Definition of severance payment
Severance payment is paid to the employee on the occasion of being retired or when the concrete work post is discontinued.
When is the employee entitled to a severance payment?
According to provisions of Article 111 of the valid FBiH Labour Law, the following conditions must be met in order for the worker to be entitled to a severance payment: employment contract concluded to indefinite period of time, the contract terminated by the employer after at least 2 years of discontinued work with the subject employer.
It goes without saying that the employee is not entitled to a severance payment if the employment contract is terminated due to a breach of work obligation.
Typically, the employees are entitled to severance payment when their employment contracts are terminated due to economic, organisational and technical reasons, for example, due to downsizing of the production volume in the company or due to severely doubtful financial circumstances of the company.
Amount of severance payment
Amount of severance payment is defined by the collective agreement, company labour relations by-law or employment contract. The Law prescribes that the severance payment must not be lower than one third of the average salary paid to the subject employee in the last three months preceding the termination of the employment contract, for each full year of work with the subject employer.
> EXAMPLE: The average salary of the employee A.B. with the employer BMD d.o.o. in the last three months preceding the termination of the employment contract was KM 900.00 (BAM). The employee worked for this employer for ten years in total. By application of legal regulations, the employee’s severance payment must amount to at least KM 3,000.00 (KM 300.00 (1/3 of the average A.B.’s salary) multiplied with 10 (number of years with this employer).
This is a minimum, legally guaranteed (mandatory) amount of severance payment the employee is entitled to. However, a higher amount of severance payment may be defined by the employment contract or individual company labour relations by-law.