Severance pay in Austria is a mandatory statutory entitlement, not a discretionary payment. The country operates two distinct legal regimes depending on when an employment relationship began: the old severance law (Abfertigungsrecht alt) and the new severance law (Abfertigungsrecht neu), introduced by the Employee Provision Act (Betriebliches Mitarbeiter- und Selbständigenvorsorgegesetz, BMSVG). Understanding which system applies - and what it requires - is essential for any employer operating in Austria or any employee planning an exit. This guide covers both regimes, eligibility conditions, calculation rules, employer obligations, and the most common compliance pitfalls.
Austria';s approach to severance pay changed fundamentally when the BMSVG came into force. Employment relationships that began before a specific reform date are governed by the old system; those that started on or after that date fall under the new system. In practice, the vast majority of active employment contracts today are covered by the new regime, though the old system still applies to a significant number of longer-tenured employees.
Under the old system, severance pay was a lump-sum entitlement paid directly by the employer at the end of employment. The entitlement arose only in certain termination scenarios and only after a minimum period of service. Under the new system, employers make ongoing monthly contributions to an individual employee account managed by a licensed occupational pension fund (Mitarbeitervorsorgekasse, MVK). The employee accumulates a personal entitlement over time, regardless of how the employment ends.
This structural difference has significant practical consequences. Under the old system, the employer bears the full financial risk of a large lump-sum payment at termination. Under the new system, the liability is spread over the entire employment period through regular contributions, making cash-flow planning more predictable for businesses.
The old severance law applies to employment contracts concluded before the BMSVG reform date. An employee becomes entitled to a severance payment only after completing at least three uninterrupted years of service with the same employer. The entitlement does not arise automatically on termination - it depends heavily on the reason for termination.
Under the old regime, severance pay is triggered when:
Critically, an employee who resigns voluntarily without a justified reason, or who is dismissed for cause (fristlose Entlassung), loses the entitlement entirely. This is one of the most consequential distinctions in Austrian employment law and a frequent source of disputes.
The amount is calculated as a multiple of the employee';s average monthly gross remuneration. The multiplier increases with years of service:
"Monthly remuneration" for this purpose includes the regular gross salary plus proportionate shares of special payments such as the thirteenth and fourteenth month salary (Urlaubs- und Weihnachtsgeld), where applicable under the relevant collective agreement (Kollektivvertrag). Many foreign employers underestimate this component and calculate severance on the base salary alone, which is incorrect and can lead to underpayment claims.
The new severance system, governed by the BMSVG, applies to employment contracts entered into from the reform date onward. It also applies to self-employed persons and certain other categories of workers, which reflects Austria';s broader policy of extending social protection beyond traditional employment.
Under this system, the employer is required to contribute 1.53% of the employee';s gross monthly remuneration - including special payments - to a licensed MVK chosen by the employer. This contribution obligation begins from the first month of employment, with no minimum service threshold. There is no waiting period and no dependency on the reason for termination.
The MVK invests the accumulated funds and manages the individual account. The employee can access the accumulated capital in the following circumstances:
If the employee resigns voluntarily before three years of contributions have accumulated in the current MVK, the funds are not paid out but are instead transferred to the MVK of the next employer. This portability feature is one of the key design advantages of the new system - employees do not lose accrued entitlements when they change jobs.
A practical scenario: a foreign company establishes an Austrian subsidiary and hires its first local employee. The employer must register with an MVK within the first month of employment and begin contributions immediately. Failure to register on time triggers penalty interest and potential administrative fines. Many newly established subsidiaries overlook this obligation because it is not analogous to anything in their home jurisdiction.
Employers covered by the new regime have several concrete obligations beyond simply making contributions. First, they must select an MVK and notify the employee of the chosen fund. The selection is the employer';s right, but the employee must be informed in writing. Second, contributions must be paid monthly, typically by the 15th of the following month, alongside social security contributions. Third, the employer must report changes in remuneration to the MVK promptly, as contributions are recalculated on updated gross pay.
The Austrian Social Insurance Authority (Österreichische Gesundheitskasse, ÖGK) and the relevant MVK both have oversight roles. The ÖGK collects contributions together with social security payments in many cases, simplifying administration but also meaning that errors in social security reporting can cascade into MVK contribution errors.
Collective agreements (Kollektivverträge) play an important role in Austrian employment law generally, and they can modify certain aspects of severance entitlements - particularly under the old regime. Employers must identify the applicable collective agreement for their industry and check whether it contains provisions that supplement or modify the statutory baseline. Austria has a high rate of collective agreement coverage, so this step is rarely optional.
A common mistake made by foreign employers is treating the 1.53% MVK contribution as the entirety of their severance-related obligations without checking whether any old-regime employees remain on their payroll. If a company acquires an Austrian business or takes on staff through a transfer of undertaking (Betriebsübergang), it may inherit old-regime employees with accrued entitlements that will crystallise on termination.
