Severance pay is the payment a dismissed employee is entitled to when their dismissal is for operational requirements - retrenchment - rather than misconduct, incapacity or resignation.
What it means
The Basic Conditions of Employment Act sets the statutory minimum at one week's remuneration for each completed year of continuous service, though a contract, collective agreement or retrenchment package can be more generous. It is paid in addition to, not instead of, ordinary final pay such as notice and accrued leave.
Where it fits in
Because it is a lump sum tied to a specific termination event, severance pay is usually taxed under a tax directive obtained from SARS rather than through the standard PAYE tables, and a portion of it can qualify for a tax-free threshold under the retirement and severance lump sum tax tables.
Key rules
- BCEA minimum is one week's remuneration per completed year of continuous service.
- Paid in addition to ordinary final pay - notice pay and accrued leave are calculated separately.
- Taxed under a tax directive, with part of the amount potentially falling within a tax-free severance/retirement threshold.
- Only applies to dismissal for operational requirements - not to resignation, misconduct or incapacity dismissals.
