Settlement: Everything you need to know

The termination of employment is a concept with which every employee is, to a greater or lesser extent, familiar. This is mainly due to the fact that it is mandatory when the employment relationship between the company and its employee is terminated. In this article we are going to tell you everything you need to know about it.

What is a termination notice?

When an employment relationship between an employee and a company that has hired him or her ends, which may be due to voluntary redundancy, objective or disciplinary dismissal, breach of contract by the employer or the end of the period of validity of the document that unites them, the company is obliged to give its employee the economic amounts owed to him or her. This is, in short, what is meant by a severance payment.

The settlement must be set out in the Settlement Document which, although legally required, does not have an official format. Specifically, it must detail the amounts outstanding for the employment relationship to be settled and extinguished. If both parties agree and sign, the worker proceeds to the collection of the specified amounts.

What elements must be included in the settlement document?

In order for the settlement document to be valid from a legal perspective, it must include all the identifying data of the company and the employee. In addition, the following items must have been taken into consideration when calculating the settlement:

1. The salary corresponding to the days of the month that have been worked before the dismissal takes place. If, for example, the dismissal occurs on the 15th of the month, the employer is obliged to pay the full amount of the days worked by the employee.
2. Holidays that have not been taken. Every employee is entitled to a certain amount of holiday each year. In the event of dismissal before they have been taken, the employer is obliged to pay them and pay contributions for them. On the other hand, it should be noted that the opposite may also occur, i.e. the employee has taken more holiday than he/she was entitled to and has to pay back a certain number of days. For example, this occurs when an employee takes a full month's holiday in June and is dismissed in mid-September.
3. Overtime. If the employee has worked some extra hours and these have not been paid or compensated, the employer must pay them in the severance pay.
4. Overtime pay. The employee is entitled to receive the proportional part of the overtime pay. The amount will depend, fundamentally, on whether they are half-yearly, annual or prorated in the monthly salary.
5. Other concepts. Certain agreements provide that workers are entitled to bonuses and productivity payments, for example. If these are included, the employer must pay the corresponding proportional part in the settlement. 

On the other hand, although it is not the most common, the employee may have to repay certain amounts to the company. In addition to the case of the holidays mentioned above, any advance payments received must also be subtracted from the amount of the severance payment. Likewise, if the reason for the severance payment is voluntary leave and the company has not been notified 15 days in advance, the company is entitled to deduct 2 days' salary for each of them.

Is severance pay included in the settlement?

The answer is no. In fact, it must appear in a separate document or, failing that, in the dismissal letter itself. This is mainly because this remuneration is exempt from taxation and contributions, while the concepts that are included in the severance pay must be exempt from taxation and contributions. Therefore, calculating the severance pay is something completely unrelated to the settlement. (If you have any doubts, please contact one of our specialist dismissal lawyers.

Is signing the severance pay obligatory?

Obviously not. It must be specified, first of all, that signing the settlement document implies, in legal terms, acceptance of the company's settlement proposal and agreement with the specified amounts. Also, in case the specified amounts are not correct, the employer is not released from liability and obligations towards the employee.

As a piece of advice from our employment lawyers, in order for the employee to be able to cover his or her back in case of certain contingencies, it is important to take into account a series of considerations before signing the document. Firstly, the day on which it was received must be specified. Also, in case of non-conformity, write 'NOT CONFORM' at the top of the sheet. In case the detailed amounts have not been received, you should also add 'AMOUNTS NOT RECEIVED'.

Finally, if it is uncertain whether the figures are correct, it is advisable to write 'PENDING CHECK'.

Only after these specifications have been added should you proceed to sign the document. It is also very important to request a copy of the document at the same time. Finally, it only remains to remember that the employee has the right to be accompanied by a trade union representative of the company's employees at the time of delivery. If the employer prevents this, he/she will be committing a very serious offence punishable by a heavy fine.

Is it possible to claim or contest the severance pay?

Of course it is. In fact, even if it has been signed, which may complicate the task in some cases, it is possible to make a claim by means of the so-called Papeleta de Conciliación during the 12 months following the moment in which the company should have paid the agreed concepts.

The Papeleta de Conciliación only initiates the administrative procedure that will lead to the employer having to meet its obligations. Criminal proceedings will only be opened in the event that the contracting entity has drawn up a false settlement or, failing that, falsified the original. This is not very common, but there are documented cases in which there have even been prison sentences.

We hope we have been of help and have resolved any doubts you may have had about the concept of severance pay.

Contact us if you need more information