Severance pay for the termination of an employment contract is a monetary compensation that the employer is legally obliged to pay to the employee before handing over the termination decision due to technological redundancy, or on the day of termination of the employment relationship upon retirement. Without prior payment of this fee, the termination decision cannot be valid.
Many employees do not know how much is the legal minimum due to them, what is the deadline for payment, or what happens when the employer ignores or delays this obligation. These rights are not a matter of the employer’s goodwill, but an inalienable constitutional guarantee: according to Article 60 paragraph 4 of the Constitution of the Republic of Serbia, the right to compensation in the event of termination of employment cannot be taken away or limited, and any statement by which the employee waives severance pay is legally null and void.
Severance pay for termination of employment contract – what is it, who has the right and when does the obligation arise?
The Labor Law (Official Gazette of RS, No. 24/2005 and amendments) regulates the right to severance pay in Art. 119, 158 and 159. What is severance pay in the legal sense: it is not a compensation for bad work or a penalty for the employer, but a legally established protective measure that provides employees with financial stability in the period between two employment relationships. Its goal is exactly that, which the Supreme Court of the RS explicitly confirmed in the judgment Rev2 1009/2022.
The right to severance pay exists in two legally stipulated cases: when an employee is declared redundant and when he retires. Each of these bases has a special formula and payment term. All other cases of termination of the employment relationship, such as resignation at one’s own request or mutual termination, do not give the right to legal severance pay, unless the collective agreement stipulates otherwise.
The right to severance pay in case of technological redundancy
When the employer makes a decision to reduce the number of employees due to technological, economic or organizational changes, the employee whose work is no longer needed is entitled to severance pay for termination of the employment contract according to Art. 158 of the Labor Law. This right arises regardless of the duration of the employment relationship, provided that the employee has spent at least one completed year with that employer.
Key mandatory provision: severance pay must be paid before the notice of termination is served, not at the same time or after. The Supreme Court of the RS in the judgment Rev2 1009/2022 (21.05.2024) explicitly confirmed that this obligation is of an imperative nature and that there is no justified reason for any delay. Even when an employee signs a receipt without actually making a payment to the account, such a document is legally worthless and does not relieve the employer of its obligations.
The right to severance pay in case of termination of the employment contract by the employee does not exist when the employee quits on his own or when the employment relationship is terminated by mutual agreement. In such situations, the employer is not legally obliged to pay compensation, unless it is expressly provided for in a written agreement between the parties. If the employer offered a mutual termination precisely to avoid the obligation to pay severance pay, the employee has a reason to challenge such an agreement.
Overview of cases – when does the right to severance pay arise and when does it not arise?
| Grounds for termination of employment | Right to severance pay | Note |
| Technological surplus (Art. 179 item 1 ZOR) | Yes | Payment before cancellation, min. 1 completed year |
| Retirement (Art. 119 ZOR) | Yes | On the day of termination, regardless on length of service |
| Cancellation by own the request of the employee | No | Unless collective stipulated by the contract |
| Agreed termination of the contract work | No (legal) | It can be contracted incentive severance pay |
| Dismissal due to work injury obligation | No | Disciplinary reason excludes right |
| Termination due to non-performance results of work | No | The legal minimum does not apply to this basis |
| Was the termination decision delivered without prior payment of severance pay? This automatically makes the dismissal illegal, and the deadline for legal protection is only 60 days. Contact Đurić and associates now → |
How is severance pay calculated? Formula, calculator and examples for Serbia in 2026
How severance pay for technological redundancy is calculated is determined by Art. 158 and 159 of the Labor Law and is based on two quantities: the number of completed full years of work for the same employer and the average monthly salary of the employee for the last three months before the month in which the payment is made. The law prescribes a minimum, but the employer’s internal acts may provide for a more favorable calculation.
Formula for calculation of severance pay for termination
The minimum legal formula reads:
Severance pay = (average monthly earnings for the last 3 months ÷ 3) × number of completed years
A few rules that directly affect the correct calculation:
- Only completed (full) years of work are counted. Incomplete years are not included in the total, regardless of how many months are left until the full year.
- If the employee worked for the employer’s predecessor during a status change (merger, merger), that time must be included in the basis for severance pay according to Art. 158 paragraph 3 ZOR.
- A higher coefficient than the legal minimum of 1/3 of the salary per year may be stipulated by the collective agreement or the work regulations.
- Amounts up to the legal minimum are exempt from income tax and contributions according to Art. 9 of the Law on Personal Income Tax. Anything paid by the employer above the minimum is taxed as “other income” at a rate of 20%.
