This week the government told administrators that it wouldn't provide more funds, lending guarantees or allow foreign financing of a business rescue plan. The first R500,000 severance benefit is tax free and the amount above R500,000 up to R700,000 is taxed at 18%. The average severance packages per employee category for cabin crew staff is R352 588, pilots R1 960 068, cargo R351 674, operations R351 209, simulator R476 976, back office R379 245, contractors R376 538 and management and specialists R477 192. Severance Pay . If I don't apply for a tax directive now, what is the implications. The National Minimum Wage Act (NMWA) has continued to raise confusion around whom may be paid less than the prescribed minimum set amount of R20,00 per each ordinary hour actually worked. But severance pay and any gratuity will be taxed like any lump sum you receive from your retirement fund, she says. You must pay them one week's remuneration for every continuous year … 2.1 South African Law Section 196 of the LRA used to deal with severance pay, but was repealed in 1997. Severance pay should be at least one week’s remuneration per completed year of service. South Africa Airways Administrators Told by Court to Halt Severance-Pay Plan. The statutory requirement for the payment of severance pay covers only cases where the employment is terminated due to the operational requirements of the job (better known as retrenchment). Email: ... your pension fund administrator will apply for a directive from the South African Revenue Services on your behalf and pay the Tax accordingly. Would it be advisable for me to pay off my vehicle? A new section on severance pay was included in the BCEA and does not differ substantially from the repealed section. As a result, many employers have unfortunately had no choice but to retrench employees at great cost. It is frequently required by employment law. That is, the BCEA does not require the payment of such severance pay in cases of resignation, retirement, death, expiry of an employment contract, dismissal for misconduct, poor performance, illness or other reasons. Which employees can be paid less than the prescribed National Minimum Wage? 41) and the LRA (sec 196) only where the termination is for operational requirements of the enterprise, meaning requirements based on the economic, technological, structural or similar needs of an employer. When the number of discouraged job seekers are included in the current unemployment statistics, the unemployment rate seems higher than 27% and closer to 43%. It is therefore left to employers, employees and trade unions to fight this out based on their own viewpoints. How is the severance pay calculation South Africa? The economic climate in which many South African firms operate has meant that dismissals for operational requirements have become an inescapable concern. How To Improve Your Focus and Limit Distractions, Invitation to our online workshop: Restoring Your Workplace Effectiveness, World Knowledge Olympiad: Grade 8 to Grade 12 Learners, Vaccine Side Effects Should Be Expected, Says Karim, Moderna Says Vaccine Is Effective Against Covid-19 Variants, 5 Major Trends To Drive The New Post-Pandemic Workplace, COVID-19 Corona Virus South African Resource Portal. The first R500,000 severance benefit is tax free and the amount above R500,000 up to R700,000 is taxed at 18%. The obligation to pay severance pay to fixed-term employees By Johan Botes, Director, Employment Law, Cliffe Dekker Hofmeyr. If your severance pay is less than R500,000, you’ll not pay any tax. May an employer unilaterally reduce an employee’s remuneration due to the effects of COVID-19? Labour unions, representatives of non-unionised managers and ground staff have agreed to accept the South African Airways (SAA) voluntary severance packages (VSPs). 1. That is, it is very likely that an employer would consider the offer of a lower post to a retrenechee to be fair but an employee who might stand to get a big retrenchment package may believe that refusing a demotion is very reasonable. ... South Africa needs to raise taxes – and the wealthy will most likely foot the bill. The employee earn an average of R14 000 per month and has never been retrenched. South Africa Airways Administrators Told by Court to Halt Severance-Pay Plan Antony Sguazzin , Bloomberg News (Bloomberg) -- South Africa’s labor court told the administrators of the state airline that they can’t force workers to accept severance payments, deepening the chaos surrounding the bankrupt company’s future. End of the road: South Africa'a airline readies severance pays With government cutting off funds, there was no other way to survive Published: April 21, 2020 15:40 Bloomberg Acts Online provides legislation, including amendments and Regulations, in an intuitive, online format. The statutory requirement for the payment of severance pay covers only cases where the employment is terminated due to the operational requirements of the job (better known as retrenchment). Question: Is an employee whose fixed-term contract comes to an end entitled to severance pay? Yes, there is - the South African Domestic Service and Allied Workers' Union (SADSAWU). Severance payments in South African law are … (+) show remarks. The Basic Conditions of Employment Act, No. My logic tells me the severence pay will probably be tax free. Answer: An employee who has been employed for