Until 2014 a compensation for unfair dismissal
it was not taxed in the Personal Income Tax, as a rule. However, since that date, some scales have been stipulated according to which some indemnities would be subject to taxation.
If you have just been fired, you must first know what the amount of your compensation will be to know how much you will be taxed.
Calculation of compensation for dismissal
First of all, it is necessary to know the type of dismissal that applies.
- If it is an objective dismissal you will be entitled to compensation of 20 days per year worked (with a maximum of 12 monthly payments)
- In the case of an unfair dismissal, the amount amounts to 33 days per year worked (with a limit of 24 monthly payments).
In the case of employment contracts concluded before 12 February 2012 shall be paid compensation of 45 days per year worked for the total days accumulated before that date (with a maximum of 42 monthly payments) and of 33 days per year worked for the following (with a maximum of 24 monthly payments).
The second step of the calculation to compensate for dismissal would be to find the daily salary. That is, based on the payrolls of the last twelve months (including extra payments if they are not prorated) the gross salaries are added to obtain the annual salary. It is divided between 12 months and, the result, between 30 days.
Once we have obtained the daily salary we have to find the years worked. For this we must count the days we have worked, taking as a reference that the months compute as integers (that is, if we start working on January 15, January would be counted as a full month for the calculation and not as half a month).
Once we have the seniority in days we must multiply by the number of days marked by the compensation (for example, 33 in case of unfair dismissal) and divide the result by 365. In this way we will obtain the number of days that are compensable.
The final calculation would be to multiply this number of days by the daily salary obtained previously and we will already have our severance pay.
What is the taxation of severance pay?
Once you have calculated your compensation, the next thing you are interested in knowing is whether you should pay taxes on it.
Below, we explain the scales by which the taxation of severance pay is stipulated.
Compensation under the Workers’ Statute
As a general rule, any compensation that does not exceed the amount of 180,000 euros would be exempt from taxation in the Personal Income Tax.
We understand in this case that these are compensations that mark the Workers’ Statute itself following the calculation that we have seen above, either for unfair or objective dismissals.
If the resulting compensation exceeded this amount then it would only be taxed for the amount that exceeded that figure and not for the totality.
Compensation higher than those established in the Workers’ Statute
It may happen that a company delivers compensation to the worker that exceeds the limits of 20 and 33 days per year worked, depending on the type of dismissal.
In these cases, what exceeds the minimum mandatory compensation will not be exempt and will have to be taxed in the Personal Income Tax.
Compensation agreed between employer and worker
Any compensation established under an agreement, pact or contract between the company and the worker shall be subject to taxation.
This is about avoid the frauds of law derived from agreements in which the worker causes voluntary withdrawal from the company but asks the employer to arrange the papers to be able to collect the unemployment benefit, so that compensation is usually agreed for a dismissal that is not such.
The ideal in these cases, under our experience as advisors in labor law,
is to go to an arbitration court or a conciliation process.
In this way, the compensation is agreed in a neutral way and it is demonstrated that the dismissal does not respond to the interests of the worker or the employer, thus avoiding that the Tax Agency forces us to pay taxes.
Indemnities not derived from dismissal, do they also tax?
The answer is yes. When an employment relationship ends, it does not necessarily have to be due to a dismissal, but there may be other causes for which the employer’s obligation to compensate the worker also arises. Such is the case of the termination of a temporary contract or for work and service.
The compensation received by the worker in this case would not be exempt from taxation.
On the other hand, we must also note that there are cases of termination of employment relationship that do not entail any compensation,such as a disciplinary dismissal or a voluntary leave.
In summary, all those indemnities that do not exceed the amount of 180,000 euros and that are calculated in accordance with the provisions of the Workers’ Statute are exempt from taxation.