What is Retrenchment?
Retrenchment of employees is one of the ways companies use to terminate employees when the company is forced to downsize its number of employees.
Retrenchment Packages In South Africa
What payments can you expect as retrenchment benefits?
Severance pay – this should be at least one week’s remuneration per completed year of service. Remuneration is calculated including basic salary and payments in kind. Outstanding leave must be paid out in full.
The Elements of a Retrenchment Package
- Severance pay – a retrenched employee must at least be paid 1 week’s pay for each completed year of ongoing service. However, the employer must pay the retrenched employee the amount specified in any policy or his/her employment contract, if that amount is larger. If an employee refuses alternative employment with the employer or another employer, s/he will not be entitled to severance pay.
- Leave – an amount of money equal to the annual leave, or time off, that has not yet been taken by the employee must be paid out.
- Notice pay instead of working the employee’s notice period –
- if the employee was employed for less than 6 months, s/he must be paid 1 week’s notice pay;
- if the employee was employed for more than 6 months but less than 1 year, s/he must be paid 2 weeks’ notice pay;
- if the employee was employed for more than 1 year, s/he must be paid 4 weeks’ notice pay.
- Other pay – depending on the employment contract this would be any pro-rata payment of a bonus, pension, and so on.
- Once an employee is retrenched, s/he is entitled to claim unemployment benefits (“UIF”).
How much do you get paid when retrenched in South Africa?
Severance pay – a retrenched employee must at least be paid 1 week’s pay for each completed year of ongoing service.
What is the minimum retrenchment package in South Africa?
? Employees are entitled to 1 week’s severance pay for each completed and continuous year of service with the same employer.
How much tax do you pay on retrenchments in South Africa?
Tax issues for retrenchment benefits
Benefit | Rate of tax |
---|---|
R0 – R500 000 | 18% of benefits over R500k |
R500 001 – R700 000 | 18% of benefit over R500k |
R700 001 – R1 050 000 | R36,000 + 27% of benefit over R700k |
R1 050 001 and above | R130,500 + 36% of benefit over R1,050k |