COVID-19 has left the global economy in a state of shock. This pandemic is no longer simply a health crisis, but an economic one too. Go Hustle spoke to Adele Barnard, a financial advisor and investment specialist at Sanlam, about the steps you should take to safeguard yourself if you get retrenched, plus how to figure out exactly what’s owed to you by your company.
A rocky financial year for South Africa.
Adele says it’s unclear at this stage how deep the dip will be and how long it will last for, but South Africans should brace themselves for job losses due to the impact of lockdown and COVID-19. “Our private sector, as well as small and medium enterprises, do not necessarily have the financial means to absorb the effects of the COVID-19 shock,” she says. Due to the severity of this pandemic, many businesses will be forced to relook their workforce, and retrenchments will definitely be on the rise.
A retrenchment is a form of dismissal – but not due to the fault of the employee. The retrenchment procedure is set out in the Labour Relations Act, and the Basic Conditions of Employment Act. “It’s important to know your rights and check your employment contract carefully; obtain legal advice if necessary,” says Adele.
What if retrenchment becomes my reality?
Adele says it’s crucial to understand what payments should be made to you, should you find yourself going through a retrenchment.
1/ Notice pay
The retrenched employee may receive their notice pay, instead of working the notice period. “According to Legalwise, if the employee was employed for less than six months, s/he must be paid one week’s notice pay. If you’ve been employed more than six months, but less than one year, you must be paid two week’s notice pay,” says Adele. If you have been employed for more than one year, you must be paid four week’s notice pay, pending your contract. “These payments will be taxed at your marginal rate between 18% and 45%,” she adds.
This is the sum of money which equals your annual leave, or time off (which you have not taken yet). The company or employer must pay out this amount.
3/ Severance Benefit
This is a lump-sum payment for the termination of employment which is taxed according to the retirement lump sum tables (see table below). A retrenched employee must at least be paid one week’s pay for each completed year of ongoing service.
Source: South African Revenue Services
4/ Retirement Fund Benefit
“This will be the total value of your pension and/or provident fund at retrenchment. You can either take the full benefit as a lump sum in cash (the lump sum withdrawal will be taxed according to your retirement lump tax table – refer to the table above),” says Adele. You can transfer your pension and/or provident fund to a qualifying retirement fund. This fund will be transferred tax-free should it be an approved retirement fund.
“Depending on the rules of the fund, you can withdraw an amount from the funds and the remainder of the funds will be transferred to an approved retirement fund,” says Adele. Try your best to preserve your severance package and retirement benefits. Times are tough – don’t jeopardise your future pension by using your retirement benefits now. “In most cases, individuals say they can’t account for what the money was used for once they cashed out their retirement benefit. It’s one of the worst mistakes you can make,” says Adele.
5/ UIF (Unemployment Insurance Fund)
Once an employee is retrenched, s/he is entitled to claim unemployment benefits if the employer contributed to the UIF. “You can claim your unemployment benefits for a period of up to 12 months, subject to your Section 189 letter obtained from your employer,” says Adele.
5 crucial things to do if you get retrenched
1/ Check your loan statements or contact your credit provider to see if you have credit life insurance. This will help you pay your debts: credit card, personal loan, home loan etc.
2/ If you don’t have credit life insurance for your debt, call your credit provider and make arrangements for your repayments.
3/ Revisit your budget: cut your expenses where you can, and re-evaluate necessities versus luxuries. COVID-19 has taught us that we don’t need as much as we think we do.
4/ Avoid cancelling important risk covers such as medical aid, gap cover, short-term and long-term insurance. Rather talk to your financial planner and see if they can assist with strategies to manage your cover.
5/ If cashflow is tight, put your savings and retirement annuity contributions on hold temporarily and revisit them once your circumstances have changed.
According to Adele, it’s best to obtain advice from your financial advisor. They can guide you to make informed decisions about your future. Like Billy Connolly said: “There is no such thing as bad weather – only the wrong clothes.” In times of crisis, there is always an opportunity – I mean, Whatsapp, UBER and Pinterest were all start-ups founded during the last recession. Chew on that.