When an employment contract ends, the employer often pays several amounts: severance pay, notice, paid leave, damages, a negotiated departure bonus. They do not all receive the same tax treatment. Getting the classification wrong can lead to a reassessment of the income tax the employer should have withheld.
The principle: exemption within the limits set by law
The General Tax Code (article 57) exempts from income tax, within the limit set by employment legislation:
- severance pay;
- voluntary departure pay;
- damages awarded by the courts for dismissal.
The part exceeding these limits is taxable like salary.
The limits to observe
| Amount paid | Exempt within the limit of |
|---|---|
| Severance pay | The statutory severance calculated on the Labour Code scale, according to length of service |
| Voluntary departure pay | The amount of statutory severance |
| Damages awarded by a court | One and a half months’ salary per year of service, up to 36 months |
| Compensation agreed at conciliation before the labour inspectorate | The compensation ceiling set by the Labour Code for conciliation |
Example: an employee whose statutory severance is MAD 80,000 receives negotiated severance of MAD 120,000. Unless damages or conciliation within the set limits apply, the MAD 40,000 above statutory severance is subject to income tax.
What remains taxable
The exemption does not apply, in particular, to:
- pay in lieu of notice;
- pay in lieu of leave;
- amounts paid at the end of a fixed-term contract;
- amounts paid on resignation or retirement, outside specific provisions;
- amounts paid when the dismissal is justified, in particular for gross misconduct.
These amounts are added to the month’s salary and taxed on the income tax scale.
What about social security contributions?
The CNSS rules are not identical to the tax rules. An order of the Ministry of Economy and Finance published in 2025 sets the allowances exempt from contributions: severance resulting from an amicable agreement, a court decision or arbitration is exempt up to MAD 1 million, and voluntary departure or retirement payments within a limit expressed as multiples of the minimum wage.
Each amount must therefore be analysed twice: for income tax and for the CNSS.
Good reflexes for the employer
- Calculate statutory severance precisely: length of service, reference salary, items to include.
- Break down the final settlement: notice, leave, statutory severance, amount above the statutory minimum.
- Document the nature of each amount: dismissal letter, conciliation report, court decision, departure agreement.
- Withhold income tax on the taxable part and declare it.
Ascensu secures contract terminations as part of payroll and CNSS management: calculating severance, the final settlement and its tax and social security treatment.
Official sources
This article is provided for general information, as at its publication date. It is not personalised advice: the rules change and every situation must be reviewed on its own facts.