Severance Pay in Germany (Abfindung): How the Amount Is Calculated

Germany does not give employees a general legal right to a severance payment when a job ends. Most Abfindung payments come from a negotiated settlement between employer and employee, a Sozialplan agreed with a works council, a collective agreement (Tarifvertrag), or one narrow statutory mechanism in § 1a of the Kündigungsschutzgesetz (KSchG). Which of these applies, and how each one actually sets the number, matters far more than any single headline figure.

This page explains the rule behind each route, works through the arithmetic on real salary and tenure numbers, and covers the 2025 change to wage tax withholding that affects what actually lands in a bank account.

Information last verified on 19 July 2026. This page provides general legal information and does not constitute legal advice in an individual case.

Is there a legal right to severance pay in Germany?

No, not as a general rule. German employment law protects employees against unfair dismissal through the Kündigungsschutzgesetz, but protection against an unfair dismissal is not the same thing as a right to be paid a severance. An employee who is dismissed and does nothing has no automatic claim to an Abfindung.

Severance in Germany is, in the great majority of cases, the product of one of four things: a settlement reached during or to avoid a Kündigungsschutzklage, a Sozialplan negotiated with a works council after a Betriebsänderung, a Tarifvertrag or company agreement that happens to include a severance clause, or the specific statutory mechanism in § 1a KSchG described below. Each has its own logic, and none of them hands an employee a fixed number before the facts of the case are known.

The one direct statutory route: § 1a KSchG

§ 1a KSchG is the closest thing German law has to an automatic Abfindung, and even it depends on the employer choosing to offer it and the employee choosing not to sue. It applies only where three things are true.

First, the employer dismisses the employee for urgent operational reasons (dringende betriebliche Erfordernisse) under § 1 Abs. 2 KSchG, the same ground used for a redundancy dismissal. Second, the employer states in the dismissal letter itself that the dismissal rests on this ground and that the employee can claim a severance under § 1a if the dismissal is not challenged. Third, the employee lets the three week deadline in § 4 KSchG for filing a Kündigungsschutzklage pass without filing suit.

Where all three conditions are met, § 1a KSchG fixes the severance at 0.5 of a month's pay (Monatsverdienst) for every year the employment lasted. A part year of more than six months is rounded up to a full year; six months or less is not counted at all.

Worked example: 8 years of service, EUR 3,500 gross per month

An employee earning EUR 3,500 gross per month is dismissed for operational reasons after 8 years of service, and the dismissal letter properly invokes § 1a KSchG. If the employee lets the three week window pass without suing, the arithmetic is straightforward: 0.5 times 8 years times EUR 3,500 comes to EUR 14,000 gross.

That EUR 14,000 is what the statutory formula produces on these particular facts. It is not a promise of what any individual reader will be offered, since § 1a only applies at all where the employer chooses this route and states it correctly in the dismissal letter.

The same 0.5 figure as a negotiating benchmark

The 0.5 month per year figure does more work in Germany than just § 1a KSchG. It is also the number most commonly used as a starting point, sometimes called the Regelabfindung, in the settlement discussions that resolve the great majority of unfair dismissal disputes at the Arbeitsgericht.

Very few Kündigungsschutzklage cases actually run to judgment. Most end in a court-brokered settlement (gerichtlicher Vergleich) at or before the first hearing, and the 0.5 per year figure is the anchor both sides typically start from.

From that anchor, the number moves up or down based on several factors: how defensible the dismissal actually is, whether the employer complied with procedural requirements such as consulting the works council, the employee's age and how easily they could find comparable work, how long the case might otherwise run, and the norms of the specific Arbeitsgericht chamber hearing it.

Worked example: 12 years of service, EUR 4,800 gross per month, contested dismissal

An employee earning EUR 4,800 gross per month with 12 years of service is dismissed and files a Kündigungsschutzklage. Applying the 0.5 per year convention mechanically gives 0.5 times 12 times EUR 4,800, or EUR 28,800, as a starting reference point.

