Losing a job to retrenchment is a shock, and the money questions arrive immediately. What are you owed?
How long will it last? Which bills come first? Here are the basics, and a plan for the first month.
What is retrenchment?
Retrenchment is a dismissal for operational reasons, such as restructuring or the business closing. It is not about your performance. The Labour Relations Act sets out how it must be done, including consultation before decisions are made.
What are you generally owed in a retrenchment?
| Item | What it means |
|---|---|
| Notice or pay in lieu | The notice period in your contract or the law, or pay instead |
| Accrued leave pay | Payment for untaken leave |
| Severance pay | At least one week’s pay for each completed year of service |
| Other contractual amounts | Bonuses or benefits due under your contract |
Your contract or a collective agreement may give you more. Check your employment contract and ask HR for a written breakdown.
Here is a hypothetical example. You earn R12,000 a month and have worked six full years. One week’s pay is about R2,770, so the minimum severance is about R16,600.
What are the 5 first steps in the first week?
- Get everything in writing: the retrenchment notice, last day and amounts due.
- Ask for a breakdown of notice, leave and severance.
- Get your documents: the UI-19 form, payslips and an employment letter.
- Claim UIF as soon as possible. See claiming UIF.
- Check your benefits: medical aid, pension or provident fund, funeral cover.
Do not resign or sign away your rights without reading what you sign. If you have a union, speak to your representative.
How do you plan the money?
Work out how long your payout and UIF can cover essentials. List your costs, then cut down to the essentials for now: rent, food, transport, electricity and minimum debt payments.
Here is a hypothetical example.
| Item | Amount |
|---|---|
| Severance and leave pay | R18,000 |
| Monthly essentials | R7,000 |
| Months of cover | about 2.5 |
Add UIF and any savings, and you get a longer runway. Be realistic about how long a job search can take.
What about debts and creditors?
Contact creditors early. Explain the situation and ask for arrangements. See what to do when you cannot pay your debts.
Do not take new loans while you wait. See loans for the unemployed for what is realistic.
What about retirement savings?
Be careful before you touch them. A withdrawal from a retirement fund is taxed and loses years of growth. Under the two-pot system, only the savings component can be accessed early. See two-pot retirement.
What if the retrenchment was unfair?
If you believe the process was unfair, for example no consultation, you can refer a dispute to the CCMA within the legal time limit. Act quickly, and get advice from your union, Legal Aid South Africa or a law clinic.
How long a notice period should you expect?
Notice is one of the first amounts to check. The Basic Conditions of Employment Act sets minimum notice, and your contract may give more.
| How long you worked | Minimum notice |
|---|---|
| 6 months or less | 1 week |
| More than 6 months, up to 1 year | 2 weeks |
| More than 1 year | 4 weeks |
Farm workers and domestic workers who have worked for more than six months are also entitled to four weeks. If your employer asks you to leave straight away, it should pay you in lieu of the notice. Ask for this in writing, with the amount.
What might a full package look like in rand?
Here is a hypothetical example for someone who earns R12,000 a month and has worked six full years. The figures are approximate, and your contract may be different.
| Item | Approximate amount |
|---|---|
| Notice pay, four weeks (one month) | R12,000 |
| Severance, 6 weeks at about R2,770 | R16,600 |
| Leave pay, 10 untaken days at about R554 | R5,540 |
| Total, before tax | about R34,100 |
Compare this with the amount in your letter. If an item is missing, or lower than it should be, ask HR to explain in writing. Keep your payslips and your contract, because they show your pay and your leave balance.
How is a retrenchment payout taxed?
Severance is taxable, but it is treated differently from your salary. SARS taxes severance benefits and certain lump sums under a table that has a tax-free portion at the start, and then rising rates.
The tax-free amount is cumulative over your lifetime, so earlier lump sums matter. Check the current table on the SARS website, because thresholds change.
Ask your employer how the severance will be taxed, and for a tax directive if one is needed. Plan around the amount you will actually receive, not the headline figure.
What can you ask at the consultation meeting?
The Labour Relations Act requires an employer to consult before it retrenches. If you are invited to a meeting, go prepared. Useful questions include:
- What are the reasons for the retrenchment, and what alternatives were considered?
- How were the people to be retrenched selected?
- When is my last day, and what will I be paid?
- Will you provide a reference and the documents I need for UIF?
- What happens to my benefits, such as medical aid and the provident fund?
Take notes, ask for answers in writing and speak to your union representative if you have one. The consultation is your chance to influence the outcome, so do not treat it as a formality.
How long will your money last?
Work out your runway, using the payout and UIF. Here is a hypothetical example.
| Item | Amount |
|---|---|
| Payout after tax | R30,000 |
| UIF, for a number of months | R3,200 a month |
| Essentials | R7,000 a month |
In the first two months, the payout and UIF together would cover about R36,400 of essentials, against R14,000 needed. By the fifth month the payout is spent and UIF covers less than half of essentials.
Your own numbers will differ, but the exercise tells you how many months you have, which is the number to plan around. See claiming UIF.
Frequently asked questions
How much severance am I owed?
At least one week’s pay for each completed year of service, under the Basic Conditions of Employment Act. Your contract may give more.
Can I claim UIF after retrenchment?
Usually yes, if you contributed. See claiming UIF.
Should I take a retrenchment package straight away?
Read it first, and ask for time. Do not sign away rights you have not understood.
What if I owe my employer money?
Your employer may deduct only what the law and your written agreement allow. Ask for a breakdown.
Do I get severance if I resign?
Severance is for dismissal for operational reasons. If you resign, you generally do not receive it, so do not resign without advice.
Can my employer pay the package in instalments?
It must pay what the law and your agreement require. If it proposes instalments, ask for it in writing and get advice before you agree.
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