The business closure compensation is a financial payment made to employees who lose their jobs due to the permanent cessation of their employer’s activities. Its amount depends on the worker’s seniority, age, and the applicable legal framework, whether statutory or contractual.
Seniority and reference salary: the two variables of the calculation
The amount of the compensation is based on two central parameters. The first is the reference salary, which corresponds to the average gross remuneration received by the employee before the termination of the contract. Two calculation methods coexist: the average of the last twelve months of salary, or one-third of the last three months. The method most favorable to the employee is retained.
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The second parameter is the seniority in the company. For an employee on a permanent contract, the legal severance pay represents a quarter of a month’s salary per year of seniority for the first ten years, and then one-third of a month beyond that. This legal basis constitutes a minimum: a collective agreement or employment contract may provide for a higher amount.
An article detailing the calculation of business closure compensation allows for visualizing the applicable formulas according to each situation.
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In Belgium, the Closure Fund pays a separate compensation. Its amount is 206.99 euros per year of seniority for closures with a legal date set from March 1, 2026. An additional amount of the same value is added for each year of age beyond 45 years, to account for the increased difficulty of older workers returning to employment.
Judicial liquidation and the role of the AGS in case of employer default
When a company closes because it can no longer pay its debts, the judicial liquidation procedure modifies the payment chain of compensations. The employer, in cessation of payment, no longer has the funds to meet its obligations. It is the Association for the Management of the Employee Debt Guarantee Scheme (AGS) that takes over.
The AGS advances the amounts due to employees within limits set by law. These limits depend on the seniority of the employment contract and the date of opening of the collective procedure. Covered are:
- Unpaid wages prior to the judgment opening the liquidation
- Legal or contractual severance pay
- Compensatory notice pay, if the employee is exempted by the judicial representative
- Compensatory paid leave not taken
The liquidator prepares the payroll claims and submits them to the AGS. Employees do not need to engage in direct action with the association but must verify that the amounts listed correspond to their actual rights. Any dispute goes through the labor court.
Employment protection plan: a strengthened obligation since 2024
The closure of a company with more than ten employees triggers the obligation to develop a Job Protection Plan (PSE). The ordinance of December 22, 2023, specified by the decree of March 28, 2024, has strengthened the requirements for consulting employee representatives and supporting external redeployment.
The PSE may provide for supra-legal compensations, negotiated between the employer and trade unions. These compensations are in addition to the legal severance pay and vary significantly from one company to another. Their amount depends on the financial capacity of the company, union pressure, and the local economic context.
The PSE also includes non-financial measures: internal redeployment within the group, professional training, assistance in starting a business, mobility support. The financial compensation represents only a part of the protection system for the employee laid off in this context.
Control by the Dreets
The Regional Directorate of Economy, Employment, Labor, and Solidarity (Dreets) validates or approves the PSE. A plan deemed insufficient may be rejected, which blocks the collective dismissal procedure. This administrative control constitutes an additional protection lever for employees affected by a closure.
Closure related to ecological transition and European funds
The cessation of polluting activities (chemical industry, thermal power plants, mining) generates closure situations that general sources rarely address from the perspective of European funding. The European Globalization Adjustment Fund for Displaced Workers (EGF) can be mobilized when more than 200 workers lose their jobs in the same company or sector over a given reference period.
The EGF co-finances support measures: training for jobs related to the energy transition, job search assistance, living allowances during the retraining period. These aids do not replace severance pay but are added for eligible workers.
Access to these funds requires a formal request from the member state to the European Commission. In practice, affected employees are informed by their employer or public employment services, but the procedure remains little known. Closures dictated by regulatory environmental constraints (prohibition of a substance, stricter emission standards) constitute a relevant use case for this type of funding.
Compensatory notice pay and paid leave: the complementary amounts
The closure compensation is not limited to the severance pay stricto sensu. Two other items complete the final settlement:
- The compensatory notice pay, paid when the employer exempts the employee from serving their notice period. Its amount corresponds to the gross salary that the employee would have received during the notice period (one to three months depending on seniority and the applicable agreement)
- The compensatory paid leave, calculated based on the days of leave accrued but not taken at the time of contract termination
- Any contractual bonuses (thirteenth month, seniority bonus) due pro rata temporis
These amounts are due regardless of the reason for the closure, including in the case of judicial liquidation, within the limits of the AGS guarantee ceilings.
The tax regime for these compensations varies. The legal severance pay is exempt from income tax up to the amount provided by law or the collective agreement. The supra-legal compensations negotiated within the framework of a PSE also benefit from exemptions, but capped. Each component of the final settlement deserves a line-by-line verification before signing the receipt.