Severance accrual is a proactive method used by Team APAC to assist clients in managing financial obligations associated with mandatory severance payments for employees. Below is an explanation of how the severance accrual process works:
What is Severance Accrual?
Severance accrual represents regular monthly charges that Team APAC includes in client invoices to gradually cover statutory severance obligations payable to employees upon termination.
This method ensures clients avoid unexpected large costs upon employee termination by spreading out the financial responsibility over the employee’s tenure.
How Severance Accrual Functions
Team APAC adds a severance accrual charge to client invoices each month, accumulating funds to meet eventual severance obligations.
Upon employee termination, the accrued funds are reconciled:
- If actual severance payable exceeds the accrued amount, the client is invoiced for the remaining balance.
- If the actual severance payment is lower, the excess accrued funds are refunded to the client.
Calculating Severance Accrual
Accrual amounts depend on specific local labor laws and statutory requirements for severance payments.
Team APAC annually reviews and adjusts accrual amounts based on changes in local employment regulations or employee salary adjustments, ensuring sufficient coverage of severance obligations.
Severance Scenarios
a) Termination:
When an employee is terminated:
- The required severance is paid directly to the employee.
- Any shortfall in accrued funds is invoiced to the client.
- Any surplus from the accrued funds is refunded to the client.
b) Resignation:
If an employee voluntarily resigns, accrued severance funds are fully refunded to the client.
Important Information
- Severance accrual is separate from the initial EOR deposit.
- Clients can track their severance accrual status through regular invoices provided by Team APAC.
If you require additional information or have specific questions about severance accrual, please contact Team APAC for further assistance.
