N, N+1 and 2N: Three Different Scenarios
First, the definitions. "N" is the number of months of severance corresponding to your years of service — one month's pay for each full year worked. "N+1" adds one extra month as payment in lieu of notice, and applies when the employer terminates the contract for statutory no-fault reasons without giving 30 days' written notice. "2N" is the penalty payment for unlawful termination — twice the economic compensation. Which one applies depends on why the employment ended. Mutual agreement or redundancy (economic layoff) usually pays N. No-fault termination — such as illness after medical treatment period or failure to perform after training — pays N+1 if the employer did not give 30 days' notice. Unlawful termination — dismissal without a statutory reason or with flawed procedure — lets you claim 2N or reinstatement. Note that N+1 is not automatic in every termination. Many people treat "being laid off = guaranteed N+1" as law, but resignation on your own initiative or dismissal for serious misconduct carries no severance at all.How the Payment Is Calculated: Years, Base and Cap
The formula is: Severance = Years of service N × Monthly salary base. Each full year of service counts as one month; more than six months but less than a year counts as one year; less than six months pays half a month. So 2 years and 8 months counts as 3 years (N=3), while 1 year and 4 months counts as 1.5 years (N=1.5). The monthly salary base is the average gross salary over the 12 months before termination, including base pay, bonuses, allowances and overtime pay — not the basic salary and not the after-tax amount. There is a detail that trips people up: if your average monthly salary exceeds three times the local average wage, the base is capped at that triple amount and the years are capped at 12. If your average salary is below the local minimum wage, the base is raised to the minimum. For example: 5 years of service with an average gross salary of 12,000 yuan gives N=5 and severance of 12,000×5 = 60,000 yuan. If your average salary is 40,000 yuan but the local cap is 36,000 yuan, you are capped at 36,000×12.Is Severance Taxed? Exemption Limit and Reporting
Severance pay — including living allowances and resettlement fees — is exempt from personal income tax up to three times the local average annual wage of the previous year. The amount above that triple limit is not combined with your other annual income; it is taxed separately using the comprehensive income tax rate schedule. For most ordinary severance packages the exemption covers the full amount, so what you receive is essentially what you are owed. You can simulate the numbers with a [tax calculator](https://calc20.top/en/tax): if the local average annual wage is 100,000 yuan, the exemption is 300,000 yuan, so a 60,000 yuan payment is fully tax-free. If your severance is 400,000 yuan, the 100,000 yuan above the cap is taxed separately. Two practical points when receiving severance: first, handle the social insurance gap — arrange flexible employment coverage or start your next job promptly so medical and pension coverage do not lapse; second, plan any year-end bonus separately so it is not mixed with severance and overtaxed. To see how much of your annual income the payment represents, a [percentage calculator](https://calc20.top/en/percentage) gives you the answer at a glance when negotiating. Before leaving, it also helps to model your overall salary picture with a [salary calculator](https://calc20.top/en/salary).FAQ
Q1: Do I get severance if I resign voluntarily?
Generally no. Voluntary resignation for personal reasons does not entitle you to economic compensation. However, if you are forced to resign because the employer fails to pay wages on time, fails to pay social insurance, or enforces illegal rules, it counts as constructive dismissal and the employer owes N. Keep evidence in that situation.
Q2: Do I get compensation if dismissed during the probation period?
If the employer lawfully dismisses you during probation for failing to meet the hiring criteria and can prove the criteria, no compensation is typically required. But dismissing a probation employee without proper grounds is still unlawful termination and requires penalty pay. Probation counts toward your years of service — you are protected from day one.
Q3: Does the salary base include overtime and year-end bonuses?
Yes. The base is the average gross salary over the 12 months before termination, covering base pay, position pay, bonuses, allowances, overtime and year-end bonuses. It excludes reimbursements and non-cash benefits, and it is calculated pre-tax, not after-tax.
Q4: What if my employer refuses to pay?
You can pursue legal remedies: file a complaint with the local labor inspection authority, or apply for labor arbitration (usually within a one-year limitation period), then sue in court if the arbitration is unsatisfactory. Collect evidence first — the labor contract, pay slips, the termination notice and attendance records are the key basis for calculating the base and years.