Layoffs and the severance package
In the current economic climate, many employers are under tremendous financial pressure and must consider restructuring or layoffs (retrenchment) to remain sustainable. However, many aspects must be taken into account to limit the employer’s risk in relation to the process, as well as the payment of severance packages.
Layoffs: Consultation process
Legislation dictates that when the employer is considering layoffs, a consultation process with the employees is required:
- Written notice must be given to all employees 48 hours before the consultation. Each employee must sign a copy of the memorandum as proof of receipt.
- A first consultation takes place between the employer and all the employees during which the content of the notice is discussed with the employees. The purpose of the consultation is for the employer to allow the employees to make representations regarding the proposed retrenchments.
- Alternatives that are presented must be explored and discussed. If the alternatives are not workable and there are no further alternatives, the process can be finalised. Employees who are affected by the retrenchment must be informed of this in writing and receive the necessary documentation. The notice period begins when the employee becomes aware of the retrenchment.
If at any given moment of the consultations any employee suggests that they may be laid off voluntarily, the employer may accept this. If an employee chooses voluntary retrenchment, they must understand that they will not be able to claim unemployment benefits from the Unemployment Insurance Fund.
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Final compensation payout
This payment consists of the wage/salary, annual leave payout, statutory notice period payout, and severance package (only payable with retrenchment and consists of one week for each completed year of service). The notice period must still be paid out to the employee, even if the employee is not required to work it.
Layoffs: Five common mistakes to avoid include:
- Do not identify employees to be laid off beforehand.
- The reason for layoffs must be fair.
- All parties must be consulted.
- Selection criteria used must be fair and objective.
- The final compensation payout must be correctly calculated and paid out.
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