5 monthly salaries |
| 20 years | ~20–28 monthly salaries | ~10 monthly salaries | ~5 monthly salaries |
These ranges reflect outcomes from our own practice and from common case-law patterns. The exact number depends on the specifics of the case — which is why the free initial assessment includes a realistic severance range, not a generic formula.
Beyond severance — what else to put in the settlement
- Reference letter (Zeugnis). A negotiated Grade 2 (“stets zu unserer vollen Zufriedenheit”) with the right closing formula is sometimes more important to your career than the severance amount itself.
- Garden leave with continued benefits. Paid release until the end of the notice period, often without offsetting other income.
- Carry-over of unused vacation as pay (Urlaubsabgeltung), calculated on the 13-week average and added on top of severance.
- Pro-rated bonus. For the in-flight bonus year, at target attainment or last-year level, paid at the customary payment date.
- Return of work materials and a clean confidentiality scope.
- Outplacement support — increasingly common for senior roles, often €5,000–€20,000.
- Continued contribution to bAV (Betriebliche Altersvorsorge) through the notice period, where applicable.
- Mutual confidentiality with carve-outs that don’t muzzle your future job search.
- Sperrzeit-safe structure if any component looks like an Aufhebungsvertrag — to avoid the 12-week benefits block.
Tax treatment — the Fünftelregelung
Severance is taxable income in the year of receipt. Without special treatment, the lump sum could push you into a much higher marginal bracket. The Fünftelregelung under § 34(1) EStG mitigates this:
The tax office calculates the additional tax that would arise on one-fifth of the severance amount, then multiplies that additional tax by five. The marginal-rate hit is therefore calibrated as if the severance were spread over five years.
The relief is largest where your ordinary annual income is well below the top brackets. For very high earners already in the 42% / 45% range, the benefit is small. Conditions: Zusammenballung (the severance must arrive in a single tax year) and the payment must be a compensation for loss of income, not deferred salary.
Good news on social security: severance is generally not subject to social-security contributions (no Krankenversicherung, Rentenversicherung, Arbeitslosenversicherung), provided it is a genuine compensation payment and not disguised continuing salary.
How the negotiation actually runs
Most severance negotiations happen at the Gütetermin of the Kündigungsschutzklage, roughly 4–8 weeks after we file. The pattern:
- The judge opens by asking both sides for a settlement position.
- Each side states a number with a brief justification — typically the employee starts higher than the realistic target, the employer lower.
- The judge tests the case strength on both sides, sometimes signalling where the chamber is likely to land if it goes to judgment.
- Numbers converge over 30–90 minutes. Most cases settle in this single hearing.
- The settlement is recorded as a Vergleich on the court file (gerichtlicher Vergleich), which is enforceable like a judgment.
Out-of-court negotiations (without a filed Kündigungsschutzklage) typically yield lower severance because the employer has no court-deadline pressure. We file the claim first, then negotiate — the leverage difference can easily be 30–50% of the severance amount.
Worked example
Patrick, marketing director at a 200-employee tech company in Bonn, receives an operational dismissal after 8 years. Gross monthly salary €9,500. The dismissal is structurally weak (the company kept two colleagues in similar roles with shorter tenure and no defensible Sozialauswahl rationale). We file the Kündigungsschutzklage and at the Gütetermin negotiate:
- Severance: €95,000 (1.25 × monthly × 8 years)
- Reference: Grade 1 wording with full closing formula
- Garden leave: 4 remaining months at full pay, no offset for new-employer income
- Pro-rated annual bonus: €18,000 (paid at next normal bonus date)
- Vacation payout: 12 unused days × daily rate = €5,200
- Outplacement budget: €10,000
Total economic value of the package: ~€166,000. Tax-optimised via Fünftelregelung. Patrick’s net cash post-tax: roughly €115,000 — well above the bare severance number.