đŸ’„ Got Layoffs? Don’t Panic! My Handpicked Guide to Calculating Severance Pay, This Monster Guide Breaks It Down Instantly! 💰

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Hey besties! The job market rollercoaster is a wild ride lately, and sometimes the unexpected happens😭 What do you do if you’re the one who gets “graduated” and your mind goes blank? What if the HR talks compensation, gives you a number, and says “take it or leave it”?

No worries! Today, your “Instant Solution” blogger is here to share a super super important workplace survival skill – how to correctly calculate your “Termination Compensation” or Severance Pay! This isn’t some charity from the company; it’s your legal right! Knowing this helps you stay sharp and avoid getting ripped off when it matters most!

I’ve broken down this complex topic into the simplest steps. Follow this guide (I know it’s a bit long, haha, but totally worth it!), and you’ll instantly know where you stand!

đŸ‘‡đŸ» Key Points! Severance Pay boils down to these three main things and tons of details!

Point 1: First, figure out WHY you’re being terminated! This is crucial!

Severance pay, or “economic compensation,” is only applicable in specific situations when the labor contract is dissolved. Simply put, in most cases, you’re only eligible for compensation if the company initiates the termination of the labor contract, and it’s NOT due to your major fault or serious misconduct.

  • Common situations where you GET compensation:
    • The company terminates the contract due to operational difficulties, restructuring, layoffs, etc. (Most common! N or N+1)
    • The labor contract expires, and the company doesn’t renew it (unless the company offers to maintain or improve the original terms, and you refuse). (N)
    • The company illegally terminates the labor contract. (Usually 2N)
    • Significant changes in objective circumstances make it impossible for the contract to be fulfilled, and the company terminates it after failed negotiations. (N)
    • Your position is eliminated. (N or N+1)
    • You are terminated after the medical leave period ends due to illness/non-work-related injury, and you cannot resume your original work or perform other work arranged by the company. (N + medical subsidy) – This is complex; the medical subsidy is extra.
    • The company fails to pay social insurance contributions for you as required by law. (You are forced to terminate)
    • The company fails to pay labor remuneration or provide labor conditions as agreed. (You are forced to terminate)
    • The company uses deception, coercion, or takes advantage of your vulnerability to make you sign or change the labor contract against your true will. (You are forced to terminate)
    • The company exempts itself from statutory liabilities or excludes your statutory rights. (You are forced to terminate)
    • The employer violates mandatory provisions of laws or administrative regulations. (You are forced to terminate)
  • Situations where you typically do NOT get compensation:
    • You voluntarily resign (getting compensation might be possible through friendly negotiation, but it’s not legally mandated).
    • You are terminated for serious violation of company rules and regulations. (Requires the company to have clear, legal rules and evidence of your serious violation)
    • You are seriously negligent or commit malpractice, causing significant damage to the company.
    • You simultaneously establish employment relationships with other employers, significantly affecting your ability to complete tasks for this company, and refuse to rectify the situation when requested by the employer.
    • The labor contract is invalid due to circumstances specified in Article 26, Paragraph 1, Item 1 of the Labor Contract Law (e.g., contract signed under deception or coercion).
    • You are held criminally liable according to law.

Listen up! Many companies try to avoid paying compensation by coaxing or forcing employees to sign “voluntary resignation” agreements or unfairly labeling them as “seriously incompetent.” Remember, if it’s not your true intention or it’s untrue, DO NOT sign anything! And definitely don’t sign any agreement waiving your right to hold the company accountable or forfeit severance pay! These are traps!

  • Deep Dive: How to prove “serious incompetence”? The legal standard is very strict. The company needs to prove: 1. There were evaluation standards and procedures. 2. You indeed failed to meet the standards. 3. You remained incompetent even after the company provided training or adjusted your position. 4. The company legally fulfilled its notification obligations. This entire process is very complex and has a high threshold. Most companies terminating you without paying compensation just because they say you’re incompetent are acting illegally. If the company uses this as a reason not to pay, you have every right to demand they provide the complete chain of evidence. If the company cannot provide sufficient proof, it constitutes illegal termination, requiring them to pay 2N.

Point 2: The Core! How is Compensation Calculated? Understand N and the +1!