Whether the parties actually settle at that figure depends on the case. A dismissal with a clear procedural defect, such as no prior works council consultation where one was required, tends to push a negotiated settlement above that anchor, because the employer's litigation risk is higher. A dismissal by a small employer outside the KSchG's protective scope, discussed next, tends to push it lower, because the employee has less to bargain with. Neither direction is fixed in advance; these are pressures that move a negotiation, not a formula that predicts its outcome.

Why the size of the employer matters: the § 23 KSchG threshold

The KSchG's protection, and with it most of the leverage that produces a negotiated severance, only applies at businesses above a minimum size. Under § 23 KSchG, employees hired on or before 31 December 2003 are counted under a rule exempting businesses with five or fewer employees; employees hired after that date are counted under a separate rule exempting businesses with ten or fewer. Part time staff count as 0.5 of a head up to 20 hours a week and 0.75 up to 30 hours a week under both rules.

A dismissal at a business below the relevant threshold is not covered by the KSchG's unfair dismissal protection at all, which sharply reduces the leverage an employee has to negotiate a severance in the first place. For the full mechanics of who counts and how, see our article on termination by the employer.

A second statutory route: court ordered dissolution under §§ 9 and 10 KSchG

Even where a dismissal is found to be socially unjustified and therefore invalid, German law does not automatically reinstate every employee. Under § 9 KSchG, either the employee or the employer can ask the Arbeitsgericht to dissolve the employment relationship instead, typically because continuing to work together is no longer reasonable for one side.

Where the court grants that request, § 10 KSchG caps the severance it can award. The general ceiling is 12 months' pay. Employees who are 50 or older with at least 15 years of service can be awarded up to 15 months' pay, and employees who are 55 or older with at least 20 years of service can be awarded up to 18 months' pay, unless the employee would in any case reach the standard state pension age by the date the court sets for termination.

This route is discretionary. The court decides both whether to dissolve the relationship at all and, within the statutory cap, how much to award. It is not an automatic entitlement to the maximum figure, and it only comes into play once a Kündigungsschutzklage is already underway.

Sozialplan: severance set by formula for a whole workforce

Where a business has a works council (Betriebsrat) and undertakes a Betriebsänderung, an operational change such as closing a plant, relocating a significant part of the business, merging with another company, or fundamentally changing how the business operates, §§ 111 and 112 of the Betriebsverfassungsgesetz (BetrVG) require the employer to negotiate a Sozialplan with the works council if the change causes material disadvantages for the workforce. This duty applies at businesses that typically have more than 20 employees entitled to vote in works council elections.

A Sozialplan sets out, in advance and by formula, how affected employees will be compensated, commonly a multiplier based on years of service and monthly pay, sometimes adjusted for age or family circumstances. It has the legal effect of a works agreement (Betriebsvereinbarung) and binds the employer once agreed. If the employer and works council cannot agree, either side can bring in an Einigungsstelle, a conciliation body that can itself set the terms of a Sozialplan, weighing the interests of the workforce against the employer's ability to continue operating.

Because a Sozialplan is formula driven and applies to a defined group, an individual employee within its scope does not negotiate their own number the way someone settling a standalone Kündigungsschutzklage would. For how a Sozialplan interacts with an individual exit, see our article on termination agreements.

Taxing a severance payment: the 2025 change that confuses almost everyone

A severance payment is, for tax purposes, an Entschädigung (compensation) for lost income under § 24 Nr. 1 Buchstabe a of the Einkommensteuergesetz (EStG), and it can qualify as außerordentliche Einkünfte, extraordinary income, under § 34 EStG. Because a lump sum paid in a single year would otherwise push the recipient into a higher marginal tax bracket for that year alone, § 34 EStG applies the Fünftelregelung: it taxes the payment as if one fifth of it were added to income in the relevant year, at the resulting rate, then multiplies the resulting extra tax by five. This generally softens the tax bite of a one time payment compared with taxing the full amount at the marginal rate it would otherwise trigger.

That relief itself was not abolished. What changed, from 1 January 2025, is where it gets applied. Until the end of 2024, an employer was required to apply the Fünftelregelung directly when withholding wage tax on a severance, so the tax advantage showed up immediately in the net amount paid out. The Wachstumschancengesetz, published in the Bundesgesetzblatt on 27 March 2024, removed that requirement from § 39b Abs. 3 EStG, so that from 2025 employers withhold wage tax on a severance at the regular rate, without applying the Fünftelregelung at all.

