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Here's what the BCEA says about retrenchments and severance pay

by , 01 September 2014
There are five steps you must take to make sure you retrench properly. You must:

1. Think carefully about the reason you want to retrench;
2. Select employees you want to retrench;
3. Consult with the relevant parties
4. Implement the retrenchments; and
5. Decide on the severance package.

For the purposes of this article, we'll focus on severance pay because this is the part most employers get wrong. As a result, they end up with costly retrenchment cases on their hands.

Keep reading to find out what the Basic Conditions of Employment Act (BCEA) says about retrenchments and severance pay so you can avoid retrenchment cases landing up at the CCMA.

In terms of the BCEA, these are your obligations when it comes to retrenchments and severance pay


In terms of section 41 of the BCEA, you must pay at least the prescribed minimum amount of severance pay to the employees you're retrenching. The statutory minimum is one weeks' remuneration for every completed year of continuous service.

You must base statutory severance pay calculations on remuneration and not on your employee's basic salary.

Note: Remuneration includes wages, car allowances, housing allowances etc.

Remember, this section of the BCEA only applies when you're paying the statutory minimum. If you pay more, you can use whatever formula you like as long as your employee isn't worse off than he would be under the statutory minimum.

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Never forget these points when dealing with retrenchments and severance pay


Experts behind the Labour Law for Managers Loose Leaf Service say you can't just say from the start that you're going to pay the statutory minimum and no more.

The reason?

You have an obligation to consult over the issue. This means the union or employees can propose that you pay more and you'll have to consider and deal with those proposals.

You'll also have to pay more if you're bound by a collective agreement that provides for more. And you may have to pay more if you have a policy that provides for more or if you've got a precedent of paying more in previous retrenchment exercises.

Consistency and consultation are key when it comes to retrenchments.

If you overlook this, you'll have a huge case on your hands. So make sure you comply with the BCEA now that you know what it requires you to do when it comes to retrenchments and severance pay.



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