If you are establishing or restructuring an Austrian employment structure and need clarity on which regime applies to your workforce, contact us at info@vlolawfirm.com. We can help structure the setup correctly the first time.
The interaction between termination type and severance entitlement is more nuanced in Austria than in many other European jurisdictions. Two scenarios illustrate the practical stakes.
Scenario one - employer-initiated termination under the old regime: A company dismisses a long-serving employee with eighteen years of service. The employee';s average monthly gross remuneration, including proportionate special payments, amounts to a substantial figure. Under the old regime, the employer owes six monthly salaries as a lump sum, payable immediately on termination. The employer must also ensure the calculation includes all remuneration components correctly. Disputes over the correct calculation basis are common and frequently end in labour court proceedings before the Arbeits- und Sozialgericht.
Scenario two - voluntary resignation under the new regime: An employee who joined under the new system resigns after four years of service. The employer has been contributing 1.53% monthly throughout. Because the employee has accumulated more than three years of contributions in the same MVK, they are entitled to receive the full balance of their individual account as a cash payment. The employer has no additional lump-sum obligation - the MVK handles the payout directly. This illustrates why the new system reduces employer exposure at the moment of termination.
In both scenarios, the employer must issue a final settlement statement (Abrechnung) covering all outstanding entitlements: remaining salary, unused holiday entitlement, and - where applicable - the severance payment. Errors or delays in this final settlement can give rise to claims before the labour courts, which in Austria are relatively accessible and frequently used by employees.
The financial exposure under the old regime can be substantial for employers with long-tenured staff. A single employee with more than twenty-five years of service is entitled to twelve monthly salaries - equivalent to a full year';s gross remuneration. For senior employees with high salaries, this is a material liability. Prudent employers with old-regime employees should provision for this liability in their accounts.
Under the new regime, the ongoing cost is predictable: 1.53% of gross payroll per month. Over a full employment relationship, this accumulates to a meaningful sum, but the employer';s cash-flow exposure at termination is zero. The MVK bears the investment risk on the accumulated funds, not the employer.
Disputes about severance entitlements are heard by the Arbeits- und Sozialgericht (Labour and Social Court). Austrian labour courts apply relatively employee-friendly procedural rules, and employees are not required to pay court fees in first-instance proceedings. This means that underpayment or non-payment of severance is likely to be challenged. Penalties for non-compliance with MVK contribution obligations include interest on arrears and administrative fines imposed by the relevant supervisory authority.
Many employers also underestimate the role of the Arbeiterkammer (Chamber of Labour), which provides free legal advice and representation to employees. In practice, the Arbeiterkammer frequently identifies and pursues severance underpayments on behalf of employees, making compliance particularly important.
What happens to severance entitlements when an employee transfers to a new employer in Austria?
Under the new regime, the individual MVK account follows the employee. When employment ends, the accumulated balance is either paid out (if the employee is entitled to a payout) or transferred to the MVK of the new employer. This portability means employees do not lose accrued entitlements simply by changing jobs, which is a significant improvement over the old system. Under the old regime, there is no portability - entitlements are calculated solely on the basis of service with the current employer, and a transfer of undertaking (Betriebsübergang) under the Austrian Labour Constitution Act (Arbeitsverfassungsgesetz, ArbVG) preserves continuity of service for this calculation.
How long does it take to receive severance pay in Austria, and what does it cost the employer?
Under the old regime, the lump-sum payment is due immediately upon termination - there is no statutory grace period, though in practice payment is made as part of the final settlement. The cost to the employer is the full lump sum, which can range from two to twelve monthly salaries depending on years of service. Under the new regime, the employer has no payment obligation at termination; the MVK processes the payout directly to the employee, typically within a few weeks of the claim being submitted. The employer';s ongoing cost is 1.53% of gross monthly remuneration throughout the employment relationship.
Can an employer and employee agree to waive or reduce severance pay in Austria?
Waivers of statutory severance entitlements are heavily restricted in Austrian law. Under the old regime, an employee can only waive a severance entitlement after it has already arisen - not in advance. Any contractual clause purporting to exclude or reduce the statutory entitlement in advance is void. Under the new regime, the contribution obligation is mandatory and cannot be contracted out of. Collective agreements may supplement but generally cannot reduce statutory minimums. In practice, severance entitlements are treated as non-negotiable floors, and any settlement that appears to waive them should be reviewed carefully by qualified legal counsel.
Austria';s severance pay framework is one of the more structured in Europe, combining a legacy lump-sum system with a modern funded contribution model. Employers must identify which regime applies to each employee, meet ongoing contribution obligations under the new system, and provision correctly for potential lump-sum liabilities under the old system. Non-compliance carries real financial and legal risk.
VLO Law Firms advises international clients on severance pay matters in Austria. We can assist with regime analysis, MVK registration, calculation reviews, and representation in severance disputes before Austrian labour courts. To request a consultation, contact: info@vlolawfirm.com