This article was updated on 23 September, 2021
In the current economic climate, retrenchments are a regular occurrence. If you find yourself on the receiving end, you may have questions about the payments that are due to you.
What are you entitled to if retrenched?
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The payments you’re entitled to will depend on the length of time you’ve spent with your employer. According to LegalWise, among the entitlements are leave pay, notice pay, severance pay, your pension fund, and the Unemployment Insurance Fund (UIF).
Leave pay. Your employer must pay you for any leave you haven’t taken. For instance, if you have five days remaining in your annual leave allocation, your employer needs to pay you for those days.
Notice pay. This is 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've been employed for more than a year, you’re entitled to four weeks’ notice pay.
Severance pay. This is a payment you will receive if 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 payment will depend on whether your employer has a policy of paying out bonuses when they terminate employment.
Pension fund or provident fund. Sometimes employers make it compulsory for employees to contribute to a pension fund. This is a plan where employees pay a certain percentage of their salary to a fund that pays out when they retire.
When you leave your job, your employer is required to refund all of your contributions towards this fund. When you get retrenched, you can choose to withdraw your pension fund or invest it in a unit trust.
READ MORE: What happens to your retirement fund when you get a new job?
Unemployment Insurance Fund. When you commence employment, your employer is required to register you for UIF. If you lose your job, you can claim unemployment benefits from this fund. This contribution is calculated at 2% of your salary. You pay half of that percentage and your employer pays the other half.
This benefit is only payable when an 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 worked.
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. However, some benefits are exempt in part. For instance, the first R500,000 of your severance pay is not subject to tax. However, if you receive a pension benefit and, together with your severance pay, these amounts add up to more than R500,000, you’ll pay tax according to the rules laid out by SARS.
Leave pay and pro-rata bonuses that are paid at the time of termination aren’t considered by SARS to be part of a severance benefit, and are therefore subject to tax at normal rates.
READ MORE: How are you taxed on your retrenchment package?
Can you be retrenched without notice?
Under South African law, any retrenchment must be accompanied by a written notice. The employer can consult with employees, trade unions, or any representatives of the employees during this process.
When consulting with employees, the employer must clearly state the reason for retrenchment and must avoid retrenchment if at all possible.
To see how much tax you’ll pay on your monthly income, use this calculator.