Guiding consumers since 2009

Retrenched – which 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 during this turbulent time.

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

The payments 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 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 a payment 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 or 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 to 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 contribution 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.

Make sure that your family doesn’t suffer when you lose your income. Fill in this form to get a credit life insurance quote.

Recent Articles

Featured Travel ban – how to claim for the loss incurred

As with the recent Covid-19 pandemic, governments sometimes issue travel bans to prevent people from travelling to other countries. This becomes even more complicated if you’ve already planned and paid for your trip. Your flights will be cancelled, and you may lose money from cancelled accommodation arrangements. How do you claim for the financial losses incurred due to a travel ban?

How to finance and insure a second-hand vehicle

Buying a second-hand vehicle may suit your budget better than acquiring a new one. But what impact does an older model have on vehicle finance and car insurance? We reached out to specialists in the field to explain what the financial implications are of pursuing a second-hand vehicle.

Reading your loan agreement: look out for this

Many people don’t read their loan agreements. They just sign on the dotted line without realising that they could be signing their lives away. But it’s important to review your loan agreement before and after taking your loan to avoid future setbacks.

 

Part 1: The difference between good and bad debt

In the first part of our Debt-ucate series we explore the difference between good and bad debt and why debt is, in fact, necessary.

Deals

Udemy online course for R180

Price: R180
When: Until 27 March 2020
Where: Online

Educate your kids for free with Skills Share

Price: Free
When: Daily
Where: Online

Take advantage of payment holidays from Standard Bank and Nedbank

Price: Free
When: From 1 April to 30 June 2020
Where: Nationwide