What is the settlement?
The settlement, also known as labor settlement, is an economic amount that is given to the worker as compensation once his relationship with the company that hired him ends. This must be paid regardless of whether the termination of the contract has been due to the conclusion of its temporary status, a voluntary withdrawal by the worker or an unfair dismissal, for objective reasons or for disciplinary reasons. In other words, its payment is mandatory in all cases.
Difference between settlement and severance pay
As we have just said, the settlement is an amount that must be paid to the worker once his employment relationship with the company ends, for whatever reason. This is also due to the fact that it refers to own and inalienable rights such as, for example, your extra payments, the corresponding vacation days, etc. A little later we will see this when explaining how to calculate a severance payment.
However, severance pay is only paid to the worker if the contract has been unilaterally terminated by the employer. If this has occurred for objective reasons, it will be calculated based on 20 days of salary per year worked with a maximum of 12 monthly payments. In the event that it is due to an unfair dismissal, it will be 33 days per year worked with a maximum of 24 monthly payments.
Both payments are complementary, that is, a dismissed worker must collect separately the settlement and the compensation that corresponds to him without one concept doing damage to the other.
How to calculate a termination for dismissal?
The calculation of the settlement that corresponds to the worker at the time of ending his employment relationship with the company is calculated based on three fundamental concepts. These are:
On vacation days
Every time one year ends and the next begins, the worker once again has a specific number of vacation days, which will depend, fundamentally, on what is specified in their collective agreement and what is individually agreed in the contract they signed with their company.
It is possible that, if the dismissal or the decision to leave occurs, for example, during the month of April, the worker did not have any day of leave. And, evidently, since these refer to a full year of work, you will be entitled to receive the payment corresponding to the corresponding proportional part of those days.
There are companies that prefer that the worker carry out his tasks in his position until the last day and, in exchange, they remunerate him economically those days of vacations that he is entitled to enjoy. Others, on the other hand, prefer that the employee enjoy them during the period between the notice of dismissal or termination or the definitive termination of the contract.
But, what happens if the worker has already enjoyed all his vacation days corresponding to the current year and there is a dismissal or definitive dismissal on his part? Because the company, when calculating the settlement, must deduct from the payment the amount corresponding to the vacation days that it has enjoyed but that did not belong to it yet. This is a very frequent assumption in those layoffs that occur after the month of August.
With the extra payments the exact same thing happens as with the vacation days, that is, the company must pay the worker in the settlement the amount corresponding to the period worked but not remunerated.
Thus, if the worker, for example, collects his extra payments every six months (one in June and the other in December) and is dismissed in September, he will be entitled to receive within his settlement the amount corresponding to July and August of his second extraordinary pay.
Obviously, in those cases in which the worker collects his extraordinary payments pro rata within the monthly salary or in which he receives more than two a year, the calculations must be adapted to the circumstances.
The salary of the current month
The days worked during the month in which the voluntary withdrawal or dismissal occurs must also be included in the settlement. This is especially common when any of these two events that lead to the termination of the employment relationship do not enter into force on the 1st of the month, but when it is already advanced.
How to calculate the settlement for dismissal? A practical example
We believe that the best way for our readers to understand correctly how to calculate a settlement is through a practical example. In this sense, we are going to use Isabel, an employee in the telecommunications sector who signed a 1-year fixed-term contract and that, after its conclusion, was not renewed by her company. These are the fundamental data that we must consider to calculate the settlement:
- Salary: € 1,800 per month.
- Holidays not enjoyed: 5 days.
- Extra payments: prorated in salary (€ 300 per month).
- End of contract: March 8.
First, we must calculate what is the daily salary received by Isabel. To do this, we divide:
1800/30 = € 60 / day.
Being on March 8 when the dismissal occurs, we will need to perform this multiplication to obtain the current month’s salary:
€ 60 x 8 working days = € 480
On the other hand, each vacation day corresponds to one day of salary. Therefore, if Isabel still had 5 days to enjoy, it will be necessary to multiply:
€ 60 x 5 days vacation = € 300
Finally, it only remains to get your share for your extra payments. As we said, Isabel charges them pro rata in her salary. In total, he received € 300 a month. So:
€ 300/30 days = € 10 x 8 working days = € 80
Now yes, we already have all the necessary data to calculate Isabel’s settlement:
€ 480 (salary for the current month) + € 300 (vacation) + € 80 (proportional part of the extraordinary payments) = € 860
Therefore, when the final termination of her contract occurs, Isabel should receive a total of € 860 in settlement or labor settlement.
Conclusions on the termination for dismissal
In short, and as you may have seen, the calculation of the dismissal settlement is simpler than it might initially seem. In fact, in case you have any fear of being in this situation or that your boss has already warned you that he will not continue to provide his services in the company in the near future, you can take the opportunity to calculate yours yourself and thus be proactive looking to the future. In addition, this way you can detect any irregularity.