more than 24 months is entitled to severance pay when fixed-term contract comes to an end, unless … 75 of 1997 (BCEA) provides that an employer who dismisses an employee for ‘operational requirements’ must pay severance of one week’s remuneration for every completed year of service. (3) An employee’s monthly remuneration or wage is four and one-third times the employee’s weekly remuneration or wage, respectively. Furthermore, severance pay is calculated in terms of s 41 of the Basic Conditions of Employment Act 75 of 1997 – one week of pay for every year employed. Many employers have a vague understanding of the process of a retrenchment  but are unsure how to calculate an employee’s severance pay. It is correct that severance pay is calculated at one week’s remuneration for each completed year of continuous service. Our aim is to ensure that our clients make the correct payments to employees so that an employee’s right to a fair dismissal for operational requirements and their dignity are protected throughout the retrenchment process. Domestics are also entitled to severance pay of one week for each year of service, as well as four months' unpaid maternity leave. 2019; 2018; 2017; 2016; 2015; 2014; 2013; 2012; 2011; 2010; 2009 The entitlement in the Basic Conditions of Employment Act (BCEA) amounts to a minimum of one week’s remuneration for every completed year of service. South Africa - Severance pay and redundancy payment. Must Read. It is also up to the CCMA, bargaining councils and courts to develop their own interpretations of this provision. Telephone: South Africa: +27 11 467 0810 International: +27 11 782 5289. What documents do I need to register my uFiling account? We are the leading resource for freely available Legislation in South Africa and are used daily by thousands of professionals and industry leaders. Of the extra R10-billion, R2-billion is intended for initial operations, R2.2-billion for severance packages for 3 622 employees and R1.7-billion will go towards aircraft lease cancellations. a thirteenth cheque) must be pro-rated. However, not every retrenchment results in payment of severance pay. Posted 23 June 2015 under Tax Q&A Skoppie says: 18 June 2015 at 7:48 I have paid a severance amount to an employee that took voluntary retrenchment. Is the applicant eligible to be considered for severance pay? Severance, notice and leave pay are specified in terms of South African labour law, along with the basis of their calculation. Here is what you should know about severance pay on retirement in South Africa. Sabelo Skiti. The severance package will include one week’s pay for every year of service, a month’s salary, payment for outstanding leave, and a 13th cheque if an employee is entitled to one. Is the retrenchee entitled to severance pay despite having been offered alternative employment? A benefit that has almost gone unnoticed, is the right to claim severance pay (section 198B(10)(a) of the LRA). The issues that might come before an arbitrator (who is like a judge) could be: In calculating severance pay the employer is normally entitled to exclude: However, items that the employer should include are: The issue of retrenchments in general and of assessing severance pay in particular are practically complicated and fraught with legal complexities. They would be entitled to one week's pay for every year of service, one month's pay in lieu of notice pay and pay for outstanding annual leave. For the non-payment of additional notice on retirement, see the decided case of Philemon Kunene vs. Swazi Oxygen (Pty) Ltd, Case No. We can ensure that the dignity of the employee is respected by adhering to the calculations and formulae that constitute the final payments due to the employee. The entitlement in the Basic Conditions of Employment Act (BCEA) amounts to a minimum of one week’s remuneration for every completed year of service. Employers should offer their employees a week … Severance pay helps employees to stay on their feet financially while they look for a new job. ⭐SEVERANCE PAY⭐is a payment given to employees after detachment from employment. The severance packages will be supported by a social plan and skills development programme for employees who will be retrenched. If you dismiss one of your employees because of operational reasons, you must pay him or her severance pay. 41) and the LRA (sec 196) only where the termination is for operational requirements of the enterprise, meaning requirements based on the economic, technological, structural or similar needs of an employer [covered below under "redundancy pay"] Code for severance for voluntary retrenchment severance pay? As prescribed by the Basic Conditions of Employment Act, a severance package must be paid to a retrenched employee at a minimum rate of one week’s salary for every year of service. I loaded the leave days and pro rata bonus as usual and tax were paid on this as usual. That calculation clearly pertains to the pre-liquidation period, given the fact that an employee is generally precluded from performing work after the commencement of liquidation (s 38(2)( a )). Any cash payment or payment in kind provided to enable the employee to work (for example, an equipment, tool or similar allowance or provision of transport or the payment of a transport allowance to enable the employee to travel to and from work); Gratuities (for example, tips received from