Severance allowance in Uganda: the new one-month-per-year formula

1. At a glance

It is written for advocates, HR practitioners and employees assessing a termination that occurred, or will occur, on or after 5 June 2026 — the commencement date of the Employment (Amendment) Act, 2026. If the termination took place before that date, the pre-amendment law (negotiable severance under the old s.88) applies to that termination, though the courts had by then already been applying the one-month-per-year rule as a matter of practice — see the courts' approach below.

This note does not cover ordinary notice pay, unfair-dismissal compensation as a stand-alone claim, or NSSF terminal benefits — see the related notes on unfair dismissal, summary dismissal and NSSF obligations. Where a termination raises several of these claims at once, each must be pleaded and proved on its own statutory footing; they are cumulative, not alternatives, subject to the set-off rules described here.

2. The Employment (Amendment) Act, 2026: what actually changed

For as long as the Employment Act, Cap. 226 has existed, severance allowance has been payable on a qualifying termination after six months' service — that structure is unchanged. What has changed, decisively, is the amount. The old section 88 said only that 'the calculation of severance pay shall be negotiable between the employer and the workers or the labour union that represents the workers' — no floor, no formula, and no default if negotiation failed.

The Employment (Amendment) Act, 2026 (assented 29 April 2026, commenced 5 June 2026) substitutes a new section 88 in its entirety: 'The severance allowance payable to an employee under this Part shall be one month's salary for each year worked by the employee.' There is no longer anything to negotiate — the formula is mandatory and arithmetic.

3. When severance allowance is due

Two gates must both be cleared. First, continuous service: the employee must have been continuously employed for six months or more. Second, a qualifying termination under the amended section 86.

Section 86 as amended

The amendment inserts two new paragraphs (ca) and (cb) and repeals the old paragraphs (d), (e) and (f) outright. A common error is to read this as an expansion; it is in truth a narrowing — the employer's death or insolvency, which used to qualify under the old paragraph (d), no longer does. The qualifying terminations now are: unfair dismissal; death in service, otherwise than through the employee's own serious and wilful misconduct; the employee's own termination of the contract because of physical incapacity not so occasioned (the surviving paragraph (c)); the employer's termination of the contract due to the employee's physical incapacity (new paragraph (ca)); and the employee's position being declared redundant, or the employer's refusal to pay wages leading a labour officer to terminate the contract under section 30(1) (new paragraph (cb)).

• Unfair dismissal (para. (a)).
• Death in service, not through the employee's own serious and wilful misconduct (para. (b)).
• The employee's own termination for physical incapacity not so occasioned (surviving para. (c)).
• The employer's termination for the employee's physical incapacity (new para. (ca)).
• Redundancy, or a labour officer's termination for the employer's failure to pay wages under s.30(1) (new para. (cb)).

4. The disqualifiers — section 87 unchanged

Section 87 was not touched by the 2026 amendment. Under s.87(1) severance is barred where the employee is summarily dismissed with justification (dismissal without notice for conduct amounting to a fundamental breach, under the substituted s.68); unreasonably refuses an offer of re-employment on terms no less favourable than before; or abandons or absconds from work for more than three days without explanation. Section 87(2) adds further situations that are easy to overlook: where the employer is a partnership dissolved and the employee is re-employed by, or unreasonably refuses re-employment from, one of the partners; where the employer dies and the employee is re-employed by, or unreasonably refuses re-employment from, the estate or heirs; and where the contract terminated is a probationary contract.

Because summary dismissal is itself now governed by the substituted section 68 and the disciplinary framework in the amended sections 64A and 65C, whether a dismissal is 'justified' for the purposes of the s.87 severance bar must be assessed against that current framework — not against pre-2026 case law describing the old summary-dismissal test without adjustment.

5. Calculating severance: the worked formula

The calculation under the substituted s.88 is now arithmetic rather than negotiated: one month's salary multiplied by each complete year of service. The amendment does not define 'salary', and no authoritative construction of the term under the substituted s.88 has yet emerged; the safest working assumption is the employee's gross basic monthly salary at termination, but whether routine allowances are included should be treated as an open question (see grey areas).

Partial years are the one area the substituted text does not resolve expressly — the wording refers to 'each year worked', without stating how a part-year is treated. Practice under the pre-amendment Donna Kamuli formula was to pro-rate a part-year on a fraction basis; absent a reported decision construing the new wording, that practice is the safest working assumption but should be flagged as a point to confirm (see grey areas below).

6. Interaction with the unfair-dismissal compensatory order

Severance and unfair-dismissal compensation are separate claims but are not assessed in isolation from each other. The substituted section 77 fixes a basic compensatory order of eight weeks' wages in every unfair-dismissal case, and then allows the labour officer discretionary additional compensation — bounded between a minimum of one month's and a maximum of three months' wages — assessed against a list of factors that expressly includes 'the value of any severance allowance payable under Part IX'.

7. How the courts arrived at one month per year

The one-month-per-year formula did not appear from nowhere in 2026. It has a clear judicial lineage that every advocate should be able to recite, because it explains why the new s.88 will be applied with confidence rather than treated as a novel, untested rule.

The Industrial Court has repeatedly followed that approach in the years since, including in Akewa v Loving One by One Ministries [2024] UGIC 54 and Tituryebwa v Sino Minerals [2025] UGIC 4, so that by the time Parliament legislated the formula in 2026, it was already settled practice at first instance — the amendment removes any residual argument that a lower figure could be negotiated downward.

