Free tool · Labour Proclamation 1156/2019 · end of service
What severance is owed when employment ends?
Enter the monthly wage, length of service and why the employment ended. See the severance pay, any supplement or compensation due under the Labour Proclamation — each line tied to its article — and the estimated tax and net amount.
Rates per Income Tax Proclamation 1395/2025 (effective July 2025) and Labour Proclamation 1156/2019 where noted. Estimates only — verify with the Ministry of Revenues or your advisor.
The regular monthly wage (usually basic salary). Overtime, bonuses and most allowances are not wages under Art. 53.
Total continuous service with this employer, including probation. Months count as 1/12 of a year and days as 1/365.
How severance is calculated in Ethiopia.
Under Article 40 of Labour Proclamation 1156/2019, severance is 30 times the average daily wage for the first year of service — pro-rated if service is under a year — plus one third of that (10 days' wages) for every additional year, also pro-rated. The total can't exceed 12 months' wages.
When the business closes or the workforce is reduced, the worker gets a further 60 days' wages on top. A worker who quits without notice because of the employer's mistreatment gets 30 days' compensation (90 for sexual harassment) under Article 41.
Worked example: 5 years' service at 30,000 ETB a month, made redundant. Daily wage 1,000 ETB. Severance = 30 + 4 × 10 = 70 days = 70,000 ETB, plus the 60-day reduction supplement of 60,000 ETB — 130,000 ETB gross.
Who is entitled to severance
- The business closes permanently — bankruptcy or any other cause (Art. 39(1)(a)).
- The employer terminates the contract unlawfully (39(1)(b)).
- The worker is let go in a workforce reduction (39(1)(c)).
- The worker quits because of sexual harassment or violence, mistreatment against their dignity, or an ignored safety threat (39(1)(d)–(f)).
- The worker is terminated due to a disability certified by a medical board (39(1)(g)).
- After at least five years: termination for sickness, the worker's death, or the worker's own resignation (39(1)(h)).
- The worker resigns because of HIV/AIDS (39(1)(i)).
- Not covered: workers still on probation, and workers eligible for a retirement pension (39(1)).
How the tax estimate works
A lump sum taxed as a single month would land in the top bracket. Instead, the payment is split into full months of the monthly wage, each taxed with the monthly income tax brackets, and the part month left over is taxed on its own amount. Example: 70,000 ETB at 30,000 ETB a month is 2 full months (2 × 8,450 = 16,900 ETB) plus 10,000 ETB taxed in its own bracket (10,000 × 25% − 850 = 1,650 ETB) — 18,550 ETB in total.
Running final pay for a leaver? See how NYLOS handles end-of-service settlements inside payroll.
Frequently asked questions.
How is severance pay calculated in Ethiopia?
Severance is 30 times the average daily wage for the first year of service (pro-rated under a year), plus 10 days' wages for every additional year, capped at 12 months' wages (Labour Proclamation 1156/2019, Art. 40). Closure or workforce reduction adds a further 60 days' wages.
Do I get severance if I resign?
Only after at least five years of service, and only if you have no outstanding training-related service obligation (Art. 39(1)(h)). If you quit because of sexual harassment, mistreatment against your dignity, or an ignored safety threat, severance applies regardless of service length, plus compensation under Art. 41.
Is severance paid when an employee is dismissed for misconduct?
No. Severance isn't due on a lawful dismissal for misconduct. The worker is still owed wages earned and pay for any untaken annual leave.
How is severance taxed?
This calculator estimates tax by splitting severance into full months of the monthly wage, each taxed with the monthly income tax brackets, and taxing the remaining part month on its own amount through the brackets. Confirm the treatment for your case with the Ministry of Revenues or your advisor.
What is the average daily wage?
The law bases severance on the average daily wage of the last week of service but gives no formula. For monthly-paid staff, payroll usually divides the monthly wage by 30, which is what this calculator uses.
What does an unlawful dismissal cost the employer?
Severance, plus — if the court orders compensation instead of reinstatement — 180 days' wages and the wages for the notice period on an open-ended contract (Art. 43). Back pay may also be ordered.
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