In tough economic times, retrenchment remains a reality for many employed South Africans. Major industries such as construction, mining and banking have had to cut huge numbers of jobs, and the pressure on many companies to right-size their organisations continues.
While it may be difficult to retrenchment-proof your finances, there are steps you can take to ensure that you are retrenchment-ready. These include:
While you are still employed
- Build up a nest-egg: Although self-funding for a period of unemployment is not an option for everyone, the ideal is to save enough money to live on for a period of around 6 months. However, this number is not cast in stone and depends on factors such as the nature of your industry, your qualifications and age, and your chances of being re-employed. If you are working in a particularly volatile industry and are unsure about the prospects of re-employment, you may want to consider funding for a longer period of time. Appropriate vehicles for building up a nest-egg include a money market fund, fixed deposit or unit trust portfolio. The purpose of this nest egg is to ensure that, should you become retrenched, you will not need to cash in your retirement benefits in order to cover your living costs while seeking re-employment.
- Consider retrenchment insurance: There are relatively few retrenchment insurance options available in South Africa, and those that are available are fairly expensive. Most options come with a 6-month waiting period and pay up to R30 000 per month for a period of 6 months if you are retrenched. That said, do your research and weigh up the benefits.
- Generate a passive income: If you earn a fixed salary, it is always a good idea to consider ways to generate a passive income. It may take some creative thinking, but technology and the rise of the gig economy have made it so much easier for the average person to monetise almost any idea. Play around with your ideas, bounce your ideas off your friends and family, and explore ways of creating even a small income from a hobby or passion of yours.
- Consider alternative career options: Avoid thinking that retrenchment will never happen to you. Even if you are comfortably employed with little chance of retrenchment, spend some time thinking about what you would do if you lost your job. Would you stay in the same industry? Would you like to set up your own business? If so, what type of business would you like to run? Would you look for another job and, if so, where would you apply?
- Keep your CV updated: If you’ve been comfortably employed for a while, chances are that your CV is out-dated. Rather than dusting off your CV only when the threat of retrenchment arises, make a concerted effort to keep your CV continually updated. Keep a record of projects you have worked on, courses you have attended and seminars you’ve been invited to speak at. As the years go by, you may lose track of your accomplishments and may struggle to recall them later on.
- Network: It takes just a few minutes browsing Linkedin to realise that the South African workplace is a small place. Spend time networking with peers, colleagues and service providers to establish your professional profile. Use social media sites such as Linkedin to enhance your profile by writing articles, sharing opinions and offering insights.
- Read through your employment contract: Take time to locate your employment contract so that you fully understand your rights in the event of retrenchment. The Department of Labour’s website – labour.gov.za – also provides comprehensive information on the retrenchment process and the rights of the employee. Avoid being caught unaware of your rights by proactively equipping yourself with essential knowledge.
In the event of retrenchment
- Keep your emotions in check: Any retrenchment process is incredibly stressful for everyone involved. One of the most important things you can do is to reign in your emotions and retain positive relationships with your employer and colleagues. Endeavour to remain professional and polite at all times to ensure that you don’t burn any bridges. Retrenchment is considered a ‘no guilt’ dismissal, so put feelings of guilt, humiliation or anger aside. Take a step back and avoid making any rash decisions. Most of all, avoid walking away or ‘cutting your losses’ simply as a means of extracting yourself from a potentially toxic environment. Insist on your financial and legal rights.
- Seek legal advice. Retrenchment is a complex and lengthy process, and it is always advisable to seek legal advice from a labour professional who has your best interests at heart. A labour law expert will be able to advise you on what you are legally entitled to in terms of severance and notice pay, leave pay, commissions, bonuses and overtime. She will also be able to advise you on your rights going into the consultation process. Do not simply accept the first offer your employer makes you. Use your labour law adviser to ensure that your rights are protected and that you are paid exactly what you are entitled to.
- Register for UIF. In most instances, you will be eligible for 12 months of unemployment assistance in the event that you are retrenched, and it is best to register for UIF sooner rather than later. You will need to go to your nearest Department of Labour with your ID, service certificate and 6 months’ worth of payslips. You will also need to complete the UI-2.8 form (verifying your banking details) and the UI-19 form (to show that you are no longer employed).
- Get financial advice: Your employer should provide you with access to a financial adviser who will guide you through the decisions you need to make in the wake of your retrenchment. Ensure that the adviser you choose to work with is completely independent and has your best interests at heart. Your adviser will be able to help you make the best decisions regarding your severance package, retirement fund benefits, group life cover and medical aid.
- Protect your retrenchment package: Do not be tempted to spend your retrenchment package or use it to pay off major debts. Taking into account any emergency funding you have available, draw up a budget to determine how long your funds will last. Your financial planner will advise you on the best vehicle to house these funds while you make plans for future employment or business opportunities. As a word of caution, be careful of investing all your money into a new business venture, especially if you are going to be operating in an industry you have no experience in.
- Preserve your retirement benefits: Do not be tempted to withdraw any retirement funds that you have accumulated. If possible, seek to preserve these funds for your retirement so as not to interrupt the effects of compounding.
- Draw up a job-seeking plan or business plan. If you intend seeking re-employment, draw up a plan job-seeking plan. Similarly, if you intend setting up a business, draft a business plan and get independent advice. Make sure you are equipped for entrepreneurship. Not everyone is cut out to run their own business, so make a concerted effort to spend time talking with other entrepreneurs before setting out on your own.
- Protect your risk: If you have group life cover, check whether it provides you with a continuation option. A continuation option will allow you to retain the life cover in place without medical underwriting. Do not cancel your medical aid. If your employer has been paying over your medical aid premiums, give your medical aid debit order instructions to ensure that there is no break in membership and that nothing falls through the cracks during this tumultuous period.
- Contact your credit providers: If you have debt, take proactive action to ensure that your creditors are made aware of your changed financial circumstances. Find out if you can take a payment holiday on any of your accounts, or find out what the minimum repayments are.
Retrenchment can have its advantages, especially if you have been employed by the same company for a long period of time, or if you feel you have stagnated in your career. Approached wisely, together with sound legal and financial advice, you can use a retrenchment as a springboard into a new and exciting chapter in your career.