The employee must:
- be working for at least 104 continuous weeks with the same employer
- be contracted to work for no less than 21 hours a week
- be over age 16 and under pensionable age at the time of termination
- be terminated for redundancy, laid-oﬀ, kept on short-time or because of a natural disaster.
An employee has one (1) year from the date of termination to claim the severance. In instances of lay –oﬀ, short-time and dismissal, employees are advised to visit either the Severance Payments Section of National Insurance Office or their representative.
The Act requires an employer to make a compensation payment called a severance payment to an employee who is dismissed because of redundancy and who fulflls the other prescribed conditions. It also requires an employer to make such a payment to an employee who has been laid oﬀ or kept on short time within the terms of the Act.
Redundancy as defined in the Act, arises if:
- the employer has ceased or intends to cease to carry on the business
- the employer has ceased or intends to cease to carry on the business in the place at which the employee was contracted to work.
- the requirements of the business for the employee to carry out work of a particular kind has ceased or diminished or are expected to cease or diminish.
the requirements of the business for the employee to carry out work of a particular kind, in the place at which he was contracted to work ,have ceased or diminished or are expected to cease or diminish.
Explanation of Terms
LAY OFF – a temporary stoppage to work; when things are slow
SHORT TIME – when an employee receives less than half of his normal pay
DISMISSAL – when work of the type for which employee was contracted to do ceases to exist on a permanent basis
LENGTH OF LAY OFF AND /SHORT TIME – After a period of 13 consecutive weeks or a series of 16 weeks within a 26-week period (i.e. weeks oﬀ and weeks on), an employee can claim a severance payment.
Computation of a Severance Payment
ONLY the last 104 continuous weeks of insurable earnings, with the same employer prior to being severed, are 23 used in the calculation of severance payments.
Definition of Insurable Earnings
Insurable earnings refer to the payments on which national insurance contributions are made and they include but are not limited to the following:
- Overtime payments
- Commission on sales or profits on sales
- Service charge
- Production bonus
- Holiday pay ( 3⁄52 parts)
According to the Severance Payment Act (CAP 355A) – First Schedule (Section 3), Paragraphs 2 and 3 – the amount of the severance payment shall be calculated by referencing specifed outlined starting and ending 104-week period, and reckoning backwards the number of complete years of employment falling within that period and allowing, for each complete year of employment, is calculated by counting backwards 104 weeks from the date of termination.
- 2.5 weeks’ basic pay for each such year up to 10 years;
- 3 weeks basic pay for each such year by which the employment exceeds 10 years but does not exceed 20 years; and
3.5 weeks’ basic pay for each such year by which the employment exceeds 20 years but does not exceed 33 years.
Where, in reckoning the number of complete years of employment in accordance with paragraph 2, the 33 complete years of employment have been reckoned, account shall not be taken of any year of employment earlier than those 33 years.
The Basic Average Pay is calculated as (Total Earnings within the last 104 weeks of employment) divided by (104). The basic weekly average should not exceed the maximum insurable earnings ceiling which is currently $1,126 weekly (as at 1st January 2020), and its maximum is in line with the ceiling of National Insurance average weekly insurable earnings; which can vary in accordance with legislated actuarial calculation annually.
Date of commencement of continuous employment: August 1st, 1993
Date of termination of continuous employment: September 30th, 2018
Total number of completed years: 25 years
104-week period: Week commencing September 24th, 2018 and counting backwards to the week commencing October 3rd, 2016
$ 7, 800.00
$ 2, 600.00
Basic Average Pay = Total Earnings within the last 104 weeks of employment / 104 = $20,800.00 / 104 weeks = $200.00
Basic Average Pay or Average Weekly Insured Earnings is $200.00 and the employee worked for 25 years
$200.00 x 2.5 weeks x 10 years = $ 5,000.00
$200.00 x 3.0 weeks x 10 years = $ 6,000.00
$200.00 x 3.5 weeks x 5 years= $ 3,500.00
Therefore, Severance Payment due to this recipient who was employed for 25 years is $14,500.00
The following is applicable for monthly paid employees only.
If less than five (5) weeks in the final year are needed to complete the 104-week period, in the final year of the 104 weeks, you are required to convert the monthly pay into weeks. In order to do so, please view the calculation below:
Last Year of Employment: 2018
Weeks required to complete period: 2 weeks
Insurable Earnings for December: $3,000
Conversion from Monthly to Average Weekly Earnings: ($3,000 x 12)/52 = $692
Then, the Average Weekly Pay for the required
two (2) weeks = $692 x 2 weeks = $1, 384
Note: However, if the entire number of weeks is needed, you are required to use the entire month.
Severance Payments Tribunals
These tribunals have been provided so that employees and employers can have their matters heard.
Claims Made by Employees to the Severance Fund
After a matter has been decided by the Tribunal in favour of the employee, and the awarded amount is not paid by the employer, the employee can apply to the Severance Fund for the award.
After a severance payment is made to an employee, the insured employer of the severed employee is entitled toclaim a 25% rebate from the NIS Severance Fund.
The insured employer has six (6) months after the date on which the severance payment has been made, to claim this rebate by completing the ‘Claim for Rebate from the Severance Fund’ form.
The necessary documents that must be submitted, along with the above-mentioned form, for an employer severance rebate claim are as follows:
- Legible copies of cancelled cheques.
- Certified copies of official transaction records, in the event that the severance payments were made directly to the employee’s bank account.
- Copies of the official banker’s cheque transaction records, in the case that the severance payments were issued via banker’s draft.
Please be advised that personal receipts between employer and employee, will NOT be accepted as payment evidence for the purpose of claiming a Severance Rebate.