Retrenchment & Severance Calculator ☆ Stoor
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What you are legally owed
Retrenchment payouts have several components, and they are taxed differently — which is why the headline figure and what lands in your account differ so much.
- Severance pay — the statutory minimum is one week's remuneration for each completed year of continuous service. Your contract or a bargaining council agreement may provide more, and many do;
- Notice pay — one, two or four weeks depending on length of service, unless your contract is more generous;
- Accrued leave — untaken leave must be paid out;
- Pro-rata bonus, if your contract or policy provides for one;
- Your retirement fund, which you can preserve or withdraw — see below, because this decision usually matters more than the severance itself.
The tax treatment is genuinely favourable — for severance
This is the part worth understanding properly. Severance is taxed under the retirement/severance lump-sum table, not at your marginal rate. That table carries a lifetime tax-free portion of R550,000, with rising rates above it.
So a severance payment within that allowance can be received entirely tax free — a materially better outcome than ordinary income.
But the allowance is cumulative and lifetime. It is shared with retirement lump sums and any previous severance you have received. Using it now reduces what is available at retirement, which is a real cost that never appears on the payslip.
What is not taxed that way
Notice pay, leave pay and bonuses are ordinary income, taxed at your marginal rate. Only the severance component gets the lump-sum table. That is the single most common misunderstanding here, and it explains most of the gap between the expected and actual payout.
The retirement fund decision
You will be offered a choice, and it usually has larger long-term consequences than the severance amount:
- Preserve it — transfer to a preservation fund or your new employer's fund. No tax now, and it keeps compounding;
- Withdraw it — taxed under the withdrawal lump-sum table, which is considerably harsher than the retirement table, with only a small tax-free portion.
Withdrawing at retrenchment is one of the most damaging financial decisions available, because it combines an immediate tax hit with decades of foregone growth. Model the compounding you would give up in the compound interest calculator before deciding, and see the two-pot withdrawal calculator for how partial access is taxed.
If you genuinely need cash, preserving the bulk and accessing a portion is usually better than withdrawing everything.
Your rights in the process
Retrenchment is regulated. In broad terms an employer must consult meaningfully before deciding, disclose relevant information, consider alternatives to dismissal, and apply fair and objective selection criteria. A retrenchment that skips genuine consultation may be procedurally unfair.
If you believe the process was unfair, there are time limits for referring a dispute — act quickly and get advice from a union, the CCMA or an employment lawyer. Do not sign a settlement you do not understand because you feel rushed; ask for time to take advice, which is a reasonable request.
The week after: what to do with the money
- Work out how many months it covers. Divide the net amount by your essential monthly costs — that number is your runway, and it should drive every other decision;
- Claim UIF immediately. There are time limits, and you need a UI-19 from your employer — see the UIF calculator for what to expect, which is usually less than people assume;
- Clear the most expensive debt — unsecured credit is capped at 28% and cards at 21%, so retiring those is a guaranteed return. Use the debt payoff planner;
- Do not commit to anything big for a month. Large sums attract urgent-sounding opportunities; almost none of them survive a month's delay;
- Keep the rest accessible — this is runway, not investment capital.
Frequently asked questions
How much severance am I entitled to?
At least one week's remuneration per completed year of service. Check your contract and any bargaining council agreement — many provide more than the statutory minimum.
Is my severance taxed?
Under the retirement/severance lump-sum table, with a cumulative lifetime tax-free portion of R550,000 — so it may be tax free. Notice pay, leave pay and bonuses are taxed as ordinary income at your marginal rate.
Should I withdraw my pension?
Usually no. Withdrawal is taxed under a harsher table and costs you decades of growth. Preserve it if you can, and access only what you genuinely need.
Can I claim UIF and still look for work?
Yes — you must be registered as a work-seeker and available to work. Apply promptly, because late applications get refused.
Was my retrenchment fair?
It depends on whether there was genuine consultation, a valid operational reason, and objective selection criteria. Time limits for disputes are short — get advice quickly.
Severance minimums are per the Basic Conditions of Employment Act; the R550,000 lifetime tax-free portion applies to the cumulative retirement/severance lump-sum table. Individual entitlements depend on your contract and circumstances — take advice. General information, not legal or tax advice.