Severance pay
Severance pay pursuant to BUAG (old system, ‘Abfertigung Alt’)
The basic idea was to extend the “company impartiality” already enshrined in the holiday provision for construction workers to also include severance.
This means that the worker’s periods of employment at different companies are added together in order to calculate their severance pay entitlement.
Thus the statutory severance provision according to BUAG has been in force since 1 October 1987.
Severance pay serves various social purposes:
- Helps to cover period of possible unemployment following termination of the employment contract
- Loyalty bonus for a long period of service
- Workers whose efforts contribute to the company’s success also share in that success
- Makes up for reduced income caused by job loss
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Compensates for reduced ability to work due to long period of employment at a particular company
Severance pay as per BMSVG (new system ‘Abfertigung Neu’)
The Corporate Employee and Self-Employed Pension Act [Betriebliches Mitarbeiter- und Selbständigenvorsorgegesetz] (BMSVG) applies to employment contracts based on a private-law contract which went into effect after 31 December 2002, and for free employment relationships that started after 1 Jannuary 2008.
The BUAK - Corporate Pension Insurance Fund (BUAK-BVK) holds severance pay contributions in trust. Read more about the BUAK-BVK’s sustainable investment here.