Retrenchment Package Calculator
Calculate your complete retrenchment package — severance pay, notice pay, leave payout, tax estimate and UIF benefit — all in one place. Based on BCEA Section 41, the LRA and the Unemployment Insurance Act.
📊 Your Retrenchment Details
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How a South African Retrenchment Package is Calculated
When an employer retrenches an employee — that is, dismisses them due to the employer's operational requirements — South African law requires them to pay a minimum statutory package. This package has three distinct components, all calculated differently. Understanding each one protects you from accepting an offer that falls short of what you are legally owed.
Component 1 — Severance Pay (BCEA Section 41)
Severance pay is calculated on a weekly rate basis, not daily or monthly. The formula is:
Weekly rate = Monthly salary × 12 ÷ 52
/* Severance pay — BCEA Section 41 minimum */
Severance pay = Weekly rate × Completed years × Weeks per year
/* Example: R28,000/month, 7 years, 1 week per year */
Weekly rate = R28,000 × 12 ÷ 52 = R6,461.54
Severance = R6,461.54 × 7 × 1 = R45,230.77
Only completed years count. If you have worked 7 years and 9 months, you receive 7 weeks' worth of severance — not 7.75. Your employment contract or collective agreement may specify a more generous rate (2–4 weeks per year is common in senior packages and mass retrenchments).
Component 2 — Notice Pay
If your employer dismisses you without requiring you to work your notice period, they must pay you in lieu of notice. The BCEA notice period minimums are:
| Length of Service | Minimum Notice | Weekly Equivalent |
|---|---|---|
| Less than 6 months | 1 week | 1 × weekly rate |
| 6 months to 1 year | 2 weeks | 2 × weekly rate |
| More than 1 year | 4 weeks | 4 × weekly rate |
If you are required to work your notice period, you receive your normal salary during that time — there is no separate "notice pay" lump sum. Notice pay only applies when the employer pays in lieu (i.e. asks you to leave immediately and compensates you instead).
Component 3 — Leave Payout
Any unused annual leave that has accrued must be paid out in full on termination — this applies regardless of the reason for termination. It is calculated on a daily rate:
Daily rate = Monthly salary × 12 ÷ 260
Leave payout = Daily rate × Outstanding leave days
/* Example: R28,000/month, 12 outstanding days */
Daily rate = R28,000 × 12 ÷ 260 = R1,292.31
Leave payout = R1,292.31 × 12 = R15,507.69
Component 4 — Tax on the Severance Lump Sum
Only the pure severance pay portion is taxed under the favourable SARS retirement lump sum tax table. Notice pay and leave payouts are taxed as normal income at your marginal PAYE rate (not estimated here). The lump sum table for 2026:
| Cumulative Lump Sum (lifetime) | Tax Rate |
|---|---|
| R0 – R550,000 | 0% (tax free) |
| R550,001 – R700,000 | 18% |
| R700,001 – R1,050,000 | 27% |
| Above R1,050,000 | 36% |
The R550,000 exemption is a lifetime cumulative limit — it applies across all severance and retirement lump sums you ever receive. If you received a R200,000 payout from a previous retrenchment, your remaining tax-free allowance is only R350,000.
UIF Unemployment Benefit — What You Receive from Government
UIF benefits are separate from your retrenchment package and are funded by the contributions you and your employer both made throughout your employment (1% each, on a capped salary of R17,712/month). Upon retrenchment, you are entitled to claim unemployment benefits from the Department of Employment and Labour.
The IRR Formula
IRR = 29.2 + (7173.92 ÷ (232.92 + Daily income))
/* IRR is clamped between 38% and 60% */
Daily income = Capped monthly salary × 12 ÷ 365
Daily benefit = Daily income × (IRR ÷ 100)
Credit days = MIN(365, FLOOR((Months contributed ÷ 12 × 365) ÷ 4))
Claimable days = MIN(Credit days, 238) /* unemployment maximum */
The IRR formula means lower-income earners receive a higher percentage of their income (closer to 60%), while higher earners receive a lower percentage (closer to 38%), subject to the R17,712/month earnings cap. In practice, no one receives more than 60% of their capped daily income.
