How severance pay is calculated
Weekly remuneration = monthly remuneration ÷ 4.333 Minimum severance pay = weekly remuneration × completed years of continuous service
“Remuneration” means more than basic salary: it can include regular payments such as fixed allowances or commission. Once-off bonuses and expense reimbursements are usually excluded. Only completed years count towards the statutory minimum; part-years count only if your employer’s policy or agreement says so.
The retrenchment process
Before retrenching, an employer must consult with affected employees (or their union) about ways to avoid dismissals, selection criteria and severance pay, following section 189 of the Labour Relations Act. If you believe the process or reason was unfair, you can refer a dispute to the CCMA, generally within 30 days of dismissal.
Worked examples
Six years’ service on R25 000 a month
One week’s pay is R25 000 ÷ 4.333 = R5 769.67, so the legal minimum is six weeks — R34 618.05.
Calculation
- Monthly remuneration used
- R25 000.00
- Weekly remuneration (÷ 4.333)
- R5 769.67
- Completed years of service
- 6 years
- Statutory minimum (s41 BCEA)
- R34 618.05
The same employee offered two weeks per year
Many packages offer more than the minimum. At two weeks per year the payment doubles.
Calculation
- Monthly remuneration used
- R25 000.00
- Weekly remuneration (÷ 4.333)
- R5 769.67
- Completed years of service
- 6 years
- Statutory minimum (s41 BCEA)
- R34 618.05
- Package: 2 week(s) × 6 years
- R69 236.04
Frequently asked questions
How much severance pay am I entitled to?
At least one week’s remuneration for each completed year of continuous service with the employer (section 41 of the BCEA). Your contract, a collective agreement or bargaining council agreement may give you more.
When does severance pay apply?
When you are dismissed for the employer’s operational requirements — retrenchment for economic, technological, structural or similar reasons. It does not apply to dismissals for misconduct or incapacity.
Can I lose my severance pay?
Yes, if you unreasonably refuse to accept an offer of alternative employment with your employer or another employer.
Is severance pay taxed?
Severance benefits are taxed using the retirement lump sum tax table, which includes a tax-free portion. Your employer must obtain a tax directive from SARS before paying it.
What else must be paid when I am retrenched?
Notice pay (or working your notice period), pay for any unused annual leave, and any other amounts owed under your contract.