The relief has not disappeared. An employee still claims it, but now does so afterward, in the annual Einkommensteuererklärung (income tax return), where the tax office applies § 34 EStG when assessing the year's income. In practice, a severance paid in 2025 or later looks more heavily taxed on the payslip than an equivalent payment made before 2025, purely because of a withholding mechanic, with the actual relief following later once the return is filed and processed. Anyone planning around a severance payment should budget for the larger up front deduction and expect the benefit of the Fünftelregelung to arrive later, not on payday.

Social security contributions on a severance

A genuine severance, one paid to compensate the loss of a job rather than for work performed, is generally not treated as Arbeitsentgelt (wage income) under § 14 Abs. 1 SGB IV, and is therefore usually free of contributions to statutory health, pension, unemployment and long term care insurance. This is the settled position for what is sometimes called an echte Abfindung, a genuine severance for the loss of employment, as distinct from a disguised payment for work actually performed, which would be treated as ordinary wages.

One narrower exception applies to employees who are voluntarily, rather than compulsorily, members of the statutory health insurance scheme (freiwillig gesetzlich Krankenversicherte). For contribution purposes in that situation, a severance can be split between a portion treated as replacing lost wage income and a portion treated as compensating the broader loss of the position, with contributions potentially applying to the wage-replacement portion. Anyone in that position should check their specific circumstances with their health insurer or a tax adviser.

How severance can affect unemployment benefit

Receiving a severance does not, by itself, disqualify someone from Arbeitslosengeld (unemployment benefit). The issue arises specifically where employment ended earlier than the notice period that would otherwise have applied, for example because employer and employee agreed to end things immediately in exchange for a severance rather than working out the full notice period.

Under § 158 SGB III, where a severance is connected to ending the employment without observing the applicable notice period, the Bundesagentur für Arbeit can order a Ruhen des Anspruchs, suspending payment of unemployment benefit for a period tied to the shortfall in notice, up to a maximum of one year. The exact trigger and length of any suspension depend on details including the employee's age and length of service, and the suspension does not apply where the severance was never actually paid out.

A table: the 0.5 per year convention across tenure and salary

The table below applies the 0.5 month per year convention mechanically, for illustration, to a spread of tenure and gross monthly salary combinations. It is a transparent calculation, not a prediction of what any individual will be offered or awarded; § 1a KSchG, a court under §§ 9 and 10 KSchG, and a negotiated settlement can each land on a different number from the one shown here.

What actually moves the negotiated number

Across every route on this page except the fixed § 1a KSchG formula, the amount that ends up on the table is a function of leverage, not a lookup table. The strength of a Kündigungsschutzklage, meaning how likely the dismissal is to be found invalid if the case actually went to judgment, is usually the single biggest driver. Procedural defects, questions about whether the KSchG applies to the employer at all, and whether the stated reason for dismissal holds up all shift that leverage.

Age, length of service, how specialised or replaceable the role is, the employer's appetite for a drawn out dispute, and the practice of the specific Arbeitsgericht chamber hearing the case all matter too. Two employees with identical salary and tenure can walk away from comparable dismissals with meaningfully different outcomes, because the facts of each case, not a formula, decide the number.

A note on the examples in this article

The worked figures above are arithmetic illustrations of the rules and conventions described, applied to a stated salary and tenure. They are not a prediction of what any specific employer will offer or any specific court will award, and this article cannot assess an individual case.

For how a settlement is usually formalised once a number is agreed, see our article on unfair dismissal claims, and for the separate question of how much notice an employer must give in the first place, see notice periods. A broader overview of German employment law topics is available on the Germany hub page.

Disclaimer

This article provides general legal information about German law as it stood on 19 July 2026. It is not Rechtsberatung and does not constitute legal advice for any individual case. Rules under the KSchG, BetrVG, EStG and SGB III can change, and their application depends heavily on the specific facts involved. Anyone facing an actual dismissal, negotiation, or tax question involving a severance in Germany should consult a qualified Rechtsanwalt or Steuerberater.