Losing your job to a restructure is bad enough without also having to guess what you are owed. The number your employer puts in front of you is not one number. It is three separate payments, each calculated a different way, and each taxed a different way. Get the split wrong and you can sign off on a package that is thousands of rands short without ever noticing.
Use the calculator below to see what your package should look like, then read on for what each part actually means and where employers most often get it wrong.
Retrenchment Package Calculator
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Breakdown and how this works
Section 41 of the Basic Conditions of Employment Act sets severance at a minimum of one week’s remuneration for every completed year of continuous service. Your contract or bargaining council may give you more. Weekly pay is monthly pay times 12 divided by 52.
SARS taxes the three parts differently. Severance goes on the lump sum table, where the first R550 000 is taxed at 0 percent. That band is a lifetime amount shared with every retirement fund lump sum and severance benefit taken since October 2007, so earlier payouts shrink it. Notice pay and leave payout get no such break. They are added to your income for the year and taxed at your marginal rate.
You lose the severance tax break entirely if you have ever held more than 5 percent of the company. Your employer applies to SARS for an IRP3(a) tax directive, and that directive, not this calculator, is the authoritative figure. Treat this as an estimate.
Your package has three parts, not one
Almost every retrenchment payout in South Africa is made up of the same three components.
Severance pay is compensation for the loss of the job itself. It is the part people mean when they say "retrenchment package."
Notice pay is what you get instead of working out your notice period. If your employer wants you gone immediately, they must still pay you for the notice you would have served.
Leave payout is the cash value of annual leave you accrued but never took.
Your employer may add other things on top, such as a pro rata bonus or a negotiated ex gratia amount. But those three are the statutory floor, and they are the three the calculator works out for you.
The reason the split matters so much is tax. SARS treats severance pay under one set of rules and treats notice pay and leave payout under a completely different set. Lumping them together will give you a badly wrong answer about what actually lands in your bank account.
How severance pay is calculated
Section 41 of the Basic Conditions of Employment Act sets the minimum. Your employer must pay you at least one week's remuneration for every completed year of continuous service with that employer.
The word "completed" is doing real work in that sentence. Seven years and eleven months of service counts as seven years, not eight. Part years are not rounded up and they are not pro rated.
The word "remuneration" is doing even more work. It is not your basic salary. The Minister of Employment and Labour has defined it for the purpose of calculating severance, and it includes the cash value of benefits you receive: employer contributions to your medical aid, pension or provident fund, shift allowances, car allowances, and payments in kind such as accommodation. It excludes things like travel reimbursements to and from work, relocation allowances, tips and entertainment allowances.
This is where employers most commonly underpay. If your package was calculated on basic salary alone and your total cost to company is meaningfully higher, your severance is too low. Check it.
Weekly remuneration is worked out as monthly remuneration times 12, divided by 52. So on a total package of R30 000 a month with 10 completed years of service, the statutory minimum severance is roughly R69 231.
One week per year is the floor, not the ceiling. Your employment contract, or a collective agreement with a bargaining council, may promise more. Two weeks per year is common at management level. The Metal and Engineering Industries Bargaining Council, for example, adds ex gratia weeks on top for long serving employees. Read your contract before you accept the first number offered. The calculator lets you switch between one, two, three and four weeks per year so you can see what a better rate would actually be worth.
For a fuller treatment, see our guide to severance pay in South Africa.
How notice pay works
Section 37 of the BCEA sets minimum notice periods by length of service:
- One week if you have been employed for six months or less
- Two weeks if you have been employed for more than six months but not more than a year
- Four weeks if you have been employed for a year or more, or if you are a farm worker or domestic worker employed for more than six months
A collective agreement may reduce the four week period, but never to less than two weeks. Your contract may give you longer notice, and if it does, the contract wins.
Your employer has a choice. They can let you work the notice period, or they can pay you the remuneration you would have earned during it and send you home immediately. That second option is what the calculator means by "notice paid out." If you are working your notice, set that control to None, because you will receive that money as ordinary salary rather than as part of the package.
One thing worth knowing: your employer may not give you notice of termination during a period of leave you are entitled to, and may not force you to take annual leave during your notice period. If your final payslip looks like your outstanding leave quietly vanished into your notice period, that is a problem. More detail in our guide to notice pay on retrenchment.
How the leave payout works
When employment ends for any reason, including retrenchment, your employer must pay out annual leave you have accrued but not taken. Your daily rate is your weekly remuneration divided by the number of days you normally work in a week, so a five day week gives a daily rate of roughly your monthly pay divided by 21.67.
Leave payout is not optional and it is not negotiable. It is money you have already earned.
The tax split is where the money is
This is the part almost no one explains properly, and it is the single biggest reason two people with identical gross packages can walk away with very different amounts.
Severance pay is taxed on the SARS retirement and severance lump sum table. The first R550 000 is taxed at 0 percent. Above that, the rate steps up:
| Severance benefit | Tax |
|---|---|
| R0 to R550 000 | 0 percent |
| R550 001 to R770 000 | 18 percent of the amount above R550 000 |
| R770 001 to R1 155 000 | R39 600 plus 27 percent of the amount above R770 000 |
| R1 155 001 and above | R143 550 plus 36 percent of the amount above R1 155 000 |
Notice pay and leave payout get none of this. SARS is explicit that they do not form part of a severance benefit. They are added to your normal income for the tax year and taxed at your marginal rate, which for a mid career professional can easily be 31 percent or more.
So if your employer offers to "restructure" your package by shifting money out of severance and into a larger notice or leave component, you should be extremely suspicious. That shift can move money from a 0 percent bracket into a 31 percent one.
