Severance Allowance in 2025: Everything Employees Need to Know (A-Z)

What Is Severance Allowance?

Severance allowance is the amount of money that an employer (enterprise) is legally obligated to pay employees who have worked regularly for at least 12 months, when their labor contract is terminated under the circumstances stipulated by law.

This right is clearly regulated under Article 46 of the 2019 Labor Code. It is not a bonus or a goodwill gesture, but a legal responsibility of the employer to recognize the employee’s contributions during their employment.

Conditions to Receive Severance Allowance

To be eligible for severance allowance, the employee must meet both of the following conditions:

Condition 1: The labor contract is terminated under one of these circumstances:

• Expiration of the labor contract;

• Completion of the work agreed in the labor contract;

• Mutual agreement to terminate the labor contract;

• Employee lawfully unilaterally terminates the labor contract;

• Employer unilaterally terminates the labor contract;

• Employee is sentenced to imprisonment (not suspended), capital punishment, or is banned from performing the old job by court decision;

• Employee dies, is declared by the court to have lost civil act capacity, gone missing, or deceased;

• The enterprise ceases operation or announces the absence of a legal representative.

Condition 2: The employee has worked continuously for at least 12 months for the enterprise.

Cases Not Eligible for Severance Allowance

According to the law, severance allowance is not applicable in the following cases:

• The employee qualifies for and is receiving a retirement pension;

• The employee illegally unilaterally terminates the labor contract;

• The employee is dismissed due to disciplinary action;

• The employee is absent from work without valid reason for 5 or more consecutive working days, leading to lawful contract termination by the employer.

How to Calculate Severance Allowance (Official Formula)

This is the most important part employees need to clearly understand. The formula is:

Severance allowance = (Working period used for severance calculation) × (Wage used for severance calculation)

Each year of employment entitles the employee to half a month’s wage.

Determining the Working Period for Severance

This is where confusion often arises. The working period used to calculate severance allowance is:

Working time = (Total actual working time) – (Time participating in unemployment insurance) – (Time already compensated with severance or job-loss allowance)

• Total actual working time: From the date the employee started until the labor contract ends.

• Time participating in unemployment insurance: This period is excluded because severance is covered by the Unemployment Insurance Fund.

💡 Note: If the employer has paid an amount equivalent to unemployment insurance, this time is also excluded.

Rounding Rules:

• Less than 6 months: Counted as 0.5 year (entitled to 1/4 month’s wage)

• 6 months or more: Counted as 1 year (entitled to 1/2 month’s wage)

Wage Used to Calculate Severance Allowance

This is the average salary of the last 6 consecutive months under the labor contract before termination.

Illustration Example

Ms. A worked for Company X from January 1, 2020 to December 31, 2024, and agreed to terminate the labor contract.

• Total working time: 5 years (60 months)

• Unemployment insurance participation: Jan 2020 – Dec 2023 = 4 years (48 months)

• => Severance time = 60 – 48 = 12 months = 1 year

• Average wage in the last 6 months: 12,000,000 VND/month

✅ Severance allowance = 1 year × (12,000,000 ÷ 2) = 6,000,000 VND

Severance Allowance vs. Job-Loss Allowance

Many employees and employers confuse these two entitlements. The table below clarifies the difference:

Employer’s Responsibility to Pay Severance

Employers are legally required to pay all entitlements, including severance allowance, within 14 working days from the date of contract termination.

In exceptional cases, this deadline can be extended, but must not exceed 30 days. If delayed, the employer must also pay interest on the late payment.