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Retrenched – what payments are you entitled to?

By Athenkosi Sawutana

In the current struggling economic climate, retrenchments are a regular occurrence and not everyone survives the cut. If you find yourself on the receiving end of retrenchment you may have questions about the payments that are due to you.

Justmoney helps you find the answers in this turbulent time.

Tip: Ensure that your debt is taken care of if you get retrenched. Get a credit life insurance quote here.

The payments that you’re entitled to will depend on the time you’ve spent with your employer. According to LegalWise, you will be entitled to leave pay, notice pay, severance pay, your pension fund, and the unemployment insurance fund.

 Leave pay: Your employer must pay you for any leave that you didn’t take. For instance, if you have five days remaining from your annual leave, your employer needs to pay you for those days.

 Notice pay: This is money paid to you by the employer if the company doesn’t want you to serve the notice period. If you’ve been employed for one to four weeks, you’re entitled to one week’s notice pay. If you’ve been employed for four weeks to a year, you’re entitled to two weeks’ notice pay. If you have been employed for more than a year, you’re entitled to four weeks’ notice pay. 

 Severance pay: This is defined as a payment that you receive when you leave employment unwilfully. According to the Basic Conditions of Employment Act, you’re entitled to one week’s severance pay for each completed and continuous year of service with the same employer.  However, if an employer offers you another job, and you reject it, you’re not entitled to severance pay.

Bonus: This depends on whether your employer has a policy of paying out bonuses or not when they terminate employment. 

Pension fund/Provident fund: Sometimes employers make it compulsory for employees to contribute to a pension fund. This is a plan where employees contribute a certain percentage of their salary into a fund that pays out when they retire.  When you leave your job, your employer is required to refund all the money that you’ve been paying towards your retirement. When you get retrenched you can choose to withdraw your pension fund or invest it in a unit trust

ALSO READ:  What happens to your retirement fund when you get a new job?

Unemployment Insurance Fund (UIF): When you commence employment, your employer is required to register you for UIF. If you lose your job, you can claim unemployment benefits from the UIF. This is calculated as 2% of your salary. You pay half of that percentage and your employer pays the other half. This benefit is only payable when the employer terminates your contract or when you go on maternity leave or paternity leave.  If you have been working for four years, you will be entitled to a claim of one year’s income. If you have contributed to the UIF for a shorter period, you will only be entitled to claim one day for every five days of work.

This benefit is payable immediately after retrenchment takes place. However, if you don’t claim within 12 months of being retrenched, you will forfeit the benefit.

What about tax?

According to the South African Revenue Service (SARS), all lump sum termination payments are subject to income tax. Severance and pension funds are such payments.  However, some benefits are exempt from tax. For instance, the first R500,000 is not subject to tax, the next R200,000 is taxed at 18%, the following R350,000 at 27%.  All amounts above R1,050,000 are taxed at 36%.

SARS further states that leave pay and pro-rata bonuses that are paid at the time of the termination of employment aren’t part of a severance benefit and are subject to tax at normal rates applicable to individuals.

ALSO READ: Tax on your retirement annuity: how much does the government take?

Can you be retrenched without notice?

According to the law, no employer is allowed to retrench workers without issuing a written notice.  The employer can consult with employees, trade unions, or any representatives of the employees.

When consulting with the employees, the employer must clearly state the reason for retrenchment and must also see if retrenchment can be avoided.

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