The R550 000 is a lifetime amount, not an annual one
Here is the trap that catches people. That R550 000 tax free band is not granted fresh each time. SARS aggregates every retirement fund lump sum you have taken since October 2007 and every severance benefit since March 2011 before applying the table. If you were retrenched five years ago and took R300 000 tax free, you have only R250 000 of the band left today.
Enter any earlier lump sums in the calculator's fine tuning drawer and it will account for this properly.
Watch out for the R500 000 figure
A surprising number of South African websites, including some law firm blogs, still publish R500 000 as the tax free severance amount. That figure was correct, but it expired on 28 February 2023. The current figure has been R550 000 since 1 March 2023 and SARS has confirmed it is unchanged for both the 2026 and 2027 tax years. If a source is still quoting R500 000, it has not been updated in three years, and you should not trust anything else on the page either.
You may not qualify at all
Two things can disqualify you from the favourable severance table entirely:
- You held more than 5 percent of the company. If you have ever held more than 5 percent of the issued shares or member's interest in the employer paying you, and the reason for leaving is that the employer ceased trading or made a general staff reduction, you lose the concession.
- It is not a genuine retrenchment. An ordinary resignation or a dismissal for misconduct does not qualify. The lump sum is then taxed as normal income.
Your employer must apply to SARS for an IRP3(a) tax directive before paying you, and that directive is the authoritative number. The calculator gives you an estimate to check the offer against, not a substitute for the directive.
The process your employer must follow
Retrenchment is a dismissal, and an unfair one is still unfair no matter how large the cheque. Section 189 of the Labour Relations Act requires your employer to issue a written notice inviting you to consult, and to disclose in writing the reasons, the alternatives considered, the selection criteria, and the proposed severance. Consultation must be a genuine joint problem solving exercise, not an announcement.
If the employer has more than 50 employees and is retrenching in bulk, section 189A adds teeth. It applies when an employer intends to retrench 10 employees (if it has up to 200 staff), 20 (201 to 300), 30 (301 to 400), 40 (401 to 500), or 50 (more than 500). In those cases a 60 day period must pass from the section 189(3) notice before any termination notice can be issued, and either side may ask the CCMA to appoint a facilitator. If you have been given a termination letter inside 60 days of a large scale section 189(3) notice, something has gone wrong.
Our guide to the section 189 process walks through each step.
Severance is not automatic
You can lose your severance pay. Section 41(4) says an employee who unreasonably refuses an offer of alternative employment, whether with the same employer or another one, is not entitled to severance. The alternative does not have to be identical, and the courts have taken a fairly broad view of what counts as the employer securing alternative work for you.
You also need at least one completed year of continuous service before any statutory severance is due at all.
If you are weighing up a voluntary package against simply resigning, read retrenchment vs resignation first, because the tax and UIF consequences are very different. And if your employer is proposing a negotiated exit rather than a formal retrenchment, our guide to the mutual separation agreement covers what you are giving up when you sign.
Claim your UIF as well
Your severance package and your UIF benefit are separate things. Being paid out does not disqualify you from claiming, and retrenchment is one of the qualifying reasons.
Apply as soon as you can. Start with our guide on how to claim UIF, and make sure your employer has submitted your UI-19 form correctly, because an incomplete employer declaration is the most common reason a claim stalls. If your claim has already been turned down, UIF claim rejected explains the usual causes and how to fix them.
Note that you generally cannot claim unemployment benefits if you resigned voluntarily. That alone is often reason enough to insist a retrenchment is processed as a retrenchment.
Before you sign anything
- Check whether severance was calculated on total remuneration or only on basic salary
- Check that completed years were counted correctly, including any earlier period of service with the same employer where the break was under a year
- Check that your contract or bargaining council does not entitle you to more than one week per year
- Check that outstanding leave has been paid out separately and not absorbed into your notice period
- Check that money has not been shifted out of severance and into notice or leave, where it will be taxed far more heavily
- Ask for the IRP3(a) tax directive so you can see the exact tax SARS has assessed
If the numbers do not reconcile, you are entitled to say so during consultation. That is what consultation is for.
Frequently asked questions
How much severance pay am I entitled to in South Africa? At least one week's remuneration for every completed year of continuous service, under section 41 of the BCEA. Remuneration includes the cash value of benefits, not just basic salary. Your contract or bargaining council may entitle you to more.
Is retrenchment pay taxed? Partly. The first R550 000 of a qualifying severance benefit is taxed at 0 percent, but that band is a lifetime amount shared across all retirement fund lump sums taken since October 2007. Notice pay and leave payout do not qualify and are taxed as normal income at your marginal rate.
Can I claim UIF if I was retrenched and paid a package? Yes. Your severance package does not affect your right to claim UIF. Retrenchment is a qualifying reason and you should apply through a Labour Centre or uFiling.
Do I get severance if I have worked less than a year? No. Statutory severance requires at least one completed year of continuous service. You are still entitled to notice pay and to a payout of any accrued leave.
Can my employer refuse to pay severance? Only in limited circumstances, the main one being that you unreasonably refused a reasonable offer of alternative employment, under section 41(4) of the BCEA.
Sources
Figures on this page are drawn from the Basic Conditions of Employment Act, the Labour Relations Act, and the South African Revenue Service. The tax tables are current for the 2027 tax year, which runs from 1 March 2026 to 28 February 2027.
- SARS, Tax and Retrenchment
- SARS, Retirement Lump Sum Benefits tax tables
- CCMA, Facilitations in terms of section 189
This guide is general information, not legal or tax advice. Your IRP3(a) tax directive from SARS is the authoritative figure for the tax on your package.
