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Severance Pay (Abfindung) in Germany and Austria: What You're Entitled To (2026 Guide)

Germany · Austria · EU

Understanding Severance Pay (Abfindung) in Germany and Austria

Severance pay — known as Abfindung in German — is a one-time payment an employer may give an employee when their job ends. Many people assume they are automatically entitled to severance, but the rules differ significantly between Germany and Austria. This guide explains what the law actually says, who qualifies, and how to navigate the process in 2026.

In Germany, there is no general legal right to severance pay. Instead, it typically arises from a severance agreement (Aufhebungsvertrag) or a social plan (Sozialplan) in mass layoffs. In Austria, the situation is more structured: the Employee Severance Act (Mitarbeiter-Vorsorgegesetz, MVG) provides a legal entitlement for many employees. Understanding these differences is crucial for anyone facing job loss.

What the Law Says: Germany

In Germany, severance pay is governed primarily by the German Civil Code (BGB) and the Protection Against Dismissal Act (Kündigungsschutzgesetz, KSchG). Key points:

  • No automatic right: Under §1a KSchG, an employee can claim severance only if the employer terminates for operational reasons (betriebsbedingte Kündigung) and the employee does not file a wrongful dismissal lawsuit within three weeks. The amount is typically half a month's salary per year of service.
  • Social plans (Sozialplan): In companies with more than 20 employees, if there are mass layoffs, the employer must negotiate a social plan with the works council (Betriebsrat). This often includes severance payments.
  • Severance agreements (Aufhebungsvertrag): Many employees receive severance by signing a mutual termination agreement. This is common in negotiated departures.
  • Tax treatment: Severance in Germany is taxed under the Fünftelregelung (one-fifth rule), which reduces the tax burden by spreading the income over five years for calculation purposes.

For official details, see the §1a KSchG text and the KSchG overview on the German government's legal database.

What the Law Says: Austria

Austria has a more codified system under the Employee Severance Act (Mitarbeiter-Vorsorgegesetz, MVG) and the General Social Insurance Act (ASVG). Key points:

  • Legal entitlement: Employees covered by the MVG are entitled to severance if they have worked for the employer for at least three years and the employment ends due to employer termination, mutual agreement, or employee termination for cause (e.g., constructive dismissal).
  • Amount: Severance is calculated based on years of service: 2 months' salary after 3 years, 3 months after 5 years, 4 months after 10 years, 6 months after 15 years, 9 months after 20 years, and 12 months after 25 years. The calculation uses the average monthly salary of the last 12 months.
  • Severance fund (Mitarbeitervorsorgekasse): Since 2003, employers contribute 1.53% of the employee's gross salary monthly to a severance fund. This replaces the old system of direct employer payments. Upon termination, the employee can choose a lump sum or transfer the amount to a pension fund.
  • Old system (pre-2003): Employees hired before 2003 may still be under the old system, where the employer pays directly. This system has higher entitlements but stricter conditions.

For official information, refer to the MVG text on the Austrian Legal Information System (RIS).

Step-by-Step Practical Guidance

1. Determine Your Eligibility

Check your employment contract, collective bargaining agreement (Tarifvertrag), and any company policies. In Germany, ask if a social plan exists. In Austria, confirm whether you are covered by the MVG or the old system.

2. Gather Key Documents

Collect your employment contract, pay slips for the last 12 months, and any correspondence about termination. In Germany, also note the date of termination and whether you received a written warning.

3. Calculate Potential Severance

In Germany, use the formula from §1a KSchG: 0.5 × monthly salary × years of service. In Austria, use the MVG scale above. Remember that these are legal minimums; actual amounts may be higher through negotiation.

4. Seek Professional Advice

Consult a lawyer specializing in labor law (Fachanwalt für Arbeitsrecht) or a legal insurance provider. In Germany, the three-week deadline to file a wrongful dismissal lawsuit is critical. In Austria, you have up to six months to claim severance.

5. Negotiate or File a Claim

If the employer offers severance, review the terms carefully. In Germany, consider negotiating a higher amount in exchange for not filing a lawsuit. In Austria, if the employer refuses to pay, file a claim with the labor court (Arbeitsgericht).

Key Differences Between Germany and Austria

  • Legal right: Germany has no general right; Austria does under the MVG.
  • Calculation: Germany uses half-month per year; Austria uses a graduated scale based on years.
  • Funding: Austria uses a severance fund system; Germany relies on employer payments or social plans.
  • Deadlines: Germany has a three-week deadline for lawsuits; Austria has six months for severance claims.
  • Tax treatment: Both countries offer tax benefits, but the rules differ. In Germany, the Fünftelregelung applies; in Austria, severance is taxed as income but at a reduced rate if taken as a lump sum.

Frequently Asked Questions (FAQ)

  1. Do I have a right to severance pay in Germany if I quit? No. If you resign voluntarily, you generally forfeit any severance. Exceptions exist if the employer forced you to resign (constructive dismissal).
  2. In Austria, can I get severance if I am fired for misconduct? No. If the termination is for gross misconduct (e.g., theft, violence), you lose the entitlement to severance under the MVG.
  3. Is severance pay taxed in Germany? Yes, but the Fünftelregelung reduces the tax burden. The amount is added to your income for the year but taxed as if spread over five years.
  4. How is severance calculated in Austria under the MVG? Based on years of service: 2 months' salary after 3 years, 3 months after 5 years, 4 months after 10 years, 6 months after 15 years, 9 months after 20 years, and 12 months after 25 years. The monthly salary is the average of the last 12 months.
  5. What if my employer in Germany refuses to pay severance? You can file a wrongful dismissal lawsuit within three weeks of receiving the termination notice. If the court finds the dismissal unfair, you may be awarded severance or reinstatement.
  6. Can I get severance if I am on a fixed-term contract in Austria? Yes, if the contract ends and you have worked for at least three years. The same MVG rules apply.

Official Resources

Remember that laws can change. Always verify with an official source or legal professional.

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