Until now, the severance indemnity paid to employees within a mutual termination agreement was subject to 20% social security contributions (for the indemnity not exceeding twice the annual social security cap, i.e., approximately Є 87,983 in 2023, the rest of the indemnity being subject to the normal social security contribution rate of approximately 50%). However, the indemnity paid to an employee leaving on retirement was subject to the normal 50% rate.
This led to many companies negotiating mutual termination agreements with employees close to retirement age to limit departure costs. This, however, created a burden for the state, as such employees would then claim unemployment benefits until the date at which they could claim their pension.
Given the rise in the age at which employees will be able to claim their pension due to the recent pension reform, this difference in treatment of the mutual termination indemnity and the retirement indemnity would have placed a growing strain on unemployment benefits.
This explains why the rate has been harmonized to 30% for both types of indemnities. One difference, however, has not yet been addressed: the retirement indemnity is still fully subject to income tax, which is not the case for the mutual termination indemnity.
Key Action Points for Human Resources and In-House Counsel
When considering the departure of employees close to retirement age, it is important to compare the difference in costs between a mutual termination option and the normal retirement option.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
