So what exactly does the “Austrian model” for severance pay involve?

In recent years, and particularly in the context of the recent elections, we have heard being discussed, and a few political parties included in their manifestos for implementation in Spain, a severance pay model moving away from the system in place in Spain towards a system similar to that provided in the laws of other countries such as Austria.

Which sparks curiosity over what the so-called “Austrian model” (o “Austrian backpack”) involves and how it differs from the system in force in Spain.

Spanish law links severance pay to employees’ salaries and lengths of service. In other words, the higher the employee’s salary and length of service the higher their severance pay will be in the event of termination of their contract or dismissal, although it does place caps on these amounts. For a dismissal on objective grounds (based on a company’s adverse position, among other cases), for example, the law stipulates severance pay for the employee amounting to 20 days’ salary per year of service worked, with a cap of 12 monthly payments. The same variables (salary and length of service), although with different multipliers and caps, are used to determine the severance pay for unjustified dismissal and for termination of temporary contracts, among other cases.

Whereas the so-called “Austrian model” consists of the employer making monthly economic contributions throughout the employment relationship, allowing the employee to build up a “backpack”, in the form of an individual savings account, which may be invested and generate returns for the employee. If the employee is dismissed, the severance to be received is precisely the amount in the “backpack” which the employee has accumulated since the start of their employment contract. Moreover, any employees reaching retirement age without ever having been dismissed or deciding to change jobs can take their “backpack” with them.

As you can see, these are two very different systems which means that implementing the Austrian system in Spain would require a 180-degree about-turn in relation to severance pay.

For now, however, that proposal remains to be translated into a bill of law or legal reform, so we will have to wait for the legislative change that may take place in the near future to see whether it is actually decided to implement the “Austrian model” and how far.

Ignacio Esteban

Garrigues Labor and Employment Department