Retrenchment Package Calculator
Estimate your retrenchment package: severance, notice pay, leave payout, and tax.
Last reviewed: Tax year: 2026/2027Source: SARS — Retirement lump sum tax tables
What retrenchment is and what you’re owed
Retrenchment (formally: dismissal for operational requirements) happens when an employer needs to reduce headcount for economic, structural, or technological reasons. It is not a punishment — it entitles you to statutory severance pay, notice pay, leave pay, and access to UIF benefits.
The BCEA and the Labour Relations Act (LRA) govern the retrenchment process. An employer must follow a fair procedure (consult, give notice, consider alternatives) and must calculate your package correctly. Underpayment is common — verify your calculation independently.
Severance pay — the statutory formula
Section 41 of the BCEA requires at least 1 week of remuneration per completed year of service. “Remuneration” for severance purposes means ordinary pay, excluding allowances that don’t reflect in regular earnings (usually excludes expense reimbursements, but may include regular overtime if it was a consistent part of earnings — this is disputed and case-specific).
| Years of service | Monthly salary | Weekly rate | Severance pay (gross) |
|---|---|---|---|
| 3 years | R15,000 | R15,000 × 12 ÷ 52 = R3,461 | R10,384 |
| 5 years | R30,000 | R30,000 × 12 ÷ 52 = R6,923 | R34,615 |
| 10 years | R50,000 | R50,000 × 12 ÷ 52 = R11,538 | R115,385 |
| 20 years | R40,000 | R40,000 × 12 ÷ 52 = R9,231 | R184,615 |
Tax on severance — first R550,000 is tax-free
Severance pay is taxed using the retirement lump sum tax table — the same table used for retirement and retrenchment lump sums. The first R550,000 is tax-free (cumulative across all qualifying lump sums in your lifetime), and the rate increases in brackets above that.
Critically, this is a lifetime R550,000 exemption. If you’ve previously received a severance payout, retirement lump sum, or any other qualifying lump sum that used part of this exemption, your remaining tax-free amount is reduced.
| Taxable portion | Rate |
|---|---|
| R0 – R550,000 | 0% — no tax payable |
| R550,001 – R770,000 | 18% of amount above R550,000 |
| R770,001 – R1,155,000 | R39,600 + 27% of amount above R770,000 |
| R1,155,001 and above | R143,550 + 36% of amount above R1,155,000 |
SARS requires your employer to deduct PAYE on the severance payout at the time of payment. If the employer applies the incorrect rate (especially if they don’t know about your prior lump sums), you may owe more — or get a refund — when you file your tax return.
What else is included in a retrenchment package
| Component | Amount | Tax treatment |
|---|---|---|
| Severance pay | 1+ weeks per year of service | Retirement lump sum table (R550k exempt) |
| Notice pay | Depends on length of service / contract | Normal income tax (PAYE) |
| Accrued leave | Outstanding leave days × daily rate | Normal income tax (PAYE) |
| Pro-rata bonus | If contractually entitled | Normal income tax (PAYE) |
| UIF benefit | After claim; separate process | Tax-free |
Notice periods under the BCEA
Your notice period depends on your length of service. An employer who retrenches you must give the correct notice (or pay in lieu):
| Length of service | Minimum notice |
|---|---|
| Less than 6 months | 1 week |
| 6 months to 1 year | 2 weeks |
| More than 1 year | 4 weeks (1 month) |
Worked examples
10 years service, R40,000/month — tax on severance
Standard retrenchment. First lifetime lump sum — full R550,000 exemption available.
- Monthly salary
- R40,000
- Years of service
- 10
- Weekly rate (R40,000 × 12 ÷ 52)
- R9,230.77
- Severance pay (gross)
- R92,308
- Taxable amount (below R550k threshold)
- R0
- Tax on severance
- R0 (within exemption)
- Notice pay (4 weeks at R40,000/month)
- R36,923 + PAYE
- Leave payout (say 12 days at R1,846)
- R22,154 + PAYE
20 years service, R80,000/month — partial exemption used
Previously received R250,000 severance 8 years ago. Remaining exemption: R300,000.
- Monthly salary
- R80,000
- Years of service
- 20
- Weekly rate (R80,000 × 12 ÷ 52)
- R18,461.54
- Severance pay (gross)
- R369,231
- Prior lump sums used
- R250,000
- Remaining exemption
- R550,000 − R250,000 = R300,000
- Taxable severance (R369,231 − R300,000)
- R69,231
- Tax (18% on R69,231)
- ≈ R12,462
How this calculator works
Enter your monthly salary, years of completed service, and whether you have used any of the lifetime R550,000 lump-sum exemption before (from prior severance or retirement payouts). The calculator returns gross severance pay, the tax payable, and the net amount — plus a breakdown of the full package (notice pay, leave payout) if you provide those values.
Sources
Frequently Asked Questions
Retrenchment packages (severance + notice pay + leave payout) are taxed under the retirement lump sum table with a higher tax-free threshold (R550,000). The tax rate depends on the total package amount.
The first R550,000 of retrenchment lump sums (including severance, notice pay, and accrued leave) is tax-free, provided you do not exceed R550,000 cumulative across all lump sums since 1 October 2007.
Under the BCEA, severance is calculated as 1 week's pay per year of service, capped at 12 weeks total. For a R30,000 monthly salary, 5 years service = R150,000 severance.
The calculator includes severance pay (BCEA-compliant), notice pay (salary during notice period), accrued leave payout (up to 15 days unused), and calculates the tax under the retirement lump sum brackets.