From Part 1, we can derive what your severance pay is basically made of. Of course, depending on roles and industry, there might be additional factors. For instance, if sales, you should have commissioned factored into your pay if there were any deals closed before your termination.
One of the key factors is determining your daily wage. Here’s what I found:
1) For salary of Incomplete Month
I.e you are fired on the 8th of July, you’ve worked 8 days. The calculation is based on number of days in that month, so salary would be:
(Monthly Wage/Days in Month) x Days Worked
2) Annual Leave payment
Calculation is based on 26 days and not calendar month, this is from the Employment Act.
(Monthly Wage/26) x Annual Leaves Remaining
3) Termination Wages
12 months basic / 365. This is the daily rate used for your severance payment based on the tenure with the company. For instance, if you worked 13 months, you get 10 days for first year worked. The additional 1 month is prorated according to the first year rate. So your termination wages is
(Annual Basic / 365) x 10 x (13/12 months)
4) What can be EPF or Taxed?
Taxable
Basic Salary for days worked in a month, Leave Pay, Allowances, Retrenchment package
EPF
Severance and any refund on your share options scheme is not subject to EPF. This is really subject also to your own government laws. Singapore for instance is pretty laxed in employee protection and there’s no need for mandatory payout of employers for severance. I suppose this gets foreign investors in. So BE CAREFUL!
A note for Malaysia: There is a tax exemption of RM10,000 for each completed year for severance pay. If your severance pay is under that, then it’s exempted from tax.
All sounds pretty complex, but you just need to know what is rightfully yours and ensure the company is not shortchanging you. At times, they might count your annual leave wrongly or your additional severance days wrongly, which leaves you a few thousand short! So make sure you make some noise, since these guys are the ones who caused your income to vanish overnight. This is not a time to be shy or ‘pai-seh’, because it’s YOUR MONEY.
A helpful link on EPF is found here!
