What the law says about severance pay in South Africa
Employees may be offered severance pay if they are dismissed for reasons based on an employer’s operational requirements, says Celeste Snyders from law firm SchoemanLaw Ltd.
Under South Africa’s Basic Conditions of Employment Act (BCEA), specifically section 41(1), a retrenched employee is entitled to severance pay equivalent to at least one week’s remuneration for every year of completed service with the employer.
Snyders added that section 41(2) provides for the legal obligation for an employee to pay severance pay.
Who
If you have been employed continuously for one year by the same employer and have been dismissed – you are entitled to severance pay, said Snyders.
Severance pay is offered to employees who have been dismissed for operational requirements, for example:
- Economic
- Technological
- Structural
- Similar needs of an employer.
Severance pay is also due to those who are let off in terms of section 38 of the Insolvency Act – if the estate of the employer is sequestrated.
How much
The severance package will depend on how long the employee was employed, Snyders said.
When an employee’s service is terminated, the employer must comply with legislation that states severance pay equal to at least one week of remuneration for each completed continuous year of service to the employer, as calculated in terms of section 35 of the Act is due.
Snyders noted that an employee would only be entitled to severance pay once retrenchment has been concluded.
“If, during the retrenchment consultation process, the parties agree to a severance package which is more favourable than the minimum package as per the Act, the agreement will replace the statutory minimum.”
The Bargaining Council and Main Agreements to the Council will stipulate the severance package payable if the employee is a member of a Bargaining Council, said Snyders.
What is the limitation on the right to severance pay?
When not available
According to SchoemanLaw, there are a few limitations on the right to severance pay, not limited to the following:
- When there is a break in the employee’s service (more than 12 months), the employee will not be entitled to severance pay for the years exceeding the break in service
- If the employee worked on a fixed-term contract for less than two years
- An employee will not be entitled to severance pay for the period that he/she worked as an independent contractor for the employer
- When an employee reaches the age of retirement, he/she will not be entitled to severance pay if requested to retire at that age.
- The employee is not entitled to severance pay should he/she be allowed to work beyond retirement age
It is on the employer to prove that one of the above-mentioned limitations exists to be absolved from the liability to pay an employee severance pay, said Snyders.
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