OPINION | Been retrenched? Understand what you're owed

In the first of a three-part series Duane Naicker delves into Covid-induced retrenchments and what you’re owed if you’re one of the 2.2 million-plus South Africans who’ve lost their job as a result of the pandemic.

More than 2.2 million jobs in South Africa were lost by the second quarter of 2020 due to the Covid-19 pandemic, according to Statistics South Africa data released in October.

Let that sink in: 2.2 million more people (more by now) are out of work in job-starved South Africa; leaving only 14.4 million out of a population of 59 million employed in both the formal and informal sectors, according to Statistics SA.

If South Africa’s unemployment rate was already grim before March 2020’s lockdown, it’s undeniably dire now. This is borne out by statistics from the Commission for Conciliation, Mediation and Arbitration (CCMA), which reports a massive increase in large-scale retrenchment cases, with the highest number of job losses recorded in the mining sector followed by food and beverages and then manufacturing.

The most I can offer employees facing the agonising prospect of retrenchment is to point out that South Africa has strong labour laws – stronger than many so-called first world countries – so you do have recourse if you are unfairly treated. That, and to offer insight into what benefits you are entitled to from your employer, and how best you can use these pay-outs to ease the financial burden during this difficult time.

What constitutes retrenchment?

Before you start planning your financial route out of retrenchment it’s important to understand your labour rights. I’m by no means a labour relations expert, so I spoke at length to now-retired Professor Sonia Bendix, author of the seminal Labour Relations in South Africa.

Prof. Bendix confirmed that retrenchment is a form of dismissal due to no fault of the employee – meaning that it is not due to any wrongdoing on the part of the employee, and emphasised that employers can’t use "Covid-19 as an excuse to get rid of staff".

Rather, she said, the employer must always prove that retrenchment is necessary before making the decision to retrench, which should then involve a thorough consultation with employees or their unions and follow fair procedure as set out in the Labour Relations Act.

Furthermore, the procedure for selecting retrenchments must also be fair and negotiated with the union/employees. The most common selection criteria used is the ‘last in first out’ principle, she added.

Fair reason for retrenchment is broadly classified as "operational requirements based on the economic, technological, structural or similar needs of the employer". Prof. Bendix states that, in the instance of the pandemic and the subsequent lockdown, companies could well claim fair reason in all of these categories, depending on the circumstances.

The economic category is obvious, so too is the need for restructuring the business according to the "new normal". Likewise, she says the Covid-19 crisis has forced many brick-and-mortar businesses to close shop and move online, thereby possibly justifying the need for retrenchments on the technological front too.

That said, she stresses that each case is different and that if employees are in doubt they should consult a labour relations expert or their union. However, broadly speaking the unprecedented conditions imposed by the pandemic may make it harder for employees to contest retrenchments.

Bottom line: if the need to retrench is undeniable and/or incontestable, you may have to face the hard reality that you’ll soon be unemployed and therefore need to ensure you get exactly what you are owed in order to protect yourself financially during these tough times.

Severance pay 101

The first payment owed to you by your employer is a severance package. This must equal at least one week’s pay for each completed and uninterrupted year of service.

The retirement and death tax tables applies to your severance pay, however you are not liable to pay tax on severance pay under R500 000. The threshold may possibly be reduced by lump sums or severance benefits already received if, for example, you changed jobs previously and/or took your retirement savings in cash. Any amount over the tax-free threshold will then be subject to the retirement and death tax tables.

Tally untaken holidays

Next up, your employer must pay you out the stipulated amount for the annual leave or time off that has not yet been taken. It’s important to note this must not form part of your severance package.

In terms of tax, leave pay is calculated at the normal rates applicable to individuals, so you will have to pay the relevant tax.

If you are facing retrenchment, I do hope this information has helped you navigate this difficult time. In my next article, I will look at savvy ways to handle your retrenchment pay-outs.

Duane Naicker is Head of SURF (Sygnia Umbrella Retirement Funds). Views expressed are his own.