The truth about retirement age

There is no general retirement age in South Africa. The retirement age is determined by the employer and agreed upon by the employee. It is vital for the retirement age to be placed in writing in the employment contract or an internal policy. This will assist in avoiding a case of unfair dismissal or automatically unfair dismissal when the employment contract is terminated at the end of the month in which an employee reaches the agreed upon retirement age. 

Often an employee is still mentally and physically capable of conducting the duties required by the position after reaching the agreed upon retirement age. The employee’s permanent employment contract must however still be terminated regardless the fact. Should both parties decide to continue the employment relationship, they can enter into a fixed term employment contract. Employers must take note that if the permanent employment contract is not terminated upon reaching the agreed upon retirement age and the employee continues to render services for a period thereafter, the employee will be deemed to be a permanent employee without a fixed termination date. The employer will then have to follow an incapacity process when the employee is no longer mentally and/or physically capable of conducting the duties required by the position.

What should the employer know?

Employers should also take note that fixed term employees must be treated the same as permanent employees. This refers to wages, leave and other benefits. Employees on fixed term contracts must also be given equal access to opportunities to apply for vacancies as well as be entitled to severance pay upon termination of employment where the employee is employed on a fixed term contract exceeding 24 months.

The terms and conditions of employment may never be changed unilaterally. So if there is no fixed retirement age in the workplace, the employer must consult with the employees in order to establish a fixed retirement age. Such an agreement must be in writing and signed by all relevant parties. As with all rules and policies in the workplace, the retirement age must be applied consistently to avoid unfair discrimination in the workplace. In such cases the employer can face an award of up to 24 months of the employee’s remuneration as compensation.

How can the employment contract come to an end?

The employment can come to an end when the employee resigns, reaches retirement age, is dismissed or is retrenched. One of the biggest misconceptions in labour law is the payment of a severance package. Severance pay is only payable when an employee is retrenched. When the employment contract is terminated upon reaching the retirement age, the employer has the obligation to pay the employee remuneration up to and including the last working day and accumulated leave. No further payments are required by law. If the employer wants to make an ex gratia payment, it will be at the employer’s sole discretion.

In conclusion

An employment contract is crucial in managing labour relations. It is the basis of the relationship between the employer and the employee. It defines the terms and conditions as agreed upon between the parties and regulates their relationship. Furthermore the employment contract describes rules and responsibilities to be adhered to by both the employer and the employee. The employment contract is vital to keep confusion and discontent in the working relationship to a minimum. By including additional information in the employment contract employers empower themselves and can proactively manage possible future disputes, saving time and money.

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LWO Regsadviseur - LWO Legal Advisor

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