Economic compensation is based on your length of service with the company. The law uses the letter N to represent this duration.

  • How to calculate N:
    • For each full year of service, you get compensation equivalent to one month’s wage. (This month’s wage isn’t your net monthly salary or basic salary; we’ll cover the base later!)
    • For service between six months and less than one year, it’s counted as one year. (So, 0.5 < Service Years ≀ 1, counts as 1N)
    • For service less than six months, it’s counted as half a month’s wage. (Service Years ≀ 0.5, counts as 0.5N)
  • Examples:
    • Xiao Ming worked at a company for 3 years and 5 months. 3 full years count as 3N. The 5 months are less than six months, so they count as 0.5N. Total: 3N + 0.5N = 3.5 months of wage.
    • Xiao Hong worked for 4 years and 8 months. 4 full years count as 4N. The 8 months are more than six months, so they count as 1N. Total: 4N + 1N = 5 months of wage.
    • Xiao Li worked for 5 months. Less than six months, counts as 0.5 months of wage.
    • Xiao Wang worked for exactly 2 years and 0 days. Counts as 2 months of wage.
  • About the +1:
    • In certain situations where the labor contract is terminated, the company might need to pay an additional 1 month’s wage as a “payment in lieu of notice,” on top of the economic compensation (N).
    • This +1 usually happens when: The company terminates the labor contract according to Article 40 of the Labor Contract Law (e.g., incapable of work after medical leave, incapable of performing duties, significant change in objective circumstances making contract impossible), AND the company did NOT give you 30 days written notice before termination, but chose to terminate immediately.
    • Note: If the company gives you the 30-day advance notice, you typically don’t get this +1 (payment in lieu of notice). If the situation allows for mandatory termination by your side (like company’s illegal termination, company not paying social insurance), you usually get N or 2N economic compensation, and this +1 for notice is generally not involved. (Specific situations can be complex, but this is the general principle).
    • So, what we often call N+1 is Economic Compensation (N) + Payment in lieu of notice (+1) . You only get N+1 if specific conditions are met AND the company didn’t give you 30 days advance notice. Most layoffs fall under Article 41 of the Labor Contract Law (economic layoffs or due to structural adjustments), which only require payment of economic compensation N. However, in practice, many companies choose to pay N+1 to settle things quickly and avoid the hassle of giving 30 days notice. That’s why when people mention “layoffs,” they’re used to saying “N+1,” but strictly legally speaking, economic layoffs are usually N, and +1 is “payment in lieu of notice” for specific scenarios. Getting N+1 is always better, so you can aim for it in negotiation.
  •  Deep Dive: How is the length of service calculated? It starts from the date you began working and signed the labor contract. If the company’s name or legal entity changes but you continue working there, your years of service are calculated continuously. If you are transferred within the same group company (although not explicitly regulated by law, in practice, if the labor relationship and wage payment entity are consistent, or if continuous service can be proven, it’s usually calculated continuously). If the labor contract was interrupted and then renewed, the years before the interruption are generally not included in the calculation, unless the interruption was due to the company’s reasons or agreed by both parties to be continuous service.

Point 3: The Monthly Wage! How is the Base Calculated? This is key to how much money you get!

As mentioned earlier, compensation is calculated based on a “monthly wage,” but this is not your take-home pay from your payslip, nor is it just your basic salary. The law has a specific way to calculate this base:

  •  Calculation Base: It’s your average wage for the twelve months preceding the termination or expiration of the labor contract.
  •  What is “twelve months preceding the termination or expiration”? It means the 12-month period counting backward from the day you receive the termination notice or the day the contract expires. For example, if you’re notified of termination on December 15th, you calculate your average wage from the period starting December 16th of the previous year up to December 15th of the current year. Worked less than 12 months? Then calculate the average wage based on the actual number of months worked.
  • What counts as “wage”? The term “wage” here is broad; it includes:
    • Your basic salary (position salary, job title salary, etc.)
    • Your bonuses (quarterly bonuses, annual bonuses, etc. If a bonus covers a period longer than a month, it should be prorated and averaged into the monthly calculation)
    • Your allowances and subsidies (like transportation, communication, housing, meal subsidies, etc., as long as they are regularly paid with your salary)
    • Your performance-based pay, commissions, piece-rate wages, etc.

In short: Any labor remuneration you receive for providing normal work, basically, counts as “wage” for calculating the severance base. A few welfare-related or reimbursement-based incomes might not be included.

  • Don’t forget the Cap: The law stipulates that if your average monthly wage is higher than three times the average monthly wage of employees in the region announced by the municipal government where the employer is located for the previous year, the compensation will be paid based on three times the local average monthly wage, and the maximum number of years for which compensation is paid shall not exceed twelve years.
    • This means if you are a high earner with a high average wage, your compensation base for calculation purposes can only be the local average wage multiplied by three, and the maximum length of service considered for compensation is capped at 12 years. This rule mainly aims to ensure basic compensation for ordinary workers while limiting the compensation amount for high-income earners.
    • This “local average wage” is statistical data published annually by the government. You can usually find the latest data on the local Human Resources and Social Security Bureau website or online.
  • Deep Dive: What to pay attention to when calculating the average wage?
    • If you had unpaid leave (personal leave, sick leave) in the past 12 months, months with lower pay might pull down the average. However, the law states that the monthly wage standard used for economic compensation calculation should be based on the wage you should have received under normal attendance conditions, or converted based on actual attendance wages. This is complex, but in practice, it’s often calculated by simply averaging your total pre-tax income (including all payable items) over the past 12 months (or actual months worked). If your wage decreased due to non-personal reasons (like company shutdown, mandatory annual leave), the calculation should ideally be based on the wage you should have received.
    • How are annual bonuses calculated? If the annual bonus you received is based on performance over the past year, it should be spread over the corresponding 12 months to calculate the average. For example, if you received a „36,000 annual bonus at the end of last year, 1/12th of this amount („3,000) should be included in your monthly average wage calculation for the last 12 months.
    • Do overtime wages count? Yes, they do! Any income that is part of your wage composition should be included.

Point 4: Putting it Together – Let’s Calculate!

Alright, with your length of service (N) and the average monthly wage base, you can calculate it yourself!

  •  Your Severance Pay ≈ (Average wage for the twelve months preceding termination) × N
  • If specific conditions are met (like the +1 scenario mentioned above) AND the company didn’t give 30 days notice:
    • Your Severance Pay ≈ (Average wage for the twelve months preceding termination) × N + (Average wage for the twelve months preceding termination) × 1

Let’s walk through a detailed example!

  •  Basic Situation: Xiao Fang worked at Company A for 4 years and 7 months. She received the termination notice on December 20, 2023. Over the past 12 months (from December 21, 2022, to December 20, 2023), her total pre-tax income (including basic salary, performance pay, bonuses, fixed allowances, etc.) was „240,000 in total. The company terminated her due to organizational restructuring and gave her immediate notice of termination on the same day; they did not give 30 days advance notice. The average monthly wage of employees in her locality in the previous year was „8,000.
  • Let’s calculate step-by-step:
    • Step 1: Calculate N (Length of Service). Xiao Fang worked for 4 years and 7 months. 4 full years count as 4N. The 7 months are more than six months, so they count as 1 year, which is 1N. So Xiao Fang’s N is 4 + 1 = 5.
    • Step 2: Calculate the Average Monthly Wage Base. Total income over the past 12 months: „240,000 / 12 months = „20,000/month.
    • Step 3: Check if it exceeds three times the local average wage. Three times the local average wage of „8,000 is „8,000 * 3 = „24,000. Xiao Fang’s average monthly wage of „20,000 does not exceed this cap of „24,000, so her actual average wage of „20,000 is used for calculation.
    • Step 4: Confirm if there is a +1 (Payment in lieu of notice). The company did not give 30 days advance notice AND the termination was due to company reasons not related to her major fault. This situation qualifies for payment in lieu of notice. There IS a +1.
    • Step 5: Calculate the total compensation.
      • Economic Compensation (N): „20,000/month × 5 months = „100,000
      • Payment in lieu of notice (+1): „20,000/month × 1 month = „20,000
      • Total Compensation = „100,000 + „20,000 = „120,000
  •  Another Example (High earner + less than six months tail end): Lao Zhang worked at Company B for 3 years and 5 months. He was notified of termination on December 20, 2023. Over the past 12 months, his total pre-tax income was „800,000 in total. The company terminated him due to operational difficulties and gave him 30 days written advance notice. The average monthly wage in his locality in the previous year was „8,000.
  • Let’s calculate step-by-step:
    • Step 1: Calculate N (Length of Service). Lao Zhang worked for 3 years and 5 months. 3 full years count as 3N. The 5 months are less than six months, so they count as 0.5 years, which is 0.5N. So Lao Zhang’s N is 3 + 0.5 = 3.5.
    • Step 2: Calculate the Average Monthly Wage Base. Total income over the past 12 months: „800,000 / 12 months ≈ „66,700/month.
    • Step 3: Check if it exceeds three times the local average wage. Three times the local average wage of „8,000 is „24,000 („2.4侇慃). Lao Zhang’s average monthly wage of „66,700 exceeds this cap of „24,000. So the calculation base must be „24,000.
    • Step 4: Confirm if there is a +1 (Payment in lieu of notice). The company gave him 30 days written advance notice of termination. This situation does NOT qualify for payment in lieu of notice. There is NO +1.
    • Step 5: Calculate the total compensation.
      • Economic Compensation (N): „24,000/month × 3.5 months = „84,000
  •  One more (Short length of service): Xiao Chen worked at Company C for 5 months. Her average monthly wage was „10,000. The company closed down and notified her of termination on the same day. The local average wage was „8,000.
  • Let’s calculate step-by-step:
    • Step 1: Calculate N (Length of Service). Xiao Chen worked for 5 months, which is less than six months. N = 0.5.
    • Step 2: Calculate the Average Monthly Wage Base. Average monthly wage is „10,000, which does not exceed three times the local average („24,000). The base is „10,000/month.
    • Step 3: Confirm if there is a +1 (Payment in lieu of notice). The company closed down and gave immediate notice. This situation qualifies for payment in lieu of notice. There IS a +1.
    • Step 4: Calculate the total compensation.
      • Economic Compensation (N): „10,000/month × 0.5 months = „5,000
      • Payment in lieu of notice (+1): „10,000/month × 1 month = „10,000
      • Total Compensation = „5,000 + „10,000 = „15,000

Got it? Once you grasp how to calculate your length of service + how to calculate the average wage base + whether there’s a +1, you can basically do the basic calculation yourself!

Point 5: Don’t Be Nervous at the Negotiation Table! These Points are Must-Knows!

When you are scheduled for a meeting, remember a few principles:

  1. Stay Calm, Don’t Be Impulsive: Receiving immediate termination news can definitely be emotional. But absolutely do NOT make decisions or sign agreements when you’re overwhelmed.
  2. Don’t Sign Immediately: Do not sign any agreement or document on the spot. State that you need time to read it carefully. This is your right.
  3. Verify Information: Double-check the termination reason, length of service, and compensation amount provided by HR against the information you have.
  4. Present Your Calculation: Based on what you’ve learned above, bravely propose your calculated compensation amount and the basis for your calculation (length of service and average wage).
  5. Focus on Other Rights: Besides severance pay, there are other important rights to confirm:
    • How will the last month’s salary be settled? Will it be paid up to your last day or for the full month?
    • How will unused annual leave be compensated? The law requires the company to pay you for accrued and unused annual leave. The standard for this compensation is usually 300% of your daily wage. (This can be complex; some places calculate the daily wage based on the average monthly wage for the 12 months before termination divided by 21.75 working days, then multiply by 300%). Don’t underestimate this amount; it can add up!
    • Until when will social insurance and housing fund contributions be paid? The company should pay for you until the month you leave. Confirm that the company will process the transfer promptly.
    • How to get the termination certificate? The termination certificate (çŠ»èŒèŻæ˜Ž) is extremely important! It’s needed for applying for unemployment benefits, finding your next job, etc. It MUST state the reason for leaving (company reason), not that you resigned voluntarily. The company is NOT allowed to withhold your termination certificate or personnel file.
    • File Transfer: Confirm where your personnel file will be transferred (usually to the local talent service center).
    • Stock/Option Handling (if any): If you have stocks or options, confirm how they will be handled.
  • Deep Dive: Why might a company offer N+1? Sometimes, companies want to avoid the hassle of giving 30 days advance notice (e.g., worrying about employees being unproductive or affecting team morale), or to resolve the issue quickly and peacefully, avoiding future arbitration. Even if legally only N is required, a company might be willing to pay N+1 to get it done. So, in negotiations, if your situation might technically qualify for +1 (even if not legally mandated for your specific type of termination, but the company fits Article 40 scenario without notice), or if the company is eager for you to leave quickly, you can aim for N+1 as a goal. Remember, negotiation isn’t just about the legal minimum; it’s also about considering the company’s willingness to resolve the issue and your needs. But first, you must know the legal minimum to negotiate from a position of strength.

Point 6: Beware of Traps! Avoid These Pitfalls!

  • Trap 1: Coaxing you into voluntary resignation. HR might say things like “if you resign voluntarily, we can part amicably, and it looks better on your background check,” or “if you don’t resign voluntarily, it’s bad for your future career.” DO NOT believe this! Voluntary resignation usually means NO compensation! And companies are not allowed to write negative remarks about you on the termination certificate to retaliate. As long as your termination certificate states the reason for leaving is “termination of employment contract due to company reasons,” it will not negatively impact your job search or application for unemployment benefits.
  • Trap 2: Calculating your wage base or length of service at a lower standard. Some companies deliberately exclude bonuses, commissions, or annual bonuses from your average wage calculation, or incorrectly count your years of service. Get out your payslips, bonus records, entry proof, etc., and clarify the facts!
  • Trap 3: Requiring you to sign agreements waiving your rights to overtime pay, annual leave pay, etc. These are your legal rights, and the company cannot legally force you to waive them through an agreement.
  • Trap 4: Delaying payment or withholding the termination certificate. The company must issue you a certificate of termination of employment contract on the day the contract is terminated and process the transfer of your personnel file and social insurance relationship within 15 days. Economic compensation should usually be paid in a lump sum when the labor contract is terminated or expires.
  • Trap 5: Threatening you with “forced labor,” “violating non-compete clauses,” or other means to force you to accept low compensation. If you haven’t actually violated anything, don’t be scared into compliance.

Point 7: What if You Can’t Agree? How to Protect Your Rights!

If the company insists on illegal contract termination or offers compensation far below the legal standard and refuses to negotiate, you have the right to protect your rights through legal channels.

  • Step 1: Gather Evidence. This is the foundation of protecting your rights!
    • Your labor contract.
    • Documents related to onboarding and leaving (like offer letter, termination notice, etc.).
    • All wage payment records (bank statements, payslips) – crucial for calculating the base!
    • Records of social insurance and housing fund contributions.
    • Company rules and regulations (check if they were legally publicized and you were aware of them).
    • Evidence proving your work performance, job responsibilities, attendance, etc.
    • Recordings of conversations with the company regarding termination, screenshots of WeChat/emails, witness testimonies, etc.
    • Evidence of the company’s illegal actions (e.g., long-term failure to pay social insurance, forcing overtime without compensation).
  • Step 2: Apply for Labor Arbitration.
    • Labor arbitration is the primary way to resolve labor disputes; it’s usually faster and less expensive than court litigation.
    • Apply to the Labor Dispute Arbitration Committee in the locality where the employer is located.
    • Submit the arbitration application and supporting evidence.
    • The time limit for arbitration is usually one year from the date the labor dispute arises. However, for disputes regarding delayed payment of labor remuneration, the application is not subject to the one-year limit, but must be filed within one year from the date the labor relationship terminates. (Economic compensation is considered part of labor remuneration).
  •  Step 3: If you are not satisfied with the arbitration ruling, you can file a lawsuit with the court.
  •  Deep Dive: Seek professional help. When preparing arbitration materials and attending arbitration hearings, if circumstances permit, seeking help from legal professionals (lawyers, legal aid) can significantly increase your chances of success. You can also seek consultation or assistance from the local labor union or labor security supervision department.

