The HR Glossary: Termination

We make the HR world easier to navigate with The HR Glossary, our latest blog series where we explain the most popular HR terminology professionally and accessibly. Make sure to also explore the Time Off segment.

This edition is dedicated to distinguishing between the following types of termination:

• Resignation (also known as Voluntary Termination)
• Dismissal (also known as Involuntary Termination), including Constructive and Regular/Direct Dismissal
• Mutual Termination
• Redundancy

and breaking down the notions commonly associated with the process of termination:

• Notice Period

• Severance Payment

• Unused Paid Time Off (PTO)

• Payment in Lieu

• Garden Leave

What are the differences between resignation and dismissal?

Resignation (also referred to as Voluntary Termination) occurs when an employee voluntarily decides to leave their job and typically, but not necessarily, provides their employer with a notice of termination as outlined in the employment contract. The specifics of the process, such as minimum required notice periods (see the definition further down) and resignation benefits, can vary depending on statutory laws and the company’s internal policies.

Dismissal (also referred to as Involuntary Termination) occurs at the employer’s initiative, typically due to reasons such as poor performance, misconduct, or redundancy. A dismissal where the employer directly terminates the employee’s contract is often referred to as Regular/Direct Dismissal, while a Constructive Dismissal means that the employee was implicitly forced to resign due to intolerable working conditions caused by the employer. The specifics of dismissal are outlined not only in the employment contract but also defined by statutory laws and the company’s internal policies. In unionized workplaces, collective bargaining agreements may also affect the procedure.

When does mutual termination occur?

Mutual Termination (also known as Mutual Resignation or Agreed Termination) is a voluntary agreement between the employee and their employer to end cooperation. In this case, the parties negotiate notice periods, severance benefits, and other terms of the separation.

What does termination due to redundancy mean?

Redundancy occurs when an employer eliminates a position or several positions due to financial difficulties, company closure, automation, restructuring, or changes in market demand. Thus, an employee can be terminated due to redundancy as a result of challenges or changes within the company, rather than based on their individual behavior and performance. This type of termination typically comes with specific legal obligations regarding notice periods as well as relevant payments and benefits.

What is a notice period?

A Notice Period is the amount of time that must be provided by an employee or employer as advance notice before termination. The employee continues to work and receive salary until the notice period ends. The length of the notice period depends on factors such as statutory requirements, the terms of the employment contract, and the amount of time the employee has spent at their current job.

Notice periods for Resignation (Voluntary Termination) and Dismissal (Involuntary Termination) may differ greatly. When an employee resigns, the notice period is typically specified in their employment contract.

During a dismissal, the reason for termination may influence the notice period.

In extreme cases, an employer may be able to dismiss the employee without notice. On the other hand, being dismissed due to redundancy or poor performance often comes with extended notice periods compared to resigning, as this time is needed for the employee to secure a new job.

What are the different types of termination benefits?

In order to provide a terminated employee with financial support and reduce the risk of legal disputes, employers commonly offer a range of benefits.

Severance Payment is a one-time payment to an involuntary terminated employee that can be provided in full, split into installments, or given as a combination of both. The amount depends on the position, length of employment, and salary, with further terms regulated by employment contracts and local labor laws. Additionally, an employer may offer an extended health insurance or career counseling as a part of the severance package.

In cases where a terminated employee prefers to leave immediately rather than work through the notice period, or when their employer needs to complete the termination as soon as possible, a Payment in Lieu (also known as Payment in Lieu of Notice or PILON) applies. This term refers to a sum paid to the terminated employee to compensate for the salary and benefits they would have received during the notice period. Payments in Lieu are usually defined by employment contracts and local labor laws.

Garden Leave is a period during which a departing employee is obligated to stay away from work while still receiving the salary and usual benefits until the termination process is completed. An employer may choose to use Garden Leave to prevent the employee from immediately transitioning to direct competitors, protect confidential business information and trade secrets, or avoid potential workplace conflicts, especially in cases of termination due to misconduct.

What happens to unused paid time off (PTO) during termination?

Unused Paid Time Off (PTO), or Unused Vacation Pay, is the amount of paid leave that an employee has accumulated but not used by the time of termination. This can include annual vacation days, sick leave, personal leave, and other types of PTO stated in the employment contract (for more information, read The HR Glossary: Time Off). Unused PTO/Vacation Pay is paid out as a lump sum upon termination unless a ‘use-it-or-lose-it’ policy is applicable, in which case the unused PTO is forfeited when the employee leaves the company. However, the ‘use-it-or-lose-it’ practice is less common and may even be illegal in some areas.

How can Acvian help with the process of termination?

As your Employer of Record (EOR) or Professional Employment Organization (PEO), we handle all stages of the employee lifecycle, including termination. Services and tasks we cover include compliance management, administration of severance pay and related benefits, provision of termination notices, supervision of processes, and risk mitigation. To get started, contact us via submitting your request here or scheduling an immediate meeting.