What you need to know about termination pay

Termination pay isn't the first thing you think of when an employee hands in his letter of resignation. After all, you're probably more worried about your succession plan and recruiting process you'll have to go through to fill his spot, but it is something you need to think about.

Here's what you need to know about termination pay to ensure you don't get into trouble for not paying it.

What is termination pay and what does it include?

'Termination pay means payment legally due to your employee when he leaves your employ,' explains employment lawyer Penny Bosman in The Labour Law for Managers Loose Leaf Service.

Essentially, it's money you need to pay your employee in their last pay cheque over and above their normal salary or wages.

Termination pay includes:

• Any commission due to your employee for work done;
• Payment for overtime already worked or work that's been performed on a Sunday;
• Money your employee may have 'saved-up' with you (such as through a company savings plan or pension fund); and
• Accrued annual leave.

Note: In cases where you don't require your employee to work a notice period, you may also be liable to pay out their notice period as part of your employee's termination pay package.

But when do you have to pay termination pay?

There are eight situations when you'll need to give an employee termination pay

According to Bosman, you'll need to calculate and pay termination pay to your employee when:

1. He resigns, retires or dies;
2. You retrench him – note when you retrench your employee, you have to include severance pay (unless the employee has unreasonably refused a suitable alternative job offer) as part of his termination pay
3. You dismiss him for misconduct;
4. You dismiss him for poor performance;
5. You dismiss him because of illness or disability;
6. He deserts or absconds (and you terminate his employment as a result of this);
7. You dismiss him for incompatibility; or
8. He leaves by agreement with you.

Bottom line: While you may be more concerned about how to fill a position when an employee terminates his employment contract, it's vital you sit down and work out your termination pay obligations as well. Doing so will ensure you don't land in hot water with the Department of Labour for unfair business practices after your employee leaves.

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