Compensations owed by the employer to the employee upon termination of the employment relationship

223 Views

The Labor Code provides for compensations to employees whose employment contract is being terminated according to the way the employment contract is terminated and through whose initiative same is terminated.

Main variants of termination are:

  • Consent of the parties;
  • Expiry of the employment contract;
  • Termination of the employment contract at the initiative of the employee;
  • Termination of the employment contract at the initiative of the employer;
  • Dismissal.

 

Compensation in lieu of notice

The parties to an employment relationship have the right to terminate it with notice. For the employee, it means to stay at work until the expiry of the term thereof, and for the employer – to keep the employee at work within this period. At the same time, however, the legislator makes it possible for any party who has given a notice of termination of the employment relationship not to respect its term. Both parties are entitled this right. Instead of observing the notice, each of them may pay the other party an amount equal to the salary in lieu of the notice.

It is levied by taxes as income from an employment relationship, but no social and health insurance contributions are payable on it.

Publication author:

Кристина Кондратюк

Assistant manager Accountign services

Compensation on termination of the employment relationship without notice

Here, there are basically two hypotheses:

1. The employer owes compensation when the termination is through the employer’s fault, which consists in:

  • Delay in paying the wage by the employer;
  • Unlawful unilateral change of the terms of the employment relationship;
  • Failure to fulfil obligations that are agreed with the employment contract.

The main idea of ​​this compensation is to compensate for the damage suffered by the employee.

The amount of compensation is determined on the basis of the gross salary and the period of remaining unemployed after termination of the employment contract.

Upon termination of an unlimited-term employment contract, the amount of the compensation is the gross salary for the term of the notice and in the case of a fixed-term employment relationship – to the amount of the actual damages.In general, they are the amount of the employee's gross salary for the time the employee is unemployed but for no more than the remainder of the term of the contract.

Compensation is subject to taxation as labor income.No social security and health insurance contributions are due.

2. The employer owes compensation to the employer due to:

  • Disciplinary dismissal;
  • Conviction for a crime.

The compensation is in the amount of the gross salary for the term of the notice – upon termination of an unlimited-term employment contract and to the amount of the actual damages for a fixed-term employment relationship.

With the compensation paid, the person's taxable income is reduced.

Compensation for dismissal on other grounds

First, this compensation is paid upon termination of employment in relation to: the closing down of the undertaking or part thereof, staff reduction, reducing the volume of work during its stop for more than 15 days, if the employee refuses to follow the entity when it is moved to a different location, when the position occupied by the employee should be vacated to restore to the position an illegally fired employee.Compensation for termination of employment of an employee who is dismissed is up to the maximum gross salary, but for no longer than one month.Compensation is subject to taxation as income.Social security contributions are payable on it, and only dismissed persons who are not socially insured for any other reason are subject to health insurance.

Second, upon termination of the employment contract of an employee due to illness, same is entitled to compensation in the amount of their gross salary for two months, if the following conditions are met:

  • have at least 5 years of service;
  • during the last 5 years, the service has not received compensation on the same basis.

Thirdly, upon termination of the employment contract after an acquired right to a retirement pension, the employer owes compensation to the employee.It is equal to the gross salary for a period of 2 months and if the last 10 years of service have been gained with the same employer – to the amount of the employee’s gross salary for a period of 6 months.This compensation can only be paid once.

Benefits of the second and third hypotheses are not subject to taxation as income from employment relationships and are not subject to social and health insurance.

These compensations can be set higher by an act of the Council of Ministers, a collective labor contract or an employment contract.

Compensation for unused paid annual leave

Entitlement to compensation for unused paid annual leave arises only upon termination of the employment relationship.Meanwhile, the right to receive this compensation does not depend on the circumstances that led to termination of the employment contract (initiated by the employee, at the initiative of the employer or in a different way, regardless of the will of the parties).

The number of days that must be paid upon termination of the employment contract are calculated based on the number of months worked during the working year.The calculation of the entitlement period begins with the date on which the employee started work and not the beginning of the calendar year.Compensation is determined in proportion to the unused part of the leave.For the purposes of determining the amount of compensation, gross remuneration is used for the month preceding the month of termination of the employment relationship.

The paid annual leave can be used if the employee has at least 8 months of work experience, but the right to this leave itself arises when the employment contract is concluded.Therefore, compensation is paid (in proportion to the length of service) even if the employment relationship is terminated without the employee having eight months of service.

Unused paid training leave is not subject to monetary compensation.

Compensation for unused paid annual leave is taxed as income from an employment relationship.No social and health insurance is due.

Compensation for unlawful dismissal and non-admission to work of a retired reinstated employee

First, when dismissal of an employee is found to be unlawful, same is entitled to compensation from the employer, which is commensurable to the missed gross salary, for the period of time after the dismissal but for no longer than six months.

Compensation is taxed as income from an employment relationship.The time during which the employee was unlawfully dismissed is recognized as an employment and social security length of service.

Second, if after dismissal the employee or worker has started a paid job– the compensation is equal to the difference between the gross salary of the terminated relationship and that in which the employee has stepped into after the dismissal.

Thirdly, in the event of an unlawful refusal to allow an illegally dismissed employee to perform the work to which he was reinstated.In this case, the compensation is in the amount of the gross salary from the date the employee came to work to the date of his actual admission to employment.The liability is shared jointly by the employer and the guilty officials.

Compensations under the second and third hypotheses are taxed as labour income.No social and health insurance contributions are due.

These compensations can be set higher by an act of the Council of Ministers, a collective labor contract or an employment contract.

 

Compensation for unlawful dismissal and non-admission to work of a retired reinstated employee

First, when dismissal of an employee is found to be unlawful, same is entitled to compensation from the employer, which is commensurable to the missed gross salary, for the period of time after the dismissal but for no longer than six months.

Compensation is taxed as income from an employment relationship.The time during which the employee was unlawfully dismissed is recognized as an employment and social security length of service.

Second, if after dismissal the employee or worker has started a paid job– the compensation is equal to the difference between the gross salary of the terminated relationship and that in which the employee has stepped into after the dismissal.

Thirdly, in the event of an unlawful refusal to allow an illegally dismissed employee to perform the work to which he was reinstated.In this case, the compensation is in the amount of the gross salary from the date the employee came to work to the date of his actual admission to employment.The liability is shared jointly by the employer and the guilty officials.

Compensations under the second and third hypotheses are taxed as labour income.No social and health insurance contributions are due.

These compensations can be set higher by an act of the Council of Ministers, a collective labor contract or an employment contract.

 

Termination of the employment contract by initiative of the employer against agreed compensation

This proposal is a unilateral wish of the employer,which has specific content: refers to the termination of the employment contractby mutual agreement of the parties.It must also determine the amount of compensation offered: at least four times the last received monthly gross salary.The proposal puts the worker in a new legal position.It lasts 7 days.The seven-day period is counted in calendar days.The said compensation should be paid within 1 month from the date of termination of the employment contract.

Compensation is subject to taxation but no health and social security contributions are payable on it.

Request

If you need better accountant, auditor or business consultant, please send us a request.