Every NPO, at some time, will have to restructure and possibly retrench a staff member.  It’s vital that you hold enough funds to meet the legal requirements for retrenchment. Here’s a quick summary of the key things you need to know.

In South Africa, retrenchment packages (sometimes called severance packages) are governed by the Labour Relations Act (LRA) and the Basic Conditions of Employment Act (BCEA).

Under Section 41 of the BCEA, an employer must pay retrenched employees:

– At least 1 week’s remuneration (salary or wages, allowances, benefits and any other regular payments) for every completed year of service
– Accrued leave pay i.e. payment for any outstanding annual leave they have not taken

Employees are also entitled to notice of termination. If retrenchment is immediate, he/she is entitled to payment in lieu of notice as per their contract or the BCEA:

– 1 week if employed for 6 months or less
– 2 weeks if employed more than 6 months but less than 1 year
– 4 weeks if employed for 1 year or more

Lastly, employees are entitled to payment of any other contractual benefits as per their contract (medical aid contributions, pension or provident fund payouts, pro-rata bonus entitlements, other perks).

What does this look like in practice?

Let’s say John receives a monthly salary of R12,000 and has worked for your organisation for 5 full years. He has 10 days of outstanding leave. Here’s the calculation:

John’s minimum statutory benefits = R31,383.55

Severance pay (1 week per completed year) = R13,846.15

Notice pay (4 weeks) = R12,000

Accrued leave (10 days) = R5,537.40

Planning ahead

A wise NPO ensures it has funds in reserve should the worst happen. It’s best practice to put this money into an investment account that earns more than inflation. Every year, when salaries are increased, the calculations need to be updated to stay current.

Retrenchment is not nice, but preparing for the possibility mitigates disaster and turns it into a more positive outcome for both your employee and your organisation.