Practitioners relying on older authority — anything predating Donna Kamuli, or anything suggesting severance is purely a matter of employer discretion — should treat that authority as superseded twice over: first by the Court of Appeal's formula, and now by its statutory codification.

8. Consequences of getting it wrong

An employer that pays severance on the old negotiated basis, or withholds it altogether on a mistaken view that the amount remains discretionary, exposes itself to a labour officer complaint for the statutory shortfall, with interest and costs commonly following an award. Where the underlying termination is also unfair, the shortfall compounds with the section 77 compensatory order rather than being absorbed by it.

An employee or advocate who advises a client to accept, or negotiate down, a severance figure below the statutory one-month-per-year calculation risks giving up an entitlement that is no longer negotiable at law — any settlement purporting to fix a lower rate should be scrutinised for whether it is genuinely a compromise of a disputed claim (permissible) rather than an attempt to contract out of the statutory minimum (not permissible).

9. From negotiable to fixed: why the formula was codified

Understanding why Parliament moved from a negotiable figure to a fixed formula helps explain how the new s.88 will be applied. Under the old law, severance pay was structurally disadvantageous to employees without union backing — an individual employee with no bargaining power had, in practice, nothing to negotiate with, and employers with stronger legal advice routinely paid far less than the Donna Kamuli benchmark on the footing that the Court of Appeal's approach was merely persuasive guidance in one case, not a binding statutory rule.

By lifting the judicial formula directly into the text of s.88, the 2026 amendment removes that asymmetry entirely: an unrepresented employee now has exactly the same statutory entitlement as one represented by senior counsel, and a labour officer computing severance has a single number to apply rather than a range to mediate between. This also simplifies settlement negotiations generally — the only genuinely contestable questions left are whether s.86's gates are met at all, and the length of service and salary figures feeding the calculation, not the rate itself.

10. Practitioner checklist

1. Confirm the termination date and whether it falls on or after 5 June 2026 — the fixed formula applies to terminations from that date; pre-amendment terminations fall to be assessed on the old negotiable regime, though informed by the Donna Kamuli practice.
2. Confirm continuous service of six months or more.
3. Identify the specific qualifying ground under the amended s.86 (unfair dismissal, death in service, physical incapacity — (c) or (ca) — redundancy or wage-non-payment termination (cb)) and gather the evidence for it; note employer death/insolvency no longer qualifies.
4. Check none of the s.87(1) or s.87(2) disqualifiers apply (including a probationary contract).
5. Establish the employee's gross monthly salary at termination and the number of complete years worked.
6. Calculate severance as salary x years worked.
7. Identify and deduct any gratuity, bonus or other end-of-service payment already made (s.89).
8. Where the dismissal is also unfair, prepare the s.77(2) factors — including the severance figure itself — for the additional-compensation claim.
9. If unresolved, file the complaint with a labour officer and diarise the ninety-day and appeal timelines.

11. Practical guidance and drafting tips

12. Common pitfalls

• Treating severance as still negotiable — since 5 June 2026 it is a fixed statutory formula, not a matter of agreement.
• Applying the pre-2026 rule to a termination that in fact occurred after commencement, or vice versa.
• Forgetting the six-month continuous-service threshold.
• Missing that redundancy and physical incapacity are now named qualifying grounds under the amended s.86.
• Failing to set off gratuity or bonus already paid, producing an inflated demand.
• Treating severance and unfair-dismissal compensation as alternatives rather than claims assessed together under the s.77 factors.

13. Grey areas and points to confirm

The substituted s.88 does not say in terms how a partial year of service is treated — whether it is pro-rated, rounded up, or ignored below a threshold. Pending a reported decision construing the new wording, pro-rating on the pre-amendment Donna Kamuli practice is the safest working assumption, but confirm current Industrial Court practice before quantifying a claim with a significant partial year at stake. Similarly, 'salary' for the formula should be confirmed as gross basic monthly salary at termination — check whether any current guidance excludes or includes routine allowances before finalising a calculation on a high-allowance remuneration package. Finally, because the amendment is very recent, treat any textbook, precedent letter, or online calculator dated before June 2026 as unsafe until checked against the substituted text.

14. Sources and further verification

Every statutory reference above is to the Employment Act, Cap. 226, as amended by the Employment (Amendment) Act, 2026 (assented 29 April 2026, commenced 5 June 2026). Because the consolidated Act page may not yet incorporate the amendment's text at its section anchors, always read the amending Act itself alongside the consolidation when citing s.86, s.87, s.88 or s.77 in a live matter.

• Employment Act, Cap. 226 — ss.86, 87, 88 (as substituted by the Employment (Amendment) Act, 2026), 89, 77.
• Employment (Amendment) Act, 2026 — Acts Supplement No. 6 to the Uganda Gazette No. 57, Volume CXIX, dated 5 June 2026 (assented 29 April 2026).
• DFCU Bank Ltd v Donna Kamuli [2019] UGCA 2088; Akewa v Loving One by One Ministries [2024] UGIC 54; Tituryebwa v Sino Minerals [2025] UGIC 4; Uganda Development Bank v Florence Mufumba [2020] UGCA 2051.