Severance pay and retirement allowance: when you are entitled to them

The terms severance pay (odstupné) and retirement allowance (odchodné) sound similar in Slovak, but they are two different entitlements with different conditions. Employers often confuse them, which can lead to incorrect payment or to a dispute with the employee. In this article we explain when entitlement to severance pay and the retirement allowance arises, how they are calculated and what to keep in mind when paying them.

What is the difference between severance pay and the retirement allowance

Severance pay is one-off financial compensation paid when employment ends for certain reasons, in particular organisational or health reasons. The retirement allowance, on the other hand, is linked to the employee’s retirement. While severance pay compensates for the loss of a job, the retirement allowance is a kind of thank-you when the employee retires.

When entitlement to severance pay arises

Entitlement to severance pay typically arises when employment ends by notice or by agreement because of organisational changes, the dissolution or relocation of the employer, or redundancy. The amount of severance pay depends on average earnings and on the length of the employment with the employer concerned.

• termination due to organisational changes or redundancy
• termination for health reasons on the basis of a medical assessment
• taking into account the years worked for the employer

When entitlement to the retirement allowance arises

An employee is entitled to the retirement allowance on the first termination of employment in connection with being granted an old-age pension, an early old-age pension or a disability pension. The condition is usually that the employee applies for the pension within a set period around the end of the employment. It is a one-off amount that is paid only once.

How severance pay and the retirement allowance are calculated

The basis for the calculation is the employee’s average monthly earnings. For severance pay, it is multiplied by a number of months depending on the length of the employment; for the retirement allowance, it is usually a fixed multiple. As the specific multiples and conditions may change over time, always check the current rules or consult a payroll specialist.

Tax and contribution aspects

Both severance pay and the retirement allowance have their own specifics as regards taxation and social and health insurance contributions. In general, these payments are settled through payroll, but their contribution burden differs from that of an ordinary wage. This is exactly where most mistakes occur, so it pays to have the calculation checked.

• classify the payment correctly in the payroll software
• check the contribution and tax treatment of the amount
• keep the documents proving the reason for the entitlement

A practical example

Imagine an employee who has worked for a company for several years and whose position has been abolished due to organisational changes. In such a case, in addition to their regular wage and payment for untaken annual leave, they are usually also entitled to severance pay, the amount of which depends on the years worked. The situation is different when the same employee retires on an old-age pension years later. The retirement allowance then comes into consideration as a one-off amount on the first termination of employment in connection with the award of a pension. The two entitlements therefore respond to completely different life situations and must not be confused.

How to avoid mistakes when paying them

The most common problems arise from confusing the two entitlements, using the wrong multiple or failing to meet time limits. We recommend keeping clear records of the reasons for termination and having the supporting documents ready. If you are unsure about payroll processing, our specialists will correctly calculate and process severance pay and the retirement allowance for you.

Related articles: Probationary period: rules and the most common misconceptions, Termination of employment: notice, agreement, immediate termination, Employment under an agreement vs. permanent employment.

Frequently asked questions

Can an employee receive both severance pay and the retirement allowance at the same time?

In practice they are two different entitlements with different conditions, so they do not automatically exclude each other. What matters is the specific reason for ending the employment. Check the current conditions, as the rules may change.

How is the amount of severance pay calculated?

It is based on average monthly earnings, multiplied by a number of months depending on the length of the employment with the employer. The exact multiples and conditions may change over time, so check the current rules.