Retrenchment explained
A retrenchment is a dismissal for the employer’s operational reasons. The law sets out a fair process and a minimum package, and knowing both helps you check what you are offered.
What a retrenchment is
Retrenchment is dismissal for operational requirements: economic, technological, structural or similar needs of the business, such as cutting costs, closing a branch or restructuring. It is a no-fault dismissal, unlike dismissal for misconduct or poor performance, and the Labour Relations Act requires a fair reason and a fair process.
The consultation process
Before deciding, the employer must consult the affected employees or their union (section 189 of the Labour Relations Act). It must give written notice explaining the reasons, the number of jobs affected, how people will be selected, alternatives considered, the severance proposed and the help on offer. Selection must be fair and objective, such as last in, first out or skills needed. You can propose alternatives, such as short time, a transfer or voluntary packages.
What you should be paid
| Payment | Minimum | Tax |
|---|---|---|
| Severance pay | 1 week’s pay per completed year of service | Lump sum table: first R 550 000 tax-free |
| Notice pay | 1, 2 or 4 weeks, or what your contract says | Normal PAYE |
| Unused annual leave | Every day earned but not taken | Normal PAYE |
| Final salary | Up to your last working day | Normal PAYE |
For a monthly earner, a week’s pay is the monthly pay divided by 4.33. On R 20 000 a month and 6 completed years, the minimum severance is about R 27 714, and it is tax-free because it is under R 550 000. Many employers pay two weeks or more per year, especially for long service, so it is worth negotiating.
Retirement savings and UIF
Your pension or provident fund benefit is separate from severance. Since the two-pot system started in September 2024, money in the retirement component stays invested until retirement, while you may withdraw the vested component, taxed on the withdrawal table. Leaving it invested or moving it to a preservation fund keeps your tax-free lump sum allowance for retirement.
You can claim unemployment benefits from UIF after a retrenchment, even if you received severance pay. Ask your employer for the UI-19 form and register with the Department of Employment and Labour as soon as possible.
If the process was unfair
If you believe the reason or the process was unfair, you can refer a dispute to the CCMA or the relevant bargaining council within 30 days of the dismissal. A dispute about the amount of severance pay can also be referred to the CCMA.
Frequently asked questions
Can I be retrenched while on maternity leave?
Being on maternity leave is not a fair reason for selection. If the job truly falls away, the employer must still apply fair selection criteria and consult you.
Is a voluntary severance package the same as retrenchment?
It is offered for the same reasons, and if it is paid because of operational requirements, the same severance tax table applies.
Do I have to sign the retrenchment agreement?
No. Read it carefully, ask for anything unclear in writing, and get advice before signing a settlement that waives your right to dispute the dismissal.
Related calculators
Severance Pay Calculator
Work out the minimum severance pay for a retrenchment, and how much of it you keep after tax.
Open calculator →CALCULATORNotice Period Calculator
Find the minimum notice you must give or receive, when it ends and what notice pay is worth.
Open calculator →CALCULATORLeave Pay Calculator
See how much annual leave you have earned this cycle, how many days are unused and what they are worth.
Open calculator →Sections 35, 37, 40 and 41 of the Basic Conditions of Employment Act; sections 189 and 191 of the Labour Relations Act; severance benefit tax table from the SARS Budget 2026 tax guide. Checked 16 October 2026. This guide is general information, not legal or tax advice.