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Retrenchments: Severance pay - what are your obligations as an employer?

by , 14 January 2014
Retrenchments are looming at Telkom SA. And one of things the fixed-line operator will have to deal with is the issue of severance pay. Read on to find out what your severance pay obligations if you decided to retrench employees at your business....

Ventures Africa reports that yesterday Telkom SA said it was imperative that it addresses the issue of high staff numbers at its operations as these, among other things, affected its financial performance.

According to the site, this statement implies that the company might continue with another set of retrenchments this year. This after the fixed line operator retrenched about 9% of its labour force by November last year.

And when it comes to retrenchments, severance pay is one of the issues that Telkom will have to address.

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

The Labour Law for Managers Loose Leaf Service explains that you're obliged by law to pay at least the prescribed minimum amount of severance pay to retrenched employees.

The statutory minimum is one weeks' remuneration for every completed year of continuous service.

Just bear in mind that statutory severance pay is calculated on remuneration and not basic salary. Remuneration is all benefits including wages, car allowances, housing allowances and so on.

Important: You can't just say from the start that you're going to pay the statutory minimum and no more. You've got an obligation to consult over the issue.

Essentially, this means that the union or employees can propose that you pay more and you'll have to consider and deal with those proposals.

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

If you pay more than the statutory minimum, must you calculate the payment on full remuneration, or can you use some other formula?

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.

For example, let's say you have a policy of paying two weeks' basic salary per year of service as severance pay.
Your employees argue that the two weeks must be calculated on their full package (i.e. basic salary, plus allowances, plus the employer's contributions to the pension fund and medical aid).

As a matter of fact, two weeks' basic salary adds up to more in rands and cents than one week on full remuneration.

There's nothing unlawful about your offer of two weeks' basic salary. Suggest to your employees that if they don't like it they can have the statutory minimum instead.

Knowing what your severance pay obligations are when it comes to retrenchments will help ensure you're complaint.

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