Step-by-step severance calculation for 5 years of service
Walk-through assumes an employee on indefinite contract, post-probation, on employer-initiated termination at the 5-year mark. All amounts in MMK.
Step 1 — Confirm severance entitlement at 5 years of service
| Tenure | Severance entitlement |
|---|---|
| 1 – 2 years | 1 × month's salary |
| 2 – 3 years | 2 × month's salary |
| 3 – 4 years | 3 × month's salary |
| 4 – 5 years | 4 × month's salary |
| 5 – 6 years | 5 × month's salary |
| 6 – 8 years | 6 × month's salary |
An employee at exactly 5 years falls in the 5–6 year band: 5 months' salary.
Step 2 — Apply the rate to last drawn monthly salary
| Item | Value |
|---|---|
| Last drawn monthly basic salary | e.g. MMK 1,200,000 |
| Multiplier (5 years of service) | × 5 |
| Severance payable | MMK 6,000,000 |
Step 3 — Combine with notice and final settlement components for 5 years of service
At 5+ years of service, the notice period rises to 3 months (versus 1 month for 1–5 years).
- Outstanding wages — pro-rated to last working day.
- Leave encashment — accrued earned leave × daily rate.
- Notice pay — 3 months if not served (5+ years tier).
- Severance — 5 × month's salary.
- Other contractual benefits — gratuity, pro-rata bonus if due.
- Timeline — within 7 days of last working day.
Tax treatment of severance at 5 years of service
Severance forms part of assessable income for PIT and is taxed in the year of payment at ordinary bracket rates. PAYE applies on the lump sum in the month of payment. Withhold PIT on severance + notice + leave encashment combined.
Employer takeaway
For an employee with 5 years of service, pay 5 months' last salary as severance plus 3 months' notice pay if notice is not served, owed only on employer-initiated termination. Combine with leave encashment and outstanding wages in a final settlement, paid within 7 days. Withhold PIT on the full settlement and remit to IRD by the 15th of the following month. Issue relieving + experience letters.
Variations on 5 years of service
- Resignation — no severance owed; employee gives 3 months' notice (5+ year tier) or forfeits.
- Gross misconduct — no severance; due process and documentation required.
- Fixed-term contract expiry — no severance; renewals beyond 2 cycles can be deemed permanent.
- Mutual separation — typically follows ESDL minimum unless higher contractual package agreed.
- See 2-year severance and 10-year severance.
Common severance mistakes at 5 years of service
- Using the 1-month notice tier instead of 3 months.
- Paying severance only and skipping notice pay.
- Computing on basic when contract defines severance on gross.
- Failing to withhold PIT on the lump sum.
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