Severance pay in South African labour legislation is primarily governed by the Basic Conditions of Employment Act (BCEA) and the Labour Relations Act (LRA). The calculation of severance pay typically depends on the specific circumstances and agreements in place.

Section 41 of the BCEA provides the default position when calculating statutory severance pay. Severance pay is calculated based on the employee’s length of service and remuneration. The BCEA provides one (1) week’s pay for every year of completed and continuous service.

Although the BCEA sets minimum terms and conditions of employment, parties to an employment contract may agree to terms and conditions more favourable to an employee than those prescribed in the BCEA.  As far as severance pay is concerned, it is not uncommon for a collective agreement or a contract of employment to provide for the payment of severance pay in excess of that prescribed by Section 41(2). In addition, an agreement may be reached to this effect during a retrenchment consultation process.

Council Agreements, also called collective agreements, reached between Employers’ Organisations and Trade Unions at a Bargaining Council level, can establish different severance pay rules. These council agreements can provide more favourable terms than the statutory requirements, so checking the specific agreement in place in a particular industry is essential.

For example, Clause 42 for the National Bargaining Council for the Road Freight and Logistics Industry (NBCRFLI) provides for severance pay calculations and does not differ from the BCEA. The Metal and Engineering Industries Bargaining Council (MEIBC) is slightly more complex.

It provides that an employee in that industry shall receive one (1) week’s remuneration for each completed year of service, but depending on their years of service, they may be entitled to more. It states, “Employees shall be entitled to the following additional ex-gratia payments: An employee with between five (5) to ten (10) completed years’ service with the same employer: One (1) week’s ex gratia payment; An employee with between eleven (11) to fifteen (15) completed years’ service with the same employer: two (2) weeks ex-gratia payment; and an employee with sixteen (16) or more completed years’ service with the same employer: three (3) weeks ex gratia payment”.

The calculation of severance pay for commission workers will also differ. Commission workers often have a more complex calculation for severance pay because it’s based on their average earnings, which includes their basic salary and commission. The BCEA defines “earnings” as the regular annual remuneration before deductions, and this amount shall be used to calculate severance pay.

It’s essential to consult the relevant council agreements and employment contracts for precise details, as the calculation of severance pay can vary by industry and employer. Additionally, it’s important to keep in mind that laws and regulations may change over time, so it’s advisable to consult with your Employers’ Organisation or internal labour consultancy for the most up-to-date information.

Gordon Flanagan

Dispute Resolution Official at Consolidated Employers Organisation (CEO SA)