The Steps to Work Out a Retrenchment Package in South Africa
What payments can I expect as retrenchment benefits in South Africa?
- 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.
- Notice pay may vary depending on your employment contract.
- In the absence of a contract, you are entitled to notice pay as follows:
- If you have been employed for 1-4 weeks: 1 week’s notice pay
- If you have been employed for 4 weeks-1 year: 2 weeks’ notice pay
- If you have been employed for more than a year: 4 weeks’ notice pay
Depending on your employment contract again, you may be entitled to a pro rata payment of your annual bonus and the balance of any pension or provident fund benefits.
Do I Pay Tax on Retrenchment Benefits in South Africa?
In South Africa, the taxman now uses the retirement tax tables for severance benefits, which are taxed (in aggregate for your lifetime) as follows:
| Benefit | Rate of tax |
| R0 – R500 000
R500 001 – R700 000 R700 001 – R1 050 000 R1 050 001 and above |
0% of benefit
18% of benefit over R500k R36,000 + 27% of benefit over R700k R130,500 + 36% of benefit over R1,050k |
How is retrenchment compensation calculated?
While effecting retrenchment of the workmen, it is obligatory on the part of the employer to pay retrenchment compensation at the rate of 15 days wages (for every completed year) to be calculated at the last drawn salary of an employee.
How does retrenchment work in South Africa?
In South Africa, retrenchments are “no fault” dismissals. It is not the fault of the employee that the company cannot afford the salary of the employee anymore and as such notice periods agreed upon must be honoured. The employer may ask the employee not to return to work but must then pay the notice period.
