What Is Severance Accrual?
Severance accrual is Team APAC’s way of helping clients manage the financial responsibility of statutory severance payments due to employees upon termination.
It ensures clients aren’t caught off guard by large severance-related final invoices—by spreading the cost over time.
How It Works
Each month, a severance accrual amount—based on local employment laws—is added to your invoice.
Final Reconciliation
When an employee leaves, if the severance owed exceeds what’s been accrued, the client covers the difference.If less is owed, the surplus is refunded.
Example Scenarios
a) Termination
Severance is paid out; accrued amounts are reconciled against final payout. Shortfalls are invoiced; excess is refunded.
b) Resignation
No severance is due. Any accrued amount is fully refunded.
APAC-Specific Considerations
Each market (e.g., Philippines, Australia, Japan) has unique statutory requirements—accrual rates reflect these local standards.
Accruals are updated annually to align with salary adjustments and regulation changes.
How Is the Amount Calculated?
The Severance Accrual with Team APAC is determined on a country-by-country basis, guided by local labor laws and statutory entitlements for terminated employees.
The accrual is distributed across multiple invoices over time, allowing clients to manage costs gradually.
Clients can monitor severance accrual status directly on their invoices.
The accrual is re-evaluated annually to reflect updates in local employment laws and any changes to the employee’s salary—ensuring accurate coverage of severance obligations.
Example Scenarios
a) Proportional Accrual Example
If an employee is entitled to one month of severance per year of employment, Team APAC will invoice 1/12 of one month’s salary each month during the first year. This evenly distributes the anticipated severance cost.
b) Fixed Severance Entitlement Example:
In cases where local labor laws grant a fixed severance amount post-probation, Team APAC will accrue that amount throughout the first year.
For instance, if an employee is entitled to 4 months’ severance upon termination, Team APAC will invoice 1/3 of one month’s salary each month over the first 12 months.
FAQ
1) Severance accrual is distinct from your EOR deposit.
Severance Accrual is a long-term provision collected over the duration of an employee’s agreement. It’s specifically intended to cover statutory severance payments, which are typically based on the employee’s length of service.
In contrast, the EOR Deposit is a one-time upfront amount. It serves as a financial safeguard, allowing Team APAC to cover employee salaries temporarily in the rare case that a client delays invoice payments.
2) What Happens If the Salary Changes?
If a client updates an employee’s salary, Team APAC will continue collecting severance accrual based on the previous salary until the anniversary of the employment agreement.
At that point, the accrual amount will be re-evaluated and adjusted to reflect the new salary—ensuring alignment with statutory severance obligations moving forward.
3) What Happens If the Salary Changes?
This severance amount is accrued and will be used to pay out the employee’s statutory entitlement in the event of termination. In the event of a resignation, the amount of severance that has been accrued will be refunded to the client.
4) Can I See What Has Been Accrued So Far?
Yes. For active employment agreements, clients can view the progress of severance accrual installments directly on each invoice (e.g., 5 of 12).
For new agreements, this information is also included in the quote provided by Team APAC prior to contract acceptance.
