How to calculate severance pay?

The end of an employment relationship involves a series of financial obligations that must be settled accurately and in accordance with current regulations. Among them, severance pay plays a central role, as it includes all amounts the company owes the employee for rights already accrued. In Spain, the average salary is around €2,385 gross per month, according to the latest data published by the Spanish National Statistics Institute, making the calculation of severance pay an important factor for financial stability after leaving a job. Understanding this process helps prevent common mistakes and potential legal disputes.

What is severance pay and when are you entitled to it?

Severance pay is the final settlement document that details any outstanding amounts between the company and the employee when an employment contract ends. It is regulated by Article 49.2 of the Workers’ Statute, which establishes the obligation to provide a settlement proposal when employment ends.

From a legal perspective, severance pay includes salary related items, as it covers work already performed or financial rights that have accrued but have not yet been paid. It should not be confused with future compensation, since these amounts already belong to the employee.

In which situations are you entitled to severance pay?

The right to severance pay applies to all employees whenever an employment relationship ends:

• Voluntary resignation, even when the employee decides to leave.
• Dismissal, whether disciplinary, objective or collective.
• End of a temporary contract, when the agreed date is reached.
• Failure to pass the probationary period.
• Retirement, permanent disability or death.

In all these cases, the company must settle any outstanding amounts, even when there is no entitlement to compensation for dismissal.

What severance pay includes and legal payment deadlines

The final amount of severance pay is calculated by adding together several financial items that must be assessed individually.

Salary for days worked

Outstanding salary corresponds to the days actually worked during the month in which employment ends. It includes the base salary and any fixed salary supplements included in the payslip.

Accrued and unused vacation days

Unused vacation days must be paid when the employment relationship ends. As a general rule, employees accrue 30 calendar days per year worked, equivalent to 2.5 days per month. This amount is subject to Social Security contributions, extending the employee’s contribution period for those days.

Proportional share of extra salary payments

Extra salary payments are included in the final settlement only when they are not prorated across the employee’s monthly salary. In this case, the employee receives the proportional amount accrued from the last extra payment received until the date employment ends.

Other remuneration

Severance pay may also include overtime, commissions, performance bonuses or other variable incentives that have already accrued.

Applicable deductions

The gross amount may be reduced by salary advances, excess vacation days taken or deductions for failure to provide the required notice in the event of voluntary resignation, where provided for under the applicable collective bargaining agreement.

Legal deadline for severance payment

Severance pay must be paid when the employment contract ends or on the usual payroll payment date. Late payment may result in annual late payment interest of 10%. The deadline for claiming errors in the calculation is one year.

Formulas for calculating severance pay step by step

Calculating severance pay involves simple operations, although accuracy is essential.

Calculating daily salary

Daily salary is calculated by dividing the gross monthly salary by 30 days.

Salary for the month in which employment ends

The amount is calculated by multiplying the number of days worked by the daily salary.

Unused vacation days

• Accrued days = (days worked during the year × 30) / 360
• Outstanding days = accrued days − vacation days taken
• Amount = outstanding days × daily salary

Extra salary payments

The proportional amount is calculated by dividing the total extra payment by the accrual period and multiplying it by the number of days worked.

Tax withholdings

Severance pay is taxed as employment income and is therefore subject to the corresponding withholdings. This is easier to understand by looking at what IRPF is and how it affects net salary.

Differences between severance pay and dismissal compensation

Although they are often confused, severance pay and dismissal compensation are not the same.

Severance pay covers rights that have already accrued and is always paid. Dismissal compensation is intended to compensate for the loss of employment and is only payable in certain circumstances. In addition, dismissal compensation may be exempt from IRPF within the legal limits, whereas severance pay is always taxable.

Practical examples of how to calculate severance pay

Example of voluntary resignation

An employee with a monthly salary of €2,000 leaves on the 15th of the month and has not taken any vacation days:

• Outstanding salary: €1,000
• Vacation days accrued: 3.75 days
• Vacation pay: €250

Gross severance pay: €1,250.

Example of the end of a temporary contract

An employee with a salary of €1,500, a six month contract and extra salary payments that are not prorated:

• Salary for the final month: €1,500
• Proportional share of extra salary payment: €750

Gross severance pay: €2,250, plus any statutory dismissal compensation where applicable.

Calculating severance pay requires technical accuracy and up to date knowledge of labor legislation, as any error may lead to claims or penalties. For professionals responsible for people management and compensation, such as those who explore these topics in greater depth through the Master in Human Resources, understanding these concepts is essential to ensure legal certainty and balanced employment relationships.