Retrenchment Package Calculator South Africa

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.

Retrenchment Updated: 14 Oct 2026 · 2026/2027 tax year By Faheema Sheikh
How is severance pay calculated for retrenchment in South Africa?

Under Section 41 of the BCEA, statutory minimum severance pay is one week's remuneration for every completed year of continuous service. This is separate from notice pay (based on your BCEA notice period) and any accrued but untaken annual leave, both of which must also be paid out on retrenchment under the LRA and BCEA.

Retrenchment in South Africa triggers a specific set of payments under the Labour Relations Act and the Basic Conditions of Employment Act: severance pay at one week's remuneration per completed year of service, notice pay based on your length of employment and a payout for accrued leave days. This calculator works through every component using the current LRA and BCEA formulas to give you your complete retrenchment package in rand terms.

📊 Your Retrenchment Details

Fill in all sections for the most accurate estimate.

A: Employment Details
R
Your gross pay before deductions
Only fully completed years count
B: Package Components
Check your employment contract
The calculator works from completed years (1 or more), so the BCEA tier is always 4 weeks. Choose a manual option if your notice differs.
Unused accrued leave must be paid out
R
Previous severance/retirement lump sums
C: UIF Contribution History
Total years of UIF contributions
📊 Enter your details above Your full retrenchment package will appear here: severance pay, notice, leave, tax and UIF benefit.

Also useful from PayTools

Payslip Code Code 3901: Severance Benefit The exact retrenchment lump-sum code and its special tax table. View Code → Calculator Provident Fund Withdrawal Calculator See what you'll actually be paid out if you resign and cash out your provident fund. Use Calculator → Guide UIF After Retrenchment How much UIF you can claim and for how long after losing your job. Read Guide →

How to Use This Calculator

Enter salary and years of service

Enter gross monthly salary and completed years of continuous service.

Severance pay is calculated

1 week's remuneration (monthly salary × 12 ÷ 52) × completed years of service.

Notice pay and leave payout added

The calculator adds your BCEA notice pay and any outstanding leave payout.

Lump sum tax is estimated

Severance qualifies for the retirement lump sum tax table: the first R550,000 is tax-free (lifetime).

UIF benefit is estimated

Based on your salary and credit days, the calculator shows your estimated monthly UIF benefit and duration.

How a South African retrenchment package is calculated

South African law requires an employer to pay a minimum statutory package when retrenching an employee, that is, dismissing them due to the employer's operational requirements. 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:

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 ends your employment without requiring you to work 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 notice period minimums are:

Length of Service Minimum Notice Weekly Equivalent
6 months or less1 week1 × weekly rate
More than 6 months, less than 1 year2 weeks2 × weekly rate
1 year or more4 weeks4 × 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). This calculator's BCEA option applies the 4-week tier, because it works from completed years of service; choose a manual option if your agreed notice differs.

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 (this calculator assumes a 5-day week; on a 6-day week the year has 312 working days, so a day is monthly salary ÷ 26):

Not sure how many outstanding leave days you have? Use the Leave Days & Payout Calculator to work out your exact accrued balance from your leave cycle and days already taken, then enter that figure above.

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 – R550,0000% (tax free)
R550,001 – R770,00018%
R770,001 – R1,155,00027%
Above R1,155,00036%

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. Use our UIF calculator for a dedicated breakdown of your monthly benefit.

The IRR formula

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 rateR28,000 × 12 ÷ 52R 6,461.54
Daily rateR28,000 × 12 ÷ 260R 1,292.31
Severance (7 yrs × 1 wk)R6,461.54 × 7R 45,230.77
Notice pay (4 weeks)R6,461.54 × 4R 25,846.15
Leave payout (12 days)R1,292.31 × 12R 15,507.69
Gross packageR 86,584.62
Tax on severance (R45,230, first lump sum)R45,230 < R550,000 = 0%R 0.00
Net employer packageR 86,584.62
UIF daily incomeR17,712 (capped) × 12 ÷ 365R 582.31
IRR29.2 + (7173.92 ÷ (232.92 + 582.31))38.0%
Daily UIF benefitR582.31 × 38.0%R 221.28
Credit days (7 yrs)MIN(365, FLOOR(7 × 365 ÷ 4))365 days (max)
Days at IRR rateMIN(365, 238)238 days
Days at flat 20% (not forfeited)365 − 238127 days
Total UIF benefit(R221.28 × 238) + (R116.46 × 127)R 67,455.06
Estimated Grand TotalR86,584.62 + R67,455.06R 154,039.68

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 again hires for a role needing comparable qualifications, they must give you preference, provided you've told them (after they ask) that you want to be rehired. Any time limit on this preference must be reasonable and subject to consultation, not a fixed period set by law (Code of Good Practice: Dismissal Based on Operational Requirements, item 12).

If your employer pays less than the BCEA minimum severance, you can refer an unpaid-severance dispute to the CCMA or a Bargaining Council under Section 41(6); the Act sets no time limit for it. If your employer fails to consult or uses unfair selection criteria, that is an unfair-dismissal claim under the LRA, referred within 30 days of the dismissal. See our severance pay calculator for a detailed breakdown of the severance component alone.

