Have you been retrenched? This is how you should be paid out

Retrenchment (PHOTO: Getty/Gallo Images)
Retrenchment (PHOTO: Getty/Gallo Images)

With the economy struggling, young employees face a growing risk of getting retrenched. Liberty Life’s claim statistics show 12 % of young working  people under the age of 30 who claimed in 2016  did so because of retrenchments. This is even more than the 10 % who claimed for vehicle accidents.

This is the still the reality for majority of South Africans. Now, more than ever its important to familiarise yourself with the procedures of retrenchments. This is how you should be paid out if your job is being cut.

Read more: Coronavirus prompts retrenchment discussions at Barloworld

First steps

Employees in all income groups and job levels can be retrenched if the employer has valid reasons for doing so. Employers must follow the law: first they must issue a notice that explains how many people are being retrenched, and why and when. Employees can negotiate this and make alternative suggestions. If the employer offers you another job as part of the process, think carefully before saying no, unless you have good reason – it could mean that you forfeit your severance pay.


Since 2014 the first R500 000 of your severance pay is tax-free. This doesn’t include payouts  for pro-rata bonuses, which are taxed according to your individual tax rate. To get this tax break you must receive a lump sum from your employer for  being retrenched. Your employer must apply  to the revenue service for a tax  directive that will specify how much of your severance package is taxable. Go to sars.gov.za for more information.


Legally an employer must offer you a severance deal that includes a minimum payout of one week’s salary for every full year of service, and reimburse you for outstanding leave. If you’re a member of the company’s retirement fund, your pension savings must be paid according to the fund’s regulations. You must still work, and get paid for, a minimum period from the date the retrenchment notice is  issued. You might also be entitled to a pro rata bonus depending on your service contract conditions.

Here are some frequently asked questions about retrenchments

1.       Can I get retrenched while I’m on leave?  Yes, you can be notified of the process, but your  employer must follow the legal requirements.

2.       Can employers cancel the notice period? The  employer can come to an agreement with the  retrenched person that they don’t have to work for the notice period but the employee must still be paid out for the period.

3.       Where can I complain? If you belong to a trade union and think your retrenchment wasn’t handled fairly you can ask your union to take your case. Or you can approach the Commission for Conciliation,  Mediation and Arbitration (CCMA).

4.       Is the employer’s contribution to your medical aid included in the severance deal? Yes, it is part of your remuneration.

5.       How much of my severance pay would I have  to pay back if I took another job at the same  company? Your severance deal must specify the  exact amount you’d have to pay back as well as for how long this would apply.

It’s also important to know that the company might insist that you pay back part of your severance pay if they employ you in another permanent  position within a certain period.

Read more: Scared of losing your job? Here’s what to do

Don’t rush into making major financial decisions, and beware of spending your pension fund payout – try to save the full amount for your retirement. Ask your employer if the services of a financial adviser are part of the severance deal. Revise your budget, curb your spending and refresh your CV. If you’re contributing to the Unemployment Insurance Fund (UIF) you’re entitled to unemployment benefits. Ask the human resources department for information on your UIF contributions.

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