Many countries require a payment when employment ends, whether it is called end-of-service gratuity, severance pay or a termination indemnity. The rules differ, but they are built from the same few parts. Get those parts right and the calculation stops being a spreadsheet exercise.
Why the rules differ
The ILO's Termination of Employment Convention (No. 158) recognises a severance allowance or other separation benefits, but leaves the amount and conditions to each country. Some countries pay it on every exit, some only when the employer ends the contract, and some replace it with a fund or pension contributions made during employment. Before you calculate anything, check which scheme applies where the employee works.
The building blocks
- A service threshold. Many schemes pay nothing until a minimum period, often a year, has been completed.
- A rate per year of service. Usually expressed as days or weeks of wage per year, sometimes rising after a number of years.
- The wage it is based on. Some laws use the last basic wage, others the full wage including fixed allowances, others an average over a recent period.
- Part years. Most schemes count a partial year in proportion; a few round down to whole years.
- The reason for leaving. Resignation, dismissal, redundancy and end of a fixed term can each change the amount.
- Caps and floors. Some schemes limit the total; contracts and company policy can always be more generous than the legal minimum.
Which wage counts
This is the most common source of disputes. If the law uses the basic wage, the split between basic pay and allowances in the contract decides how much the leaver receives. If it uses the full wage, you need to know which allowances count as "wage". Either way, you need the right figure on the right date, which means accurate, dated pay history rather than a single current salary field.
A worked example
Illustrative only, with made-up rules: a scheme pays 21 days of last basic wage per year of service, counts part years in proportion and uses 30 days to the month. The employee's last basic wage is 4,000 a month and they leave after 5 years and 6 months.
| Step | Calculation | Result |
|---|---|---|
| Daily wage | 4,000 ÷ 30 | 133.33 |
| Amount per year | 21 days × 133.33 | 2,800 |
| Years of service | 5 years + 6/12 | 5.5 |
| End-of-service pay | 2,800 × 5.5 | 15,400 |
The final settlement usually also includes unused annual leave and any notice pay, minus amounts the employee owes, such as an outstanding salary advance, where the law allows that deduction.
Common mistakes
- Using gross pay for one leaver and basic pay for another. Decide the basis from the law and the contract, and apply it consistently.
- Ignoring part years. Five years and eleven months is not five years in most schemes.
- Taking the wage from the wrong date, for example before a recent raise.
- Forgetting recoveries until the leaver has gone.
- Applying one country's rule to everyone in a multi-country workforce.
How Mawro handles it
In Mawro, end-of-service rules are configuration, not code: the threshold, the rate per year (including steps after a number of years), the wage basis, part-year treatment, the effect of the leaving reason and any cap. You can keep a statutory rule and a more generous company rule side by side. The final settlement shows the full calculation trace, includes leave and recoveries, and is approved before payment. Because pay history is effective-dated, the wage on the leaving date is always the right one.
Not legal advice. This guide explains common practice for HR teams. Labour law differs by country, and sometimes by region, sector or collective agreement, and it changes. Check the current law where your people work and take legal advice for specific cases.