When dismissing an employee due to the operational requirements of a business, the employment relationship is ended due to no misconduct on the part of the employee. A retrenchment is thus seen as a “no-fault” dismissal. A severance package is calculated and paid to the affected employee to compensate for their loss of employment and assist the retrenched employee while seeking alternative work.
Sections 35 and 41 of the Basic Conditions of Employment Act (BCEA) should be consulted when determining the amount of severance pay an employee is entitled to. Section 35 states that an employee is entitled to one week’s severance pay per completed year of continuous service. This is based on the employee’s gross remuneration and is not necessarily limited to the employee’s basic wage. Remuneration includes the value of any benefits the employee received, such as accommodation, cash payments or the employer’s contribution to any medical aid, pension or provident fund. A simplified formula to calculate a week’s remuneration is to divide the monthly remuneration by 4.33. Employers who are regulated by an industry-specific bargaining council should note that the above calculations may differ in terms of their respective main agreements.
Furthermore, be aware that there are certain exceptions when determining severance pay, such as employees on a fixed-term contract or employees whose remuneration differs significantly from month to month. To ensure that you calculate severance pay correctly within your industry, kindly contact your SEESA legal advisor to guide you through this process.
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