Severance pay calculator – calculation examples for Serbia
The following table shows the amount of severance pay for different lengths of service, with an assumed average monthly salary of 100,000 dinars (based on Articles 158 and 159 ZOR):
| Years of service | Average monthly salary | Minimum severance pay | Tax exemption |
| 5 years | 100.000 RSD | 166.667 RSD | Up to the legal min. |
| 10 years | 100.000 RSD | 333.333 RSD | Up to the legal min. |
| 15 years | 100.000 RSD | 500.000 RSD | Up to the legal min. |
| 20 years | 100.000 RSD | 666.667 RSD | Up to the legal min. |
| 25 years | 100.000 RSD | 833.333 RSD | Up to the legal min. |
Note: For earnings above the average or for a calculation that includes more favorable rules of the collective agreement, consultation with a lawyer dealing with labor law is recommended. In the event of a dispute regarding the amount of the basis or the number of included years, the dispute shall be resolved through the resolution of labor disputes before the competent court.
Severance pay upon retirement – amount, calculation and payment in Serbia in 2026
The severance pay for retirement is essentially different from that for technological redundancy in that its amount does not depend on the length of service with the employer. Instead, the basis is the average salary in the Republic of Serbia according to the last published data of the Republic Statistical Office (RZS), which means that employees with 5 and 35 years of service are entitled to the same legal minimum.
According to Art. 119 paragraph 1 item 1) of the Labor Law, the employer is obliged to pay the employee at least two average wages in the Republic of Serbia upon retirement. The right applies to all types of pension without exception: old-age, disability, family and early old-age pension.
Amount and calculation of severance pay for retirement in 2026
Based on the average salary in the Republic of Serbia for January 2026 according to the RZS data (163,385 RSD gross), the calculation of severance pay for pension gives the following legal minimum:
2 × RSD 163,385 = RSD 326,770 gross (net amount approx. RSD 236,858)
This amount should be checked immediately before retirement, as RZS regularly updates the data, and the employer is bound by the latest published data. A collective agreement or work regulations may stipulate a higher amount than the legal minimum.
Payment of this allowance must be made on the day of termination of the employment relationship. This provision is imperative and there is no room for an agreement to postpone the deadline. Everything that is agreed outside the law, if it is less favorable for the employee, has no legal effect.
| Are you planning your retirement and not sure if the calculation is correct? A mistake of just one month can basically reduce the fee by tens thousands of dinars. Consult Đurić et al → |
Unpaid severance pay and its tax treatment – rights and protection employed in Serbia
Here’s everything you need to know.
Consequences of unpaid severance pay before termination
Unpaid severance pay has a direct and automatic legal consequence: the termination decision becomes illegal. This is not an interpretive position, but a clear legal provision supported by case law. The Supreme Court of the RS confirmed in the judgment Rev2 1009/2022 that the obligation to pay before termination does not depend on the will of the contracting parties or on any other reason.
An employee who received a decision on dismissal without prior payment of severance pay has two separate legal paths:
- A lawsuit for annulment of dismissal and compensation for damages – submitted within 60 days from delivery of the decision on dismissal according to Art. 195 of the Labor Law. This deadline is exclusive and cannot be extended. A successful lawsuit brings the right to reinstatement and compensation for lost wages for the entire period.
- Lawsuit only for the payment of the difference in severance pay without disputing the dismissal – according to Art. 196 of the Labor Law, the statute of limitations is 3 years from the due date of the claim.
A signed receipt without actual payment to the employee’s account does not legalize the dismissal and does not release the employer from the payment obligation.
The law does not even allow compensation: severance pay cannot be deducted from the employee’s possible debt to the employer, because according to Art. 105 paragraph 3 ZOR and judgment Rev 590/2021 (VKS, 25.02.2021), severance pay paid according to Art. 119 ZOR is not earnings and cannot be subject to forced collection.
Dismissal during sick leave and the right to severance pay
The Labor Law does not unconditionally prohibit dismissal during sick leave, but the ban applies when the health condition or illness is the reason for dismissal, which would constitute discrimination according to Art. 183 ZOR. If the reason for dismissal is technological redundancy and not sick leave per se, the right to severance pay exists under the same conditions as for employees who are not on sick leave.
According to Art. 187 ZOR absolute protection against dismissal without exception applies only to pregnant women, mothers in labor and parents who use leave to care for a child. For all other employees on sick leave, the employer can apply technological redundancy with the condition that the severance pay has been paid before dismissal.
For foreigners employed in Serbia on the basis of a work permit, the rights to severance pay are the same as for domestic employees, provided that the employment contract stipulates the same conditions for them (Article 4 of the Law on Employment of Residents). The provisions on severance pay do not differentiate between domestic and foreign nationals. Possible differences can arise only from the annex of the employment contract or the applicable collective agreement.
Tax treatment of severance pay and what it means in practice
Severance paid up to the legal minimum is fully exempt from income tax and all social contributions according to Art. 9 paragraph 1 items 18) and 19) of the Law on personal income tax. The amount paid by the employer above the legal minimum on the basis of a more favorable collective agreement or regulation is taxed as “other income” at a rate of 20%.
Practically: an employee who receives the legal minimum does not have any tax burden. An employee who, according to a collective agreement, receives, for example, double the legal minimum, pays tax only on the difference above the minimum.
Case law – How do courts in Serbia interpret severance pay and employee rights?
Courts in Serbia have ruled on the right to severance pay and employers’ obligations on several occasions. Here are the most important court decisions that define the rights of employees and the limits that employers must not cross:
| Judgment | Court | Key takeaway |
| Rev2 1009/2022 | Supreme Court of the Republic of Serbia, 21.05.2024. | Obligation to pay severance pay before termination is imperative. Delay in payment, regardless on the reason, makes a solution about illegal dismissal. Purpose severance pay is financial support in between two working relationships. |
| Rev2 2785/2024 | Supreme Court of the Republic of Serbia, 30.09.2024. | When the workplace is in completely abolished, the employer is not obliged to applies criteria for selection of technological surplus. Abolition of the place next to the previous one payment of severance pay constitutes a legal dismissal. |
| Rev 590/2021 | Supreme Court of the Republic of Serbia, 25.02.2021. | Severance paid according to Art. 119 ZOR is not an income and no may be subject to coercion billing. Statement of the employee about waiver of severance pay is void as contrary to the Constitution RS, Art. 60 paragraph 4. |
The common denominator of all these decisions is that the right to severance pay for termination of employment contracts in Serbia functions as an inalienable legal guarantee. No internal act of the employer or agreement with the employee can deny it, reduce it below the minimum or postpone it without legal consequences for the employer.
When is the right time to hire a lawyer to protect the right to severance pay in Serbia?
The right to severance pay for termination of an employment contract in Serbia is legally regulated, but the exercise of that right in practice often requires legal intervention. Hiring a lawyer specialized in labor law is justified in each of the following situations: the employer paid the severance pay in an amount lower than the legal minimum or the payment was delayed; the termination decision was delivered without any prior payment; the basis for the calculation is disputed, specifically the number of years included or the amount of the average salary; or the employee was offered a negotiated termination of the contract instead of a technological redundancy precisely to avoid the payment obligation.
The period of 60 days from the delivery of the decision on termination is exclusive, which means that after its expiration the right to annul the termination ceases permanently. If you have any doubts about the legality of the dismissal or the accuracy of the calculation of the severance pay, the consultation with a lawyer should be done in the first days after receiving the decision, and not after the first few weeks. It is unwise to delay the protection of your labor rights.
| The resignation arrived, and the severance pay was not paid before that? You have 60 days for judicial protection and these rights should not be missed. Schedule an urgent consultation with Đurić and associates → |
Frequently asked questions
What is the severance pay if I have 10 years of service and an income of 100,000 dinars?
With an average monthly salary of RSD 100,000 and 10 completed years of work, the minimum severance pay is 10 × (100,000 ÷ 3) = 333,333 dinars, according to the formula from Art. 158 and 159 of the Labor Law. A collective agreement or work regulations may provide for a more favorable calculation. The entire amount up to the legal minimum is exempt from income tax and social contributions.
Does the employee have the right to severance pay in case of mutual termination of the employment contract?
No, the Labor Law does not prescribe mandatory severance pay for mutual termination. The right arises exclusively in case of dismissal due to technological redundancy and retirement. In the event of a mutual termination, a so-called incentive severance pay can be agreed upon, but only if this is expressly included in the written agreement according to Art. 177 ZOR. If the employer offers a mutual termination to avoid paying, this is a reason to be cautious.
What is severance pay and how is it different from retirement pay?
What is severance pay: it is a compensation that is paid exclusively in case of termination due to technological redundancy, and its amount depends on the length of service with the employer (1/3 of salary per year, Article 158 ZOR). Severance pay for retirement is a fixed amount of two average salaries in the Republic of Serbia, regardless of length of service (Art. 119 ZOR). The basis, formula and payment term are different in both cases.
Can the employer postpone the payment of severance pay for a month or two?
No, it can’t. The employer is obliged to pay severance pay for technological redundancy before delivery of the termination decision, and for pension exactly on the day of termination of the employment relationship. Any delay, regardless of the reason, makes the dismissal illegal, and this was confirmed by the judgment Rev2 1009/2022 of the Supreme Court of the RS. The statute of limitations for a claim for unpaid severance pay is 3 years, but a claim for cancellation of dismissal must be filed within 60 days.
Does a foreigner working in Serbia have the right to severance pay?
Yes, a foreigner who works in Serbia on the basis of a work permit for foreigners has the same rights to severance pay as domestic employees, if the employment contract stipulates the same working conditions. The right to severance pay does not depend on citizenship, but on the status of the employee according to the Labor Law and the number of completed years of work at the specific employer in Serbia.
