Retrenchment paperwork rarely arrives as one clean number. You get a severance figure, a notice pay line, a leave payout, a tax deduction you don't fully understand, and, separately, from a completely different institution, a UIF benefit you have to apply for yourself. Each piece has its own rules, and it's easy to either underestimate what you're owed or miss a component entirely. This guide walks through all five pieces as one combined package, the same way our Retrenchment Calculator does, so you know the real total before you sign anything.
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The Five Pieces of a Retrenchment Package
Three components come from your employer. A fourth, tax, reduces one of those three. A fifth comes from government, not your employer, and you have to apply for it yourself.
| Component | Who pays | Basis |
|---|---|---|
| Severance pay | Employer | Min. 1 week's pay per completed year (BCEA s41) |
| Notice pay | Employer | Your BCEA notice period, if paid in lieu of working it |
| Leave payout | Employer | Unused accrued annual leave, at your daily rate |
| Tax on severance | Deducted by employer | SARS retirement lump sum table, R550,000 lifetime exemption |
| UIF benefit | Dept. of Employment and Labour | IRR formula on your own contribution history, applied for separately |
Severance Pay: Your Employer's Statutory Minimum
Severance pay is calculated on a weekly rate, not your monthly salary directly: weekly rate = monthly salary × 12 ÷ 52. You then multiply that weekly rate by your completed years of service: 7 years and 9 months still only counts as 7. The BCEA Section 41 minimum is 1 week per completed year, but your contract or a mass-retrenchment agreement may specify more; 2–4 weeks per year is common in enhanced packages. Our Severance Pay guide covers this component on its own, including what counts as a "completed year" in edge cases.
Notice Pay: Only If You're Paid in Lieu
If your employer asks you to leave immediately rather than work out your notice period, Section 38(1) of the BCEA requires them to pay you the remuneration you would have earned had you worked it (payment in lieu of notice). The BCEA minimum notice period is 1 week for 6 months' service or less, 2 weeks for more than 6 months but less than a year, and 4 weeks for a year or more. If you do work your notice period, there's no separate notice-pay lump sum. You simply receive your normal salary for that time. Our Notice Period guide covers the full BCEA table and how notice periods interact with resignation versus dismissal.
Leave Payout: Your Unused Days, at Your Daily Rate
Any accrued annual leave you haven't taken must be paid out on termination, calculated as daily rate × outstanding leave days, where daily rate = monthly salary × 12 ÷ 260 (260 working days a year on a 5-day week; on a 6-day week use 312, so a day is monthly salary ÷ 26). This applies regardless of why your employment ended. Not sure how many days you're actually owed? Our Leave Days Entitlement guide and dedicated Leave Days Calculator work out your exact accrued balance from your leave cycle.
Tax: Only Severance Gets the Favourable Table
This is where a lot of retrenched employees miscalculate their net figure: only the severance pay portion is taxed under the favourable SARS retirement lump sum table (the first R550,000, cumulative and lifetime, is completely tax-free). Notice pay and leave payout don't get this treatment at all. They're taxed as ordinary income at your marginal PAYE rate, the same as a normal payslip. Your employer needs a SARS tax directive before deducting anything from your severance amount.
| Cumulative lump sum (lifetime) | Tax rate |
|---|---|
| R0 – R550,000 | 0% (tax-free) |
| R550,001 – R770,000 | 18% |
| R770,001 – R1,155,000 | 27% |
| Above R1,155,000 | 36% |
UIF: A Separate Claim From a Separate Institution
UIF unemployment benefits are entirely independent of your employer package. They come from the Department of Employment and Labour, funded by the 1%+1% contributions you and your employer made throughout your working life. Your daily benefit uses the Income Replacement Rate (IRR) formula, sliding between 38% (higher earners) and 60% (lower earners) of your daily income, capped at the R17,712/month earnings ceiling. You accumulate 1 credit day for every 4 days contributed. Your first 238 of those days are paid at your IRR rate, and any remaining credit days up to 365 are not forfeited: they're paid at a flat 20% instead. Our UIF After Retrenchment guide covers the full formula and application process, including what to do if your employer wasn't contributing correctly.
Combined Worked Example: R28,000 Salary, 7 Years' Service
Take an employee earning R28,000/month gross, with 7 completed years of service, 12 outstanding leave days and 7 years of UIF contributions. The employer pays the BCEA minimum: 1 week's severance per year and 4 weeks' notice in lieu.
| Component | Calculation | Amount |
|---|---|---|
| Weekly rate | R28,000 × 12 ÷ 52 | R 6,461.54 |
| Daily rate | R28,000 × 12 ÷ 260 | R 1,292.31 |
| Severance (7 yrs × 1 wk) | R6,461.54 × 7 | R 45,230.77 |
| Notice pay (4 weeks) | R6,461.54 × 4 | R 25,846.15 |
| Leave payout (12 days) | R1,292.31 × 12 | R 15,507.69 |
| Gross employer package | R 86,584.62 | |
| Tax on severance (R45,230.77 < R550,000) | 0% | R 0.00 |
| Net employer package | R 86,584.62 | |
| UIF daily income (capped) | R17,712 × 12 ÷ 365 | R 582.31 |
| IRR (clamped minimum) | 29.2 + (7,173.92 ÷ (232.92 + 582.31)) | 38.0% |
| Daily UIF benefit | R582.31 × 38.0% | R 221.28 |
| Days at IRR rate | MIN(365 credit days, 238) | 238 days |
| Days at flat 20% (not forfeited) | 365 − 238 | 127 days |
| Total UIF benefit | (R221.28 × 238) + (R116.46 × 127) | R 67,455.06 |
| Grand total | R86,584.62 + R67,455.06 | R 154,039.68 |
Notice this employee's severance alone (R45,230.77) is well under the R550,000 lifetime tax-free threshold, so none of the employer package is taxed here. A senior employee with decades of service and a much larger severance figure could cross into the 18% or 27% bands, so always check your own cumulative lifetime lump sum total, not just this single payout, since a prior retrenchment or retirement lump sum reduces what's left of your R550,000 allowance.
Your Rights During the Process
Section 189 of the Labour Relations Act requires your employer to consult with you, or your union, in good faith before finalising a retrenchment: disclosing the reasons, considering alternatives, agreeing on selection criteria such as LIFO (last in, first out), and negotiating the package terms. A retrenchment finalised without genuine consultation is procedurally unfair, separately from any dispute about the rand amount itself, and can be challenged at the CCMA within 30 days.