Considering retrenchment to save your business? Make sure you pay the correct severance remuneration
TEPCO, the operator of Japan's Fukushima nuclear power plant (yep, the same one that suffered a nuclear reactor meltdown following a 2011 earthquake and tsunami) is slashing over 1 000 jobs as part of the company's business streamlining scheme. They're offering staff voluntary early retirement and are putting the brakes on recruitment of new employees. We wonder what sort of severance pay they're awarding?
South African businesses are no strangers to retrenchment, thanks to the difficult economic climate of the last few years. And the biggest question is usually around the employer's obligation when it comes to paying severance to retrenched staff.
The experts at the Labour Law for Managers Loose Leaf
explain your responsibilities.
Here's what you have to know about severance pay for retrenched workers
Legally, you have to pay at least the prescribed minimum severance pay to employees you retrench. This minimum is one weeks' remuneration for every full year of continuous service.
You must base statutory severance pay on remuneration and not basic salary. Check the schedule to the BCEA to find out exactly what you'll include in remuneration.
And remember, you can't just say you'll pay the statutory minimum and no more, because you have an obligation to consult over the issue. This means the union or employees can propose that you pay more. You'll have to consider and deal with these proposals. And you'll have to pay more if you have a collective agreement that provides for more. You may also have to pay more if your policy says you'll pay more. Or if you have a precedent of paying more in previous retrenchment exercises, you'll have to do the same this time around. There are a lot of companies that pay more than the statutory minimum.
If there's a break in service less than one year, you must take the previous service into account when you work out severance pay. But, if you retrenched the employee before, and you paid severance pay, you don't have to pay twice for the same years of service.
Our courts state the formula for calculating the amount (i.e. one week's remuneration for every full year of service) only applies when you're paying the minimum. If you pay more, you can use any formula you like. You just have to make sure the employee isn't worse off than he would be with the statutory minimum.
If an employee unreasonably refuses an offer of alternative employment then you aren't obliged to pay severance pay. The refusal would generally only be unreasonable if what you were offering was a similar job without loss of pay and benefits.