Step-by-Step Manual Calculation Example
An employee earns R28,000 gross per month, has worked for 7 completed years, has 12 unused leave days, and has contributed to UIF for 7 years. The employer pays 1 week 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 package | R 86,584.62 | |
| Tax on severance (R45,230 — first lump sum) | R45,230 < R550,000 = 0% | R 0.00 |
| Net employer package | R 86,584.62 | |
| UIF daily income | R17,712 (capped) × 12 ÷ 365 | R 581.87 |
| IRR | 29.2 + (7173.92 ÷ (232.92 + 581.87)) | 38.0% |
| Daily UIF benefit | R581.87 × 38.0% | R 221.11 |
| Credit days (7 yrs) | MIN(365, FLOOR(7 × 365 ÷ 4)) | 365 days (max) |
| Claimable days | MIN(365, 238) | 238 days |
| Total UIF benefit | R221.11 × 238 | R 52,624.18 |
| Estimated Grand Total | R86,584.62 + R52,624.18 | R 139,208.80 |
Your Rights During Retrenchment
Section 189 of the Labour Relations Act (LRA) gives you significant procedural rights during a retrenchment process. Your employer cannot simply hand you a letter and send you home. The law requires:
- Consultation: Your employer must engage in meaningful consultation with you (or your union representative) about the reasons for retrenchment, alternatives to retrenchment, the selection criteria, and the terms of the package.
- Written notice: You must receive written disclosure of the reasons, the number of employees affected, the proposed selection criteria, and the proposed severance pay.
- Selection criteria must be fair, objective, and agreed upon (or applied fairly if not agreed). Common criteria include LIFO (last in, first out), skills retention, or performance.
- Re-employment preference: If your employer recruits for the same or similar position within 12 months of your retrenchment, they must give you preference for that role.
If your employer offers less than the BCEA minimum, fails to consult, or uses unfair selection criteria, you can refer a dispute to the CCMA or a Bargaining Council within 30 days of the date the unfair act took place.
Frequently Asked Questions
Is retrenchment pay and UIF the same thing?
No — they are entirely separate. Severance pay is a lump sum your employer must pay you under the BCEA. UIF unemployment benefits are payments you receive from the Department of Employment and Labour, funded by contributions made throughout your working life. You are entitled to both. Receiving your severance package does not disqualify you from claiming UIF.
How long does UIF pay after retrenchment?
It depends on your contribution history. For every 4 days you worked and contributed to UIF, you earn 1 credit day. The maximum credit days is 365 (earned after roughly 4+ years of continuous contributions). For unemployment specifically, the maximum claimable period is 238 days (about 7.9 months), regardless of total credit days. Most retrenched employees with more than 2 years of service will reach this 238-day cap.
Can I negotiate a better retrenchment package?
Yes — the BCEA minimum is a floor, not a ceiling. During the Section 189 consultation, you or your union can negotiate enhanced terms: more weeks per year (2–4 is common), extended notice periods, outplacement support, retention of company equipment, or extended medical aid coverage. A labour lawyer can advise on realistic expectations in your industry and company size. Never sign a settlement agreement without legal advice if the package is significant.
Do I pay tax on my full retrenchment package?
Only partially, and at favourable rates for the severance component. The severance pay lump sum is taxed under SARS's retirement lump sum table: the first R550,000 (cumulative, lifetime) is tax-free; amounts above that are taxed at 18%–36%. However, notice pay and leave payouts are taxed as normal income at your marginal PAYE rate. Your employer must obtain a tax directive from SARS before deducting any tax from your package.
What happens to my pension or provident fund when I am retrenched?
Your accumulated pension or provident fund benefit is separate from your severance package. Upon retrenchment, you typically have three options: (1) Preserve the funds in a preservation fund (tax-free transfer, money grows tax-free until retirement) — usually the best option; (2) Transfer to a new employer's fund or a retirement annuity; (3) Cash out — but this is taxed under the same retirement lump sum table and permanently reduces your retirement savings. Most financial advisers strongly recommend option 1 or 2.
Related Calculators
Read our full guide: UIF After Retrenchment — How Much Will You Get? — how the benefit is calculated and how to claim.
Planning retirement? Use the Provident Fund Calculator to see how your fund balance and two-pot access work.