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Your 5-point plan on being retrenched

Being ‘let go’ will become a reality for thousands in the coming year. Here’s what to do if it happens to you.

When life gives you lemons prepare for the day you might have to turn them into lemonade. This is basically the advice financial advisors are giving to people who fear they might be retrenched.

Irvin Tsimane, a Liberty financial advisor, says that since retrenchment is a life-changing event, it is a good time to speak to your financial advisor to determine what your immediate income needs are, as well as what debt, if any, should be prioritised and what money should be preserved.

Financial planner of the year 2019 and MD of Autus Private Clients, Hardi Swart, agrees, saying that when you are about to be retrenched, it is not only the loss of income you have to deal with but also the identity crisis associated with retrenchment and the feelings of uncertainty and the worries of not being able to provide for your family.

Read: South Africa’s journalism bloodbath

Here’s what you should do:

1. Take stock

Swart says a budget becomes critical if you know you are about to be retrenched. This means you must identify all your current expenses so you can determine which costs you can eliminate and which expenses you can decrease.

2. Have the awkward conversations

“This is not the time to be coy. Rather have an open conversation with your family and those who are financially dependent on you. They need to understand that there is likely to be pressure on cash flow. This means they will have to start limiting their spending and giving up certain luxuries,” Swart says.

3. Sign up to claim from UIF

If Unemployment Insurance Fund (UIF) contributions were deducted from your salary while you were working (this will appear as a deduction on your payslip), then you are entitled to claim UIF when you are retrenched.

It is important to note that you must lodge your UIF claim within six months of the date you stop working.

You will need to register for UIF by completing a registration form and you have to produce a copy of your barcoded South African identity document, copies of your last six payslips, a service certificate from your employer, and a UI-19 form filled in and signed by your employer.

Once you have all this and proof of your registration as someