Severance pay provision in Austria (Abfertigungsrückstellung): entitlement to Abfertigung alt, measurement under UGB and AFRAC 27

This is an English translation of the Austrian guide Abfertigungsrückstellung. Quotations from Austrian sources are our translation.

Who is entitled to Abfertigung alt

“§§ 23 and 23a no longer apply to employment whose contractually agreed start is after 31 December 2002” (§ 42(3) AngG). The Workers’ Severance Pay Act (Arbeiter-Abfertigungsgesetz) refers to the same provisions: “The employee is entitled to severance pay if the employment is terminated. §§ 23 and 23a of the Salaried Employees Act … apply to this severance pay” (§ 2(1)).

Amount (§ 23(1) AngG)

“If the employment has lasted without interruption for three years, the salaried employee is entitled to severance pay on termination of the employment.” It is a multiple of the remuneration for the last month of the employment:

Up to three monthly salaries fall due on termination; “the remainder may be paid from the fourth month onwards in monthly instalments payable in advance” (§ 23(4) AngG).

When severance pay is due

Termination by the employer and resignation by the employee

There is no entitlement “if the salaried employee gives notice, leaves prematurely without good cause or is at fault for a premature dismissal”, subject to § 23a (§ 23(7) AngG). Under § 23a(1) AngG, the entitlement also exists where the employment ends by the employee’s notice and

• it “has lasted at least ten years without interruption” and ends “for men after completing the 65th year of age, for women after completing the 60th year of age”, or because the employee takes the early old-age pension for long insurance periods or an old-age pension under § 4(2) or (3) APG (no. 1);
• “because the employee takes a pension from an insured event of reduced capacity to work from a statutory pension insurance” (no. 2);
• because an occupational disability or invalidity expected to last at least six months has been established, or during pending benefit dispute proceedings about it (nos. 3 and 4).

Severance pay under subsection 1 “may be paid in equal monthly instalments” (§ 23a(2) AngG). Under § 3 of the Federal Constitutional Act Federal Law Gazette No. 832/1992, beginning on 1 January 2024, “the age limit for the old-age pension for female insured persons is to be raised by six months each year on 1 January until 2033”; the table by date of birth is on the page Rechnungszinssatz (in German).

Death of the salaried employee

“If the employment is terminated by the death of the salaried employee, the severance pay amounts to only half of the amount referred to in subsection 1 and is due only to the legal heirs whom the deceased was legally obliged to support” (§ 23(6) AngG). An example of a different rule is § 10 of the collective agreement for the metal technology industry, salaried employees: if these heirs include minors under 18 (or adult heirs in education who are entitled to family allowance), “the entitlement under § 23(6) of the Salaried Employees Act increases to the full severance pay” (subsection 5). If there is a spouse but no such dependant, the half severance pay increases “to 70 per cent of the full severance pay” if the marriage had lasted three years at the time of death (subsection 6).

Resignation after the birth of a child

If the employment has lasted five years without interruption and the employee declares her premature resignation after the birth of a live child within the protection period, or within eight weeks after the adoption or taking into care of a child under two, she is entitled to “half of the severance pay due under § 23(1), but no more than three times the monthly remuneration” (§ 23a(3) AngG). “If parental leave (Karenz) under the MSchG is taken, the resignation must be declared no later than three months before the end of the parental leave” (for parental leave of less than three months, no later than two months before). “Subsection 3 also applies to male salaried employees if they take parental leave under the VKG or equivalent Austrian legislation” (§ 23a(4) AngG).

Abfertigung neu: no provision

For the new severance system (Abfertigung neu), the employer must transfer “from the start of the employment an ongoing contribution of 1.53 per cent of the monthly remuneration and of any special payments” via the health insurance provider to the company employee provision fund (BV-Kasse), “provided the employment lasts longer than one month” (§ 6(1) BMSVG). AFRAC 27: “If all obligations are transferred and the company is also not obliged to make additional or special contributions (e.g. … in the case of the company’s statutory contribution under the so-called ‘Abfertigung Neu’), no provision is recognised” (explanatory notes on para. 7).

Severance pay provision under UGB

Provisions must be made in particular for “expectancies of severance payments” (§ 198(8)(4)(a) UGB). “There is no obligation to make provisions to the extent that the amounts are not material” (§ 198(8)(3) UGB). Their measurement is dealt with in AFRAC statement 27 “Personnel provisions (UGB)” (June 2022).

Actuarial or financial-mathematical

“Provisions for severance payments are to be recognised under § 211(1) UGB at the amount resulting from actuarial principles. The amount may also be determined by a financial-mathematical calculation, unless there are significant concerns against this in the individual case” (AFRAC 27, para. 52). From the explanatory notes:

• There is “no unrestricted choice between an actuarial and a financial-mathematical calculation”.
• According to the explanatory notes to the government bill, concerns arise “in any case … if, because of the large number of employees and/or high turnover, a financial-mathematical measurement does not sufficiently take into account the risks for the amount expected to be paid and this shortfall is also material”.
• There are no significant concerns “if the potential shortfall between the actuarial and the financial-mathematical calculation can be assessed as immaterial within the meaning of AFRAC 34”.
• “Experience and comparative calculations show that the effects of biometric factors in measuring severance pay provisions are, as a rule, small, unlike their effects in measuring pension obligations.”
• “The measurement used in tax law, applying a fixed percentage to the notional entitlements at the balance sheet date, is not a financial-mathematical or actuarial calculation within the meaning of this statement. This simplified method therefore cannot be used in the financial statements under company law.”

(Explanatory notes on paras. 52 and 70)

Factors

According to AFRAC 27 (para. 54), the amount of the provisions depends on the number of beneficiaries, the amount and type of the severance payments, the accrual period, the accrual method, the discount rate and the probability assumptions.

• Severance payments: their amount and type follow from the legal basis and from the occasion, “e.g. death, termination by the employer” (para. 57). “The measurement must take into account the expected development of the amount of the severance payments up to the time they fall due” (para. 58).
• Accrual period: it begins “with the start of an employment that gives rise to an entitlement to severance pay” (para. 59); otherwise the principles of AFRAC statement 20 apply (para. 61). Under them, for severance pay on retirement, “either the entire period of service from joining the company until reaching the statutory pension age, or the period from joining the company until the point from which further service no longer increases the entitlement (as a rule no more than 25 years of service), may be used” (explanatory notes on para. 61).
• Accrual method: “(a) the entry age normal method (Teilwertverfahren) or (b) the method of current single premiums (Verfahren der laufenden Einmalprämien)” (para. 39 with para. 62); the second is the method prescribed in IAS 19.67 (explanatory notes on para. 39).
• Discount rate: the current rate or an average over five to ten balance sheet dates, with a remaining term simplified to 15 years (paras. 41 and 42 with para. 63). The published values are on the page Rechnungszinssatz (in German).
• Probability assumptions: they “must be based on a prudent assessment and represent the best possible estimate, taking into account suitable and reliable statistical bases” (para. 65).

Which events are taken into account

“For statutory obligations, probability assumptions must be taken into account for the following events” (explanatory notes on para. 64):

• (a) death of an employee without legal heirs whom the employee was obliged to support, before reaching the statutory pension age;
• (b) resignation of an employee without grounds for a justified premature resignation;
• (c) dismissal of an employee by the employer where the employee is at fault for the premature dismissal;
• (d) probability that the obligation to make severance payments arises before the employee reaches the statutory pension age;
• (e) death of an employee with legal heirs whom the employee was obliged to support, before reaching the statutory pension age;
• (f) resignation of an employee with grounds for a justified premature resignation;
• (g) dismissal of an employee by the employer where the employee is not at fault for the premature dismissal;
• (h) resignation of a female employee within the maternity protection period under § 3(1) of the Maternity Protection Act after the birth of a live child.

Turnover is taken into account if the commitment can still be forfeited on termination, “except for termination by the employer”, and “if suitable and reliable statistical information on this is available” (para. 66). “Taking turnover into account generally leads to a reduction of the provision, above all because termination by the employer is not regarded as a benefit relevant to the provision under AFRAC statement 20” (explanatory notes on para. 66).

Changes in the provision

“Any change in the value of the severance pay provisions compared with the previous period (except from use, transfer, business acquisition and the like) is to be recognised in profit or loss” (para. 69). For the effects of a change in the biometric bases, the Override Regulation (Federal Law Gazette II No. 283/2018) applies (para. 69a). Under it, if the true and fair view cannot be given, even with additional disclosures, by an immediate addition or release, the difference is “to be spread evenly over no more than five years, beginning with the financial year of the change” (§ 2(1)); the amount and the spreading period must be disclosed in the notes (§ 4).

Tax law: § 14 EStG

“For financial years ending after 31 December 2001, a severance pay provision of up to 47.5%, and for the following financial years of up to 45%, of the notional severance pay entitlements existing at the balance sheet date may be made” (§ 14(1) EStG); up to 60 % to the extent that the employees have completed the 50th year of age at the balance sheet date. “When the provision is made for the first time, the taxpayer must set the percentage of the provision. This percentage must be reached evenly over five consecutive financial years. The percentage may not be changed” (§ 14(3) EStG). This method cannot be used in the financial statements under UGB (AFRAC 27, explanatory notes on paras. 52 and 70).

Social insurance

“The following are not considered remuneration: … payments granted on the occasion of the termination of the employment (apprenticeship), such as severance payments, leaving compensation, transitional payments” (§ 49(3)(7) ASVG).

IAS 19

IAS 19 applies in consolidated financial statements under IFRS. AFRAC 27 understands severance payments as “those types of benefit of the ‘Abfertigung alt’ … that are post-employment benefits” (explanatory notes on para. 5). The categories, the method and the discount rate are explained in the guide IAS 19 in Austria.

Sources

• Salaried Employees Act (Angestelltengesetz, AngG), § 23, § 23a and § 42 (RIS, in German, current version)
• Workers’ Severance Pay Act (Arbeiter-Abfertigungsgesetz), § 2 (RIS, in German)
• Company Employee and Self-Employed Provision Act (BMSVG), § 6 (RIS, in German)
• Collective agreement for the metal technology industry, salaried employees, valid from 1 November 2025, § 10 (WKO, in German)
• Austrian Commercial Code (Unternehmensgesetzbuch, UGB), § 198 and § 211 (RIS, in German)
• AFRAC statement 27 Personalrückstellungen (UGB), June 2022, paras. 39, 41, 42 and 52 to 69a with explanatory notes (in German)
• Override Regulation, Federal Law Gazette II No. 283/2018 (RIS, in German, authentic version)
• Income Tax Act 1988 (Einkommensteuergesetz, EStG), § 14 (RIS, in German)
• General Social Insurance Act (ASVG), § 49 (RIS, in German)