Severance Allowance Mauritius: 2026 Calculation Guide

To understand severance, one must look at the Workers’ Rights Act (WRA) 2019 and its subsequent amendments leading into 2026. This legislation replaced the previous Employment Rights Act and significantly strengthened worker protections. Severance allowance is not a 'parting gift'; it is a legal indemnity intended to compensate an employee for the loss of their livelihood.

The allowance applies to employees under a contract of employment (either determinate or indeterminate). However, the eligibility criteria vary. For example, an employee must typically have completed at least 12 months of continuous service with the same employer to qualify for severance in most scenarios. At Payroll.mu, we often assist clients in auditing their length-of-service records to ensure that periods of temporary leaves or previous contract renewals are correctly aggregated as per the 'continuous employment' definition in Mauritian law.

The most common—and often most expensive—trigger for severance is redundancy. In 2026, Mauritius businesses must adhere to strict protocols set by the Ministry of Labour and the Redundancy Board. When a company intends to reduce its workforce due to economic, financial, or structural reasons, it must first explore all alternatives (such as retraining or work-sharing).

If redundancy is inevitable, the standard severance rate under the law is 3 months' remuneration per year of service. For example, if an employee earning MUR 40,000 per month is made redundant after 5 years of service, the calculation would be:
40,000 (Monthly Pay) x 3 (Rate) x 5 (Years) = MUR 600,000.

It is important to note that 'remuneration' includes the basic wage plus any productivity bonuses or allowances that are paid regularly. Using automated systems like Payroll.mu ensures these variable components are correctly weighted over the relevant period.

When an employee reaches the retirement age (60 to 65 years), they are entitled to a 'Gratuity on Retirement.' While often confused with severance, the calculation is governed by similar principles under the Workers’ Rights Act.

The law specifies that an employer must pay a gratuity based on 15 days' remuneration for every 12 months of employment. If the employee was also contributing to a private pension scheme or the Portable Gratuity Fund (PGF), the employer may be allowed to deduct the share of the contributions they made towards that fund from the final gratuity amount.

Calculating the PGF net-off is one of the most complex parts of Mauritius payroll. At Anexa, our accounting teams specialize in reconciling these contributions to ensure employers don't overpay while remaining fully compliant with MRA and NPF/CSG requirements.

In cases where an employee's contract is terminated by the employer for reasons other than misconduct (and without following redundancy board protocols), it may be deemed 'unjustified.'

If the Industrial Court or the Redundancy Board rules in favor of the employee, the indemnity is typically set at the same punitive rate: 3 months' pay per year of service.

However, if an employee resigns voluntarily, they are generally not entitled to severance allowance, though they must be paid their 'pro-rata' end-of-year bonus (as per the End of Year Gratuity Act) and any outstanding accumulated leave (up to the statutory limits). In 2026, the 'Portable Gratuity Fund' ensures that even if an employee resigns, a portion of their service value is preserved in the fund, which they can claim upon retirement.

The calculation of severance isn't just about the '3 months' rule. Several variables can alter the final figure:

1. Average Remuneration: For employees with fluctuating commissions or overtime, the law often looks at the average earnings over the last 12 months.
2. Length of Service: Should be calculated to the nearest month. If an employee worked 5 years and 6 months, the '6 months' must be treated as 0.5 of a year.
3. The '60-Day' Rule: In cases of redundancy, employers must provide 30 to 60 days' notice (depending on the situation) or pay 'In Lieu of Notice.' This payment is in addition to the severance allowance.
4. Deductions: Statutory deductions like the CSG (Contribution Sociale Généralisée) and Income Tax (PAYE) may apply to parts of the payment.

Using a localized payroll solution is the only way to safeguard your business from calculation errors. Payroll.mu is designed specifically for the Mauritius context, automating these complex formulas so your HR team can focus on people, not spreadsheets.