What is "Severance Pay"?
Severance pay is a legal payment for employees who worked 1+ years. Under Labor Standards Act Article 34, employers must pay at least 30 days of average wage per year of service. Applies equally to permanent and contract workers.
Example: Monthly wage $3,000 × 5 years → Severance ~$15,000 (pre-tax)
💼 Severance Pay Calculator
About Severance Pay
- • Paid to employees who worked 1+ years.
- • Must be paid within 14 days of resignation.
- • Retirement income tax applies separately.
- • Actual amount may vary by company policy.
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🎯 Who is this for?
Useful for various situations
Changing Jobs
Calculate your severance before moving to a new company.
Starting a Business
Accurate severance calculation is crucial for startup funding.
Retirement Planning
Plan your severance and pension together for retirement.
Rights Verification
Check if your employer's severance offer meets legal standards.
Expert Tip
Receiving severance as a lump sum triggers immediate retirement income tax. But transferring to an IRP defers taxes until pension withdrawal. If you receive it as pension after age 55, the tax rate drops 30-40%, providing significant tax savings.
— Tax Expert Advice
❓ Frequently Asked Questions
With $3,000 monthly wage and 5 years of service, severance is about $15,000 (pre-tax). Formula: Average wage × 30 × (work days ÷ 365). Actual amount may vary based on bonuses and allowances.
💡 Bonuses and allowances are included in average wage calculation!
Yes! Regardless of employment type, anyone who worked 1+ year and 15+ hours per week is entitled to severance. This applies equally to permanent, contract, and part-time workers.
💡 Multiple contract renewals count as continuous employment!
Under Labor Standards Act, severance must be paid within 14 days of resignation. After 14 days, 20% annual interest applies, for up to 3 years.
💡 You can report unpaid severance to the labor office!
Retirement income tax varies by years of service and amount. Generally, longer service means lower tax rate. For 10 years service and $50,000 severance, expect about 5-8% tax.
💡 Transferring to IRP lets you defer the tax!
Yes, the probation period counts toward severance calculation. All time from hire date (start of probation) to resignation is included.
📌 Key Takeaways
- ✅Eligible after 1+ year and 15+ hours/week of work
- 📋Severance = Average wage × 30 × (days worked ÷ 365)
- ⏰Must be paid within 14 days of resignation (legal deadline)
- 💰IRP transfer defers taxes and provides tax savings
What is Severance Pay?
Severance pay is a legal payment provided to employees who have worked for more than one year. According to the Labor Standards Act, employers must pay at least 30 days of average wage for each year of continuous service.
Severance Pay Eligibility
- Employment Period: 1+ year of continuous employment
- Weekly Hours: 15+ hours per week
- Employment Type: Both permanent and contract employees
Calculation Method
Severance = Daily Avg Wage × 30 × (Work Days ÷ 365)
Average Wage Calculation
Average wage is calculated by dividing the total wages received in the 3 months before resignation by the total number of days. This includes base salary, regular bonuses, and various allowances.
Severance Tax
Retirement income tax applies to severance pay. The tax rate varies based on years of service and amount. Generally, longer service means lower taxes. You can defer taxes by transferring to an IRP or pension account.
Frequently Asked Questions
Yes, the probation period is included in the calculation. All periods from hire date to resignation are counted.
Yes, contract workers are also eligible for severance pay if they work more than 1 year. Employment type does not matter.
According to the Labor Standards Act, severance must be paid within 14 days of resignation. Late payment incurs interest.