Understanding the calculation of severance compensation in 2025
The mutual termination is a preferred option for many employees and employers wishing to amicably end the employment contract. It allows for finding common ground for a secure departure while respecting labor law. One of the essential aspects of this framework is the calculation of the severance payment amount, which guarantees fair compensation in accordance with the applicable legal rules.
To do this, several criteria must be taken into account: the employee’s seniority, the reference salary, as well as the minimum legal amount imposed by regulations. Here are the key elements and methods to master this calculation.
The legal rules governing the minimum amount of compensation
In 2025, the calculation of mutual termination compensation adheres to a legal minimum that cannot be ignored. This legal minimum ensures that the amount designated for the employee is at least equivalent to the legal termination indemnity. The importance of this framework lies in the protection of the employee and the security of the mutual termination agreement.
- For the first 10 years of seniority, the employee receives at least 1/4 of a month’s gross salary per year.
- Beyond 10 years of seniority, the amount is increased to 1/3 of a month’s gross salary for each additional year.
- This rule applies to employees on permanent contracts with a minimum of 8 months of seniority, with prorated adjustments for shorter periods.
| Seniority | Minimum compensation base |
|---|---|
| Up to 10 years | 1/4 of a month’s gross salary per year |
| Beyond 10 years | 1/3 of a month’s gross salary per year |
This system ensures fair remuneration for time served while allowing the employer the option to offer additional compensation.
Accurate determination of the reference salary for the calculation of compensation
The compensation calculation relies on the notion of reference salary, a key element for assessing the monetary value of the contract termination. Two methods compete in labor law: the average of the last 12 months or the average of the last 3 months, including exceptional bonuses.
- The average of the last year includes all elements of gross compensation, including bonuses.
- The average over 3 months also includes prorated bonuses.
- It is important to choose the most advantageous value for the employee between these two calculations.
For example, if an employee receives an annual bonus in December, it will be taken into account at one-third when calculating the average over 3 months.
For employees with less than a year of seniority, it is possible to adjust the monthly average based on the total period actually worked.
| Salary Average | Included Revenues | Benefit for the Employee |
|---|---|---|
| Last 12 months | Gross salaries + regular bonuses | Allows for a comprehensive estimate |
| Last 3 months | Gross salaries + exceptional bonuses prorated | Takes into account occasional bonuses |
How seniority affects the amount of severance compensation
Seniority is a fundamental pillar in calculating the amount of compensation during a mutual termination. This duration is measured from the first working day until the effective termination date, taking into account or not certain absences.
- Considered: maternity leave, illness leave of professional origin, part-time parental leave.
- Not considered: sabbatical leave, unjustified absences, non-professional illness leave.
- For part-time employees, the calculation is weighted based on the percentage of work performed.
For example, an employee who has worked 3 years full-time and then 2 years at 80% will have their compensation calculated proportionally to these distinct periods.
| Type of Absence | Impact on Seniority |
|---|---|
| Maternity Leave | Considered |
| Sabbatical Leave | Not Considered |
| Part-Time | Weighted Seniority |
Concrete examples of calculating the amount of severance compensation
Practical examples facilitate the understanding of the rules and allow employers or employees to better anticipate the amounts owed during a mutual termination agreement.
- For an employee with less than 10 years of seniority, the basic compensation calculation applies 1/4 of a month’s gross salary per year.
- Beyond 10 years, this calculation adapts by integrating 1/3 of a month for additional years.
- An additional compensation can be negotiated to acknowledge particular situations or prevent disputes.
Illustration:
| Situation | Reference Salary | Seniority | Calculation | Minimum Compensation |
|---|---|---|---|---|
| Employee 4 years | 2,000 € | 4 years | (2,000 € x 1/4) x 4 | 2,000 € |
| Employee 12 years | 3,000 € | 10 years at 1/4 + 2 years at 1/3 | (3,000 € x 1/4) x 10 + (3,000 € x 1/3) x 2 | 9,500 € |
This last calculation clearly shows how the compensation amount evolves with seniority, ensuring fair and balanced compensation.
Taxation and exemptions of indemnities during a mutual termination
The mutual termination involves not only an accurate calculation of the compensation but also a specific tax and social treatment that should be well understood to avoid any dispute or error.
- The indemnity may be fully or partially exempt from income tax, provided that defined thresholds are respected.
- Exempted up to the highest limit between: legal or contractual indemnity, twice the previous annual gross remuneration, or 50% of the amount of indemnity.
- In the case of retirement, the indemnity becomes fully taxable.
- Exemption from social contributions possible up to 2 PASS, or 92,736 € in 2025.
| Type of Exemption | Conditions | 2025 Limit Amount |
|---|---|---|
| Income Tax | Respect of the three mentioned thresholds | Variable according to income and indemnity |
| Social Contributions | Up to 2 PASS | 92,736 € |
| CSG/CRDS Exemption | The indemnity must be lower than the legal compensation or 2 PASS | Variable |
Good management of these tax aspects is essential for the company and the employee, particularly in the context of the nominative social declaration (DSN) and the annual tax declaration.
What are the main legal obligations in the event of a mutual termination?
Strictly following the legal steps ensures the validity of the mutual termination agreement and limits risks for both the employer and the employee. Non-compliance may result in the reclassification of the termination as wrongful dismissal.
- The consent must be mutual, free, and informed.
- At least one formal meeting must be organized.
- A written agreement, using the Cerfa form n°14598*01, must be signed.
- A retractation period of 15 calendar days must be respected.
- The request for homologation must be submitted to the DREETS.
- The indemnity must be paid no later than the end date of the contract.
- The end-of-contract documents must be provided to the employee.
| Step | Employer’s Role | Employee’s Role |
|---|---|---|
| Meeting | Organize and formalize | Participate and express agreement |
| Agreement | Draft and have signed | Sign freely |
| Retractation | Respect the deadline | Can retract for 15 days |
| Homologation | Submit the file to the DREETS | Wait for validation |
| Compensation | Pay the compensation | Receive the compensation |
Is there a notice period during a mutual termination?
No, the mutual termination does not provide for a legal notice period. The end date is determined by mutual agreement and occurs after approval by the DREETS.
Does the mutual termination compensation affect unemployment benefits?
No, this compensation is not taken into account in the calculation of unemployment benefits (ARE). However, a waiting period may apply based on the amount paid.
What absences are considered for the calculation of seniority?
Maternity leave, illness leave of professional origin, and part-time parental leave are counted. However, sabbatical leave and unjustified absences are not.
What is a supra-legal indemnity?
It is an amount paid in addition to the minimum legal indemnity, negotiated between the employer and the employee to acknowledge particular situations or prevent disputes.
What to do in case of non-payment of indemnity?
The employee can contest the balance of any account within 6 months and refer the matter to the Labor Court. The employer must keep all documentation and ensure proper reporting to the administration.