Point 8: Extra Benefit – Unemployment Benefits!

If you were terminated for non-personal reasons (like company layoffs) and meet certain conditions, you can apply for unemployment benefits! Unemployment benefits are a state subsidy for your transition period; don’t forget to claim them!

  • Eligibility Requirements (General):
    • Have participated in unemployment insurance as required and your employer and you have fulfilled payment obligations for at least 1 year.
    • Have terminated employment for reasons other than your personal wishes (e.g., company terminated or expired the labor contract).
    • Have registered as unemployed and are seeking employment.
  • Where to Apply? Usually at local community service centers or district employment service centers, or through online platforms (like the National Social Insurance Public Service Platform, local HRSS Apps/miniprograms).
  • How long can you receive them? It depends on your contribution period, up to a maximum of 24 months.
  • How much can you receive? Standards vary by region, usually a certain percentage of the local minimum wage or local average wage.

Key Point: To apply for unemployment benefits, you need your termination certificate! So getting that document is very important!

Point 9: Q&A Session! Addressing Your Confusions!

  • Q: My contract just expired and the company didn’t renew. Do I get compensation?
    • A: Generally, if the company offers to maintain or improve the original terms and you refuse, and the contract terminates, there’s no compensation. However, if the company offers lower terms, or doesn’t discuss renewal and just lets the contract expire, or if the non-renewal is due to other reasons not initiated by you (like the position being eliminated), you are usually entitled to N compensation.
  • Q: The company reassigned me to a lower-paying position. Can I voluntarily resign and demand compensation?
    • A: If the company unilaterally and significantly reduces your salary or reassigns you to a position in a punitive or insulting manner, or engages in other actions that seriously violate your legal rights, and you are forced to terminate the labor contract as a result, you can fight for economic compensation based on the Labor Contract Law. However, you need to prove the company’s actions were illegal. It’s recommended to consult a professional before taking action.
  • Q: The company offered me a plan higher than the legal N+1, but wants me to sign an NDA and waive my right to arbitration. Should I sign?
    • A: If the amount is genuinely significant and far exceeds your expectations and the legal standard, and you weigh the pros and cons and believe this offer is truly more beneficial to you (e.g., you don’t want the hassle, you want the money quickly, you want to protect your reputation), you can consider signing. But you MUST read the terms carefully, especially the clause about waiving arbitration rights. While the law generally doesn’t allow employers to exclude employees’ rights through standard clauses, compensation agreements reached through mutual negotiation can be valid in practice. Once signed, it will be very difficult to later claim statutory compensation. So, think very carefully before signing, or have a professional review the agreement.
  • Q: The company isn’t paying my salary to force me out. What should I do?
    • A: The company’s failure to pay labor remuneration on time and in full is a serious illegal act. You have the right to immediately rescind the labor contract and demand the company pay the owed wages and economic compensation. Keep evidence such as payslips, bank statements, and communication records.
  • Q: I have very long service years. Is there no limit to the compensation amount?
    • A: If your average monthly wage does NOT reach three times the local average wage, your length of service compensation has no years limitation (N is calculated for as many years as you served, uncapped at 12 years). The “maximum compensation years not exceeding twelve years” limit only applies when your average wage exceeds three times the local average wage.

To Summarize:

Know how to calculate your length of service (less than 6 months is 0.5N, 6 months to 1 year is 1N, over 1 year is one N per year), know how to calculate the average wage base (total pre-tax pay over the last 12 months divided by number of months), know which situations qualify for compensation and which don’t, and know if you can get the +1 (payment in lieu of notice). If you know these, you’ve mastered the core skills!

During negotiations, remain assertive but calm, present your calculated figure based on facts, and let HR know you understand your rights. If the company is willing to negotiate up to or slightly above the legal standard, a peaceful resolution is often the best. However, if the company violates your legal rights, don’t be afraid to use legal remedies!

I hope this guide helps you and your friends at critical moments! While I wish everyone never has to use this knowledge, just in case? Save it for a rainy day!

Finally, being notified of termination is indeed a challenge, but it’s absolutely not the end! Adjust your mindset, clarify what you are legally entitled to, and you’ll be able to move on to the next chapter with more confidence! You got this!

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