Frequently Asked Questions

How is a retrenchment package calculated in South Africa?
A South African retrenchment package consists of: (1) Severance pay under BCEA Section 41: minimum 1 week's pay per completed year of service. (2) Notice pay: based on your BCEA notice period (4 weeks for 1 year or more of service). (3) Leave payout: any unused annual leave must be paid out in full at your daily rate. Separately, you can claim UIF unemployment benefits from the Department of Employment and Labour. Severance pay is taxed under the SARS retirement lump sum table; notice pay and leave payout are taxed as normal income.
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, up to a maximum of 365 (earned after roughly 4+ years of continuous contributions). For an unemployment claim, your first 238 credit days are paid at your sliding-scale IRR rate, and any remaining credit days up to 365 are not forfeited: they're paid at a flat 20% of your daily income instead, under s12(3)(d) of the Unemployment Insurance Act.
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, R550,001–R770,000 is taxed at 18%, R770,001–R1,155,000 at 27% and amounts above R1,155,000 at 36%. However, notice pay and leave payouts are taxed as normal income at your marginal PAYE rate, not under this table. Your employer must obtain a tax directive from SARS before deducting any tax from your package.
Can my employer offer less than the BCEA minimum severance pay?
No. The BCEA Section 41 minimum of 1 week per completed year is a statutory floor that cannot be reduced by agreement, even if you sign a settlement. Your employer can offer more, but never less. If you are offered less than the statutory minimum, you can refer an unpaid-severance dispute to the CCMA or a Bargaining Council under BCEA Section 41(6). The Act sets no time limit for that dispute; a claim that the retrenchment itself was unfair is referred separately and carries a 30-day limit.
How long does a retrenchment process take in South Africa?
No fixed time: the Act sets no minimum period for an ordinary Section 189 process. The employer gives the written section 189(3) notice and consults until the process is complete. Section 189A applies to employers with more than 50 employees that contemplate dismissing at least 10 employees (up to 200 staff), 20 (201 to 300), 30 (301 to 400), 40 (401 to 500) or 50 (more than 500), counting operational-requirement dismissals in the previous 12 months. Under Section 189A, no notice of termination may be given within 60 days of the section 189(3) notice with a facilitator, and no CCMA referral within 30 days without one. An employer with 50 or fewer staff never falls under Section 189A.
Can I be retrenched without a consultation process in South Africa?
No. The LRA requires a fair procedure: written notice of intended retrenchment, disclosure of reasons and alternatives, a genuine consultation process and selection criteria that are agreed or, failing agreement, fair and objective (the Code of Good Practice says LIFO, last in first out, will generally satisfy that test). Retrenchment without consultation is procedurally unfair and can be challenged at the CCMA.
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.
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.
Is it better to resign or wait to be retrenched?
Almost always, wait to be retrenched rather than resign. If you resign, you forfeit your severance pay entirely and you are not eligible for UIF unemployment benefits, since resignation is not a qualifying event under the Unemployment Insurance Act (the one exception is a resignation the CCMA finds was a constructive dismissal). If you are formally retrenched under Section 189, you receive your statutory severance package under BCEA Section 41 and you can claim UIF. A voluntary retrenchment or voluntary severance package counts as a retrenchment too, because your employer initiates the termination for operational requirements, so you stay eligible for both, provided your UI-19 records it as a retrenchment rather than a resignation.
What is a normal retrenchment package in South Africa?
The legal minimum is one week's pay for every completed year of service, plus your notice pay and any leave owed. Anything above that is negotiated. Two to four weeks per year are the figures commonly reported for enhanced packages, but no law or published benchmark sets one. On R25,000 a month with 6 years' service, one week's pay is R5,769.23, so the minimum severance is R34,615.38 before tax. Notice pay and leave come on top.
Do I get a retrenchment package if I worked less than a year?
Not severance pay. Section 41 of the BCEA pays one week for every completed year of continuous service, so under 12 months there is nothing to calculate. You are still owed notice (one week if you have been employed six months or less, two weeks from six months to a year) and any leave due. Leave for the current cycle is only payable once you have worked more than four months. This calculator is built for one or more completed years, so work the shorter case out by hand.
Is a voluntary severance package taxed differently from forced retrenchment?
Only if it passes the same test. The Income Tax Act taxes a lump sum on the retirement lump sum table as a severance benefit only when the exit is because the employer is ceasing business, or the employee is redundant in a general reduction in personnel, or the employee is 55 or older or permanently incapacitated. Whether a voluntary package fits depends on why the employer is making it, and SARS decides through the tax directive your employer must apply for. A lump sum that fits none of the tests is not a severance benefit and is taxed as ordinary income. Notice pay and leave pay are normal income either way.

Related Reading

Severance Pay in South Africa: Your Complete Guide Notice Period South Africa: How Much Notice Must You Give? How Many Leave Days Are You Entitled to in South Africa? Retrenchment Package South Africa: What You're Owed (2026)
Disclaimer: This calculator provides estimates based on BCEA Section 41 statutory minimums and the official UIF IRR formula. Actual entitlements may differ based on your employment contract, collective agreement, prior lump sums or specific SARS tax directives. UIF estimates are approximations; actual benefit amounts are determined by the Department of Employment and Labour using official contribution records. Tax estimates assume this is your first lump sum unless you specify prior amounts. This calculator does not constitute legal or financial advice. For disputes about retrenchment, contact the CCMA (0861 16 2762). For UIF claims, use the Department of Employment and Labour's UIF Online portal. See also SARS.gov.za for the definitive tax directive process.