Severance pay in Ethiopia: the formula, who gets it, and a worked example

The severance formula, with a worked example

Article 40 of Labour Proclamation 1156/2019 uses the average daily wage of your last week of service. Service of less than a year is paid in proportion.

6 months: half of 30 x 400 = 6,000
1 year: 30 x 400 = 12,000
Each extra year: one third of 12,000 = 4,000

5 years: 12,000 + (4 x 4,000) = 28,000
10 years: 12,000 + (9 x 4,000) = 48,000

These are our sums on Article 40.

In days of wage, that's 30 for one year, 40 for two, 50 for three, 70 for five and 120 for ten. The law caps the total at 12 months' wage. It doesn't say how a part year after the first is counted, so ask if your service ends mid way through a year.

Who gets severance

Article 39(1) gives it to a worker who has finished probation and is not eligible for pension, where any of these happens.

• The business closes for good, through bankruptcy or any other cause
• The employer ends your contract in breach of the law
• You're let go in a reduction of workforce
• You resign because of sexual harassment or violence by the employer or a manager, or by a co-worker where the employer failed to act
• You resign because of treatment that hurts your dignity or is a crime
• You resign because the employer ignored a threat to your safety or health
• A medical board certifies a partial or total disability and your contract ends for it
• You've served at least 5 years and your contract ends through sickness or death, or you resign with no training bond holding you to the job
• You resign because of HIV/AIDS

That 5 year line is the one most people don't know. After 5 years, you can resign and still have a right to severance, unless a training agreement ties you to the employer. If you die before it's paid, it goes to your dependants.

What if I'm in the pension scheme?

The law says the right belongs to a worker who is not eligible for pension, and Article 39 doesn't define that phrase. Being in POESSA now isn't the same as having a right to a pension today, so don't assume you're out. Take your case to a labour office, or to a lawyer, with your service dates and your pension number before you give up a claim.

What you can get on top

• Closure or a reduction of workforce: a further 60 times your average daily wage (Article 40, for terminations under Articles 24(4) and 29). On 400 Birr, that's 24,000.
• You quit for good cause under Article 32(1): a further 30 times your daily wage. If the cause was sexual harassment or violence, it's 90 times. These also apply to workers covered by a pension law (Article 41).
• Unlawful dismissal, not reinstated, on an open-ended contract: 180 times your average daily wage, plus pay for your notice period (Article 43(4)). On a fixed term contract, it's the wages to the end of the term, up to 180 times.
• Notice: if your employer has to give you notice and doesn't, that's a separate claim. It's one month up to a year of service, two months up to nine years, and three months above that (Article 35).

How do I find my daily wage from a monthly salary?

The law gives no divisor. It says the average daily wage of your last week of service, and doesn't tell you how to turn a monthly salary into that. So we won't give you a money sum from a monthly salary, because the answer depends on which figure is used. Ask your employer which divisor it used, and ask a labour office or a lawyer if it looks low.

Is severance taxed?

Yes. Article 12(1)(c) of Income Tax Proclamation 979/2016 counts money you get on redundancy, on leaving or at the end of a contract as employment income. We couldn't open an official method for how it's spread across months, so we don't show a tax sum. Ask for a written calculation showing gross, tax and net.

Time limits you can't miss

• Any payment arising from the end of a contract: six months from the date it ended (Article 163(4))
• A claim to get your job back: three months from the date it ended (Article 163(2))
• Quitting for good cause under Article 32: within 15 working days of the event (Article 33)

Disputes on the end of a contract go to the labour division of the first instance court (Article 139). When you leave, ask for your work experience certificate too. It's free and you have a right to it. This page explains the law, and it isn't legal advice.

• Salary calculator for Ethiopia
• Work experience letter: your right to one
• Human resources jobs in Ethiopia

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