Severance Pay (Abgangsentschädigung)
Severance pay (Abgangsentschädigung) is compensation an employer may choose to offer when terminating an employment relationship. Unlike some countries, Swiss law does not require severance—it is mandatory only if your collective bargaining agreement (GAV), employment contract, or company policy explicitly provides for it. When you do offer it, the amount is negotiable and typically reflects seniority, notice period, and reason for termination.
Severance pay arises when you end an employment relationship—whether by notice, termination without cause, or mutual agreement. It is a one-time payment beyond final salary and unused holiday pay.
Swiss employment law (ArG) does not mandate severance. It becomes your obligation only if a GAV, individual contract, or internal handbook states it. Many Swiss SMEs do not offer severance at all.
When severance comes up
Severance is most common in redundancy situations—when you restructure, close a location, or eliminate a role. It also appears in mutual termination agreements to smooth transitions.
Employees sometimes expect severance after long tenure, but expectation alone creates no legal claim in Switzerland. You are legally free to offer none if your contract and GAV are silent.
- Restructuring or business closure (most common trigger)
- Mutual agreement to part (often part of settlement)
- Long-service recognition (discretionary, no legal requirement)
- Collective agreement (GAV) or employment contract explicitly requires it
- Company policy published in employee handbook
- Settlement of disputed termination
Your obligation as employer
If your GAV or contract requires severance, you must pay it on the final payday. Amount, formula, and conditions are set by the agreement—there is no Swiss statutory minimum.
If severance is discretionary, you set the terms. Document any offer in writing before the employee leaves. Severance is taxable income and subject to Quellensteuer deduction.
- Check your GAV, employment contracts, and internal policies first—they determine your obligation
- If required, pay on final payday alongside final salary
- Document the agreement in writing; do not promise verbally
- Deduct Quellensteuer from severance payment
- Do not use severance to bypass notice periods—they remain mandatory
- Consult a lawyer if the termination is disputed or involves age discrimination risk
Most common mistake
Many employers assume severance must be paid without checking their GAV or contract. This leads to unexpected costs or disputes. Read your obligations carefully—they may differ by canton or industry.
The second mistake: offering verbal promises of severance that employees later claim. Always put offers in writing. A formal termination letter stating 'no severance' is clearer than silence.
- Failing to distinguish between severance (discretionary) and owed final pay (mandatory)
- Offering severance as settlement without documenting the agreement
- Not deducting Quellensteuer from severance payments
- Assuming canton law or industry practice applies to your contract when it does not
- Paying severance late as a cost-cutting gesture—this signals weakness in disputes
- Using severance to waive the employee's right to challenge the termination without legal review
Frequently asked questions
- Is severance required by Swiss law?
- No. The ArG does not mandate severance. It is required only if your GAV, employment contract, or published company policy explicitly provides for it. You may offer it voluntarily, but you are not obliged to.
- How much severance should I offer?
- There is no statutory formula in Switzerland. Common practice ranges from one week's to three months' salary, depending on tenure and circumstances. Your GAV may set a formula. Always negotiate and document in writing.
- Do I deduct tax from severance?
- Yes. Severance is taxable income subject to Quellensteuer deduction. Treat it as wages on the final payslip. The employee receives it net of tax and social contributions.
General information for Swiss employers, not legal advice. Have a lawyer confirm anything with legal consequences.