It these times when companies of all sizes are trimming their staff to save money, it is important to know if you are entitled to severance pay should your employment be terminated due to the operational requirements of your employer.
Section 41(1) of the Basic Conditions of Employment Act provides that a retrenched employee is entitled to severance pay of at least one week’s remuneration for every year of completed service with the employer, while section 41(2) provides for the obligation of employers to pay severance pay, explains Celeste Snyders from SchoemanLaw Inc Attorneys.
If you were continuously employed for one year by the same employer and dismissed, you are entitled to severance pay, which is offered to employees who are dismissed for operational requirements, such as economic, technological, structural or similar needs of an employer.
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Severance package depends on how long you worked
Your severance package will depend on how long you were employed for. According to section 41, your employer must pay you if you are dismissed for reasons based on operational requirements or if your contract of employment terminates or is terminated in term of section 38 of the Insolvency Act.
Your severance pay must be equal to at least one week remuneration for each completed continuous year of service, as calculated in terms of section 35 of the Act. You are only entitled to severance pay once retrenchment has been concluded.
If you are a member of a bargaining council, the bargaining council and main agreements to the council will determine the severance package payable. If you and your employer agree to a better package during the retrenchment consultation process, the agreement will replace the statutory minimum of one week per year worked.
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Limitations on the right to severance pay
However, there are a few limitations on the right to severance pay, which is not limited to the following:
- When there is a break in your service of more than 12 months, you will not be entitled to severance pay for the years exceeding the break in service
- If you worked on a fixed-term contract for less than two years, you will not be entitled to a severance package, but your employer will be liable for one week’s salary for each continuous year of service where the contract exceeds two years
- You will not be entitled to severance pay for the period that you worked as an independent contractor for the employer
- When you reach retirement age, you will not be entitled to a severance package if requested to retire at that age and also not if you are allowed to work beyond the retirement age.
Therefore, Snyders says, the employer must prove that one of these limitations exists to be absolved from the liability to pay you severance pay.
“South African labour law specifies that severance, notice and leave pay should be calculated when paying a severance package. Subject to your employment contract, bonuses and pension benefits will also be part of the severance package,” she says.