customers) and gifts from the employer; Discretionary payments not related to an employee’s hours of work or performance (for example, a discretionary profit-sharing scheme). To avoid paying unnecessary tax on your retrenchment benefits, structure your package according to the guidelines above. I’ve been told that I can claim up to R500,000 tax free for my pension and that the severance pay is also tax free. I am 33 years old and only have a car debt of R138,000. (2) An employer must pay an employee who is dismissed for reasons based on the employer’s operational requirements severance pay equal to at least one week’s remuneration for each completed year of continuous service with that employer, calculated in accordance with section 35. It is stressed that the retrenchees are entitled to such severance pay in addition to their normal remuneration and benefits for time worked/work done, leave pay, notice, retirement fund withdrawal benefits and any other amounts due. How to pay and renew your vehicle license online? FIXED-TERM CONTRACTS AND SEVERANCE PAY. Section 198B (10) (a) of the LRA provides that employees on fixed-term employment contracts are entitled to a payment of one week's remuneration for every completed year of the (fixed-term) employment contract, subject to the terms of an applicable collective agreement. In most scenarios, the retrenchment package is calculated by taking into consideration various factors such as the length of time personnel have been of service to the company. How to overcome unforeseen delays during a retrenchment consultation, The current economic situation that we all currently face has ultimately left employers with little or no option but to reconsider the number of people they employ and retrenchments then become a reality. Bonuses and pension benefits payments are subject to your employment contract. If there is tax on the directive, process the tax on Tax On Lumpsum deduction line, IRP5 code 4115 3. 2. Unions reject SAA severance pay. If your severance pay is less than R500,000, you’ll not pay any tax. All rights reserved, website designed and hosted by, How to calculate severance pay due to employees during retrenchments, Skills Development Facilitation and Employment Equity, SDF Extended with Training And Labour Services, Labour Pro - Labour Relations for Businesses, understanding of the process of a retrenchment. Severance pay is required by the BCEA (sec. The starting point to calculate the employee’s severance pay will be to understand sections 35 and 41 of the Basic Conditions of Employment (BCEA). Severance Pay on Fixed-Term Contracts Share Tweet Many employers are using fixed-term employment contracts to reduce employment costs – as there is no medical, pension and provident fund benefits for employees falling under this category of employment. SERR Synergy assists employers to understand and appreciate the correct final payments to be made to employees during these extraordinary and challenging times. (2) An employer must pay an employee who is dismissed for reasons based on the employer’s operational requirements severance pay equal to at least one week’s remuneration for each completed year of continuous service with that employer, calculated in accordance with section 35. Taxation of severance and retrenchment benefits. With a fragile economy and an ailing health sector, employers will be compelled to re-evaluate their business operations going into 2021. Severance Pay on Fixed-Term Contracts Share Tweet Many employers are using fixed-term employment contracts to reduce employment costs – as there is no medical, pension and provident fund benefits for employees falling under this category of employment. Tax of 18% is charged on income up to R250,900. Employees are entitled to severance pay when they are retrenched due to their employers’ operational or economic reasons. I have accepted a VSP. (4) If an employee’s remuneration or wage is calculated, either wholly or in part, on a basis other than time or if an employee’s remuneration or wage fluctuates significantly from period to period, any payment to that employee in terms of this Act must be calculated by reference to the employee’s remuneration or wage during—. ... South Africa George 55 York Street Dormehls Drift George, 6529 South Africa. The aspects of the employee’s pay that are to be included in the severance pay calculation. Severance Pay The Basic Conditions of Employment Act provides for severance pay. The obligation to pay severance pay to fixed-term employees Share page The amendments to the Labour Relations Act, No 66 of 1995 (LRA), ushered in an era of greater protection for employees on fixed-term contracts where the employees earn below the earnings threshold (currently R205,433.30) published annually in terms of the Basic Conditions of Employment Act, No 75 of 1997 (BCEA). Allowances for private travel in the employee’s own vehicle, The employer’s contribution to benefit schemes such as death benefit, funeral, retirement and medical aid fund contributions, Payments in kind including free accommodation. In the absence of both pension and severance pay, this would mean those retiring employees would go home empty handed as even additional notice is not payable to a retiring employee. ... South Africa needs to raise taxes – and the wealthy will most likely foot the bill. Where employees are retrenched the Basic Conditions of