Settlement, what is it and how is it settled at the end of the contract?

When we are dismissed or, simply, the duration of our employment contract expires and we are not renewed, workers have a series of rights. Among them is the right to receive severance pay. But what exactly is it? We will answer this and many other related questions here.

What is the termination of employment?

The severance payment, also called settlement, is a set of economic amounts that the employer owes to the worker at the time of the termination of the employment contract. It is reflected in the "balance and settlement document" (hence its name) that the employer must give the employee at the time of giving notice, which must be done at least 15 days in advance in most cases.

This figure is regulated, firstly, in Article 3 of the Workers' Statute, which refers to the sources of the employment relationship. It also appears in Article 49, which deals with its termination. Both can be further developed by the collective agreement governing the professional relationship between employer and employee.

What is paid in the severance pay?

First of all, a note: severance pay is not the same as redundancy compensation.

All employees, regardless of the reason for the termination of their employment relationship with their employer, are entitled to a severance payment, as it is an amount owed to them by the employer. On the other hand, if there has been a disciplinary dismissal or, simply, the contract has been terminated, they will not be entitled to receive any compensation.

Having clarified this, we are now ready to explain which concepts are included in the severance payment. Let's take a look at them:

• Wages corresponding to the days worked in the current month that have not been paid previously. In the event that the employer owes some previous ones, they will also have to be included.
• Overtime worked by the worker that has not yet been paid.
• Proportional part of the overtime payments not received by the employee.
• Days of holidays not taken, which are calculated according to the period of time worked by the employee during the current year. The account is made in accordance with the provisions of Article 38 of the Workers' Statute or the collective agreement to which it is subject.
• Any other concepts that have been generated during the employee's work in his or her post and which have not been remunerated.

On the other hand, if the worker owes any amount to the company, it will be subtracted from the severance payment. This includes, for example, any advance payments requested by the employee. In addition, the amount is subject to the relevant social security contributions, which must be paid by the employer in all cases.

The deadline for signing the severance payment

As mentioned above, the amount of the severance payment is usually given together with the notice of dismissal or termination of the contract and then paid when the end of the employment relationship takes effect.

By this we mean that the worker will receive the severance payment:

• Together with the severance pay. If he/she has been dismissed by the company.
• Within a reasonable period of time after the last day of work. If he/she has requested voluntary redundancy.
• On the last day of work. If the termination has occurred as a consequence of the end of a temporary contract.

In this regard, the Workers' Statute does not set a deadline for the worker to sign the severance payment. Therefore, he/she may do so before or after the employment relationship is terminated, although this may affect the time at which he/she collects it.

What happens if there is a dispute over the amount of the severance pay?

Calculating the amount of the severance pay is relatively simple, so any employee should do it before signing. If you do not agree with the amount stated in the document, it is vital that you do not sign it. Not even "in disagreement". Instead, it is advisable to hire the services of a labour lawyer and file a conciliation petition in the corresponding labour court.

The only case in which it is advisable to sign "in disagreement" is when the employment relationship has come to an end in a conflictive manner. The reason? The worker will be able to collect the amount, but the door will not be closed to making a claim in the future.

In this regard, we must not forget that the severance payment is in lieu of payment. This means that its payment is proof of the termination of the employment contract. Even so, the employee will have one year to make any claim he/she deems appropriate before the courts.

If in doubt, the best thing to do is to contact a labour lawyer.

We already know what the termination of employment is, what it consists of and what its effects are. All of this leads us to say that, when the time comes to be dismissed, request voluntary redundancy or see your employment relationship terminated for any other reason, the best thing to do is to seek advice from an expert. Without a doubt, the services of a labour lawyer can make all the difference when it comes to protecting our rights, so we should never hesitate to contact one.