European Restructuring Monitor (ERM)
Eurofound's ERM database on restructuring-related legal regulations provides information on regulations in the Member States of the European Union and Norway which are explicitly or implicitly linked to anticipating and managing change.
Labour Act: Article 126, 137; The Book of Rule on the Law on Personal Income Tax: Article 7
According to the Labour Act, Article 126, severance pay is the amount of money paid by the employer to a worker who was dismissed after two years of continuous work as a means of securing income and mitigating the adverse consequences of the dismissal. Severance pay shall not be obtained by a worker who was dismissed due to his or her misconduct and by a worker who at the time of dismissal is at least 65 years old and has 15 years of pensionable service.
An employee whose employment contract is terminated after two or more years of continuous service has the right to severance pay, unless the notice is due to the employee's misconduct, in which case no right to severance pay holds. Under the provisions of the Labor act, in the event of a business transfer, the years of service with the previous employer are added to the transferred employment contracts, which are considered to be continuing contracts from the previous employment.
The severance pay amount is determined by the length of service. The minimum severance pay amount for each year of service is one-third of the average monthly salary earned by the employee in the three months prior to the termination of the employment contract. Unless otherwise specified by law, collective agreements, employment regulations or employment contracts, the total severance pay amount may not exceed six times the average monthly salary earned in the three months prior to the termination of the employment contract (Article 126, Paragraph 4).
In accordance with the Book of Rule on the Law on Personal Income Tax, severance pay due to business reasons is exempt from taxation up to the amount of EUR 821.71 for each year of service with the same employer. Severance pay due to injury or occupational illness is exempt from taxation up to the amount of EUR 1,061.78 for each year of service with the same employer. In this case, the payment of the amount is above the non-taxable part, this part of severance payment is considered the worker's salary. Therefore, social insurance contributions as well as income tax and surtax should be paid on that sum.
This is a general regulation, not specific to collective dismissals.
An employee who has two years of continuous service with the same employer (and is not being dismissed due to an intentional breach of contractual obligation) is entitled to a severance payment. The statutory minimum severance payment is calculated by multiplying one-third of the average monthly salary paid during last three months of employment by the number of years of continuous service with that employer. The severance payment is capped at six times the average monthly salary, unless otherwise provided for by law, by-law, collective agreement or work contract.
Rožman (2023) explains that in practice earlier the agreement on the termination of the employment contract at the proposal of the employers was a fairly common case. However, at first glance it seems unlikely that the worker will accept the employer's proposal for the mutual termination of the employment contract if, because as a result, he or she is left without a job, which means without a livelihood. However, in practice, it was mostly about agreements with the so-called incentivised severance pay in such a way that employers offered high severance pay if the workers accepted the agreement. This was mostly done in cases where there was a surplus of workers and therefore the expectation of business-related layoffs, and through the agreement the employer avoided the layoff procedure. In that way, the employer resolves the possibility of losing the dispute in case of a lawsuit by the workers. On the other hand, the worker received a higher amount of money than he or she would have received if there had been a dismissal. In the meantime, as the situation on the labour market has changed, such agreements with incentive severance pay have become rare.
Eurofound (2015), Croatia: Severance pay/redundancy compensation, Restructuring legislation database, Dublin, https://apps.eurofound.europa.eu/legislationdb/severance-payredundancy-compensation/croatia
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