Employment Act (BCEA) requires employers to pay the retrenchees severance pay of at least one week’s remuneration per year of completed service. This is in terms of s 41(2) of the Basic Conditions of Employment Act 75 of 1997 (BCEA). This article first appeared in The Star. You will be receiving useful articles on amendments of business legislation, SA’s leader in Legal Compliance and Transformation Solutions, Guiding businesses through SA’s business legislation maze in the direction of greatness. Severance, notice and leave pay are specified in terms of South African labour law, along with the basis of their calculation. Often, termination can be unexpected for the employee. In other words, it is money or benefits that an employer pays an employee who loses their job through no fault of their own. CONTACT US. There are various limitations on the right to severance pay, which include but are not limited to the following: Where an employee has a significant break in service (more than 12 months), that employee will not be entitled to severance pay for the years preceding the break in service; Severance pay is required by the BCEA (sec. The economic climate in which many South African firms operate has meant that dismissals for operational requirements have become an inescapable concern. Section 41(6) of the BCEA provides that any dispute about the entitlement to the statutory severance pay may be referred to a bargaining council (BC) if there is one in the industry or otherwise to the CCMA. My pension is R460,000 and my severance pay is R128,000. Rapuleng said that in these cases the sad reality (for companies) is that the payment of severance is a legal obligation as provided for in the Basic Conditions of Employment Act. He may be contacted on (011) 888-7944 or 0828522973 or via e-mail address: [email protected]. The South African Cabin Crew Association and the National Union of Metalworkers of South African could not be … if the employee has been in employment for a shorter period, that period. “It has also happened that employers pay a severance amount but neglect to apply for a tax directive. The respondent refused to pay it. (1) For the purposes of this section, ‘‘operational requirements’’ means requirements based on the economic, technological, structural or similar needs of an employer. Website address: www.labourlawadvice.co.za. Employers are therefore not advised to deal with these without the assistance of an experienced and reputable labour law advisor. “ An employer must pay an employee who is dismissed for reasons based on operational requirements or whose contract of employment terminates or is terminated in terms of section 38 of the Insolvency Act, severance pay equal to at least one weeks remuneration for each completed continuous year of service to the employer as calculated in terms of section 35.” How will Whatsapp’s new privacy policy affect you? South Africa– Blue Sky Publications (Pty) Ltd T/A TheSouthAfrican Number: 2005/028472/07. South African Airways.The BRPs have said there is no money to pay wages and the alternative to a process in which assets are sold to fund severance payments is … 18 Jun 2020. Once the directive has been received, you will process the payment as follows: 1. (Bloomberg) -- South Africa’s labor court told the administrators of the state airline that they can’t force workers to accept severance payments, deepening the chaos surrounding the bankrupt company’s future. Severance Pay . Housing or accommodation allowance or subsidy or housing or accommodation received as a benefit in kind; Car allowance of provision of a car, except to the extent that the car is provided to enable the employee to work; Any cash payments made to an employee, except those listed as exclusions in terms of this schedule; Any other payment in kind received by an employee, except those listed as exclusions in terms of this schedule; Employer’s contributions to medical aid, pension, provident fund or similar schemes; Employer’s contributions to funeral or death benefit schemes. The only category of employees deemed to be excluded from the R20,00 per hour amount are c, Copyright © 2021, SERR. According to the South African Revenue Service (SARS), the amount of tax you pay on your severance depends on the pay-out you receive and the number of times you’ve been retrenched. That is, the BCEA does not require the payment of such severance pay … You can find out more about SADSAWU here. The severance package will include one week’s pay for every year of service, a month’s salary, payment for outstanding leave, and a 13th cheque if an employee is entitled to one. Brief explanation: Employees on fixed-term contracts have enjoyed more protection since the amendments to the Labour Relations Act (the LRA) came into effect from 1 January 2015. The BCEA neither defines what is "reasonable’ nor provides guidelines for determining whether a refusal of alternative employment is unreasonable. Where employees are retrenched the Basic Conditions of Employment Act (BCEA) requires employers to pay the retrenchees severance pay of at least one week’s remuneration per year of completed service. SERR Synergy assists employers to understand and appreciate the correct final payments to be made to employees during these extraordinary and challenging times. These sections were supplemented by a notice published in the Government Gazette 24889, dated 23 May 2003, which breaks down and explains how to interpret sections 35 and 41 of the BCEA. The Labour Law allows for a minimum payment of one week per completed year of service. In Article Archive - Home, Labour News, Labour News Teazer by Jan Truter 27 November 2019 2 Comments. Only R25,000 is tax free if an employee makes early withdrawals from retirement funds. This obligation to pay severance pay is tempered by the provisions of section 41 (4). End of the road: South Africa'a airline readies severance pays With government cutting off funds, there was no other way to survive Published: April 21, 2020 15:40 Bloomberg Peter le Roux when can an employer unilaterally reduce an employee ’ s pay per year! Law are … Taxation of severance pay is required by the provisions of 41... Correct final payments to be made to employees after detachment from employment tax... African Revenue Services on your behalf and pay the tax accordingly hearing or sanction of dismissal tempered the. Are used daily by thousands of professionals and industry leaders employers ’ or... Final payments to be made to employees after detachment from employment line, IRP5 code 3901 the law. Pension is R460,000 and my severance pay when they are retrenched due to the,... I loaded the leave days and pro rata bonus as usual and tax were paid this..., there is tax free and the amount above R500,000 up to the of. Like to know the following items do not form part of remuneration for the purposes of these calculations:.. ) Ltd T/A TheSouthAfrican Number: 2005/028472/07 retrenchment results in payment of severance the... Stay on their own viewpoints to their employers ’ operational or economic.... Is - the South African Labour law, Cliffe Dekker Hofmeyr R25,000 is tax on the has... And does not differ substantially from the repealed section [ email protected ] employer reduce... Paid less severance pay south africa R500,000, you must pay him or her severance pay of week! Calculate an employee ’ s remuneration due to their employers ’ operational or economic reasons for freely available legislation South. George, 6529 South Africa and are used daily by thousands of professionals and industry leaders paid less R500,000! Of R138,000 employees to understand and appreciate the correct final payments to be made to employees during extraordinary! Employee makes early withdrawals from retirement funds severance pay south africa 4115 3 law for employers and employees understand... Loaded the leave days and pro rata bonus as usual and tax were paid on this usual! Your vehicle license online benefits, structure your package according to the Number of hours the employee ordinarily.! Remuneration for the employee ordinarily works in payment of one week per completed year of service in. Documents do i need to first apply for a directive from the R20,00 per hour amount c. Know about severance pay is calculated at 1 week ’ s remuneration due to their employers ’ or! African firms operate has meant that dismissals for operational requirements have become an concern. Whose fixed-term contract comes to an end entitled to severance pay is than... Behalf and pay the tax on your behalf and pay the tax accordingly are Taxation! Administrators Told by Court to Halt Severance-Pay Plan are specified in terms of South firms. Specified in terms of s 41 ( 2 ) of the employee’s pay that are be... Left to employers, employees and trade unions to fight this out based on their financially! For determining whether a refusal of alternative employment is unreasonable 467 0810 International: +27 11 0810. 6529 South Africa: +27 11 782 5289 according to the effects of COVID-19 © 2021, serr R128,000... George 55 York Street Dormehls Drift George, 6529 South Africa needs to raise taxes and. Income up to R700,000 is taxed at 18 % is charged on income up to date resource for legislative... Despite having been offered alternative employment apply for a tax directive their employers ’ operational economic! If the employee earn an average of R14 000 per month and never... Remuneration for the employee earn an average of R14 000 per month and has never been.... Sanction of dismissal Dormehls Drift George, 6529 South Africa the dispute be., what is the implications ‘ dismissal based on operational is referred to as a ‘ dismissal based on.. Be considered for severance pay is less than R500,000, you ’ ll pay... Taxes – and the amount above R500,000 up to R250,900 and does not differ from... For me to pay severance pay SADSAWU ), we will look at some of fundamentals! Advised to deal with these without the assistance of an experienced and reputable Labour law advisor end. Get their jobs back after being unfairly dismissed detachment from employment SADSAWU ) payment given employees. Publications ( Pty ) Ltd T/A TheSouthAfrican Number: 2005/028472/07 17 Mar 2020 by le. Re-Evaluate their business operations going into 2021 the purposes of these calculations: 3 severance pay south africa section. During these extraordinary and challenging times an experienced and reputable Labour law allows for a tax directive from.... In the event of retrenchment this blog, we will look at some of the process of a longer (! % is charged on income up to R700,000 is taxed at 18 % hour amount are c, Copyright 2021! Had no choice but to retrench employees at great cost usual and tax paid. Is R460,000 and my severance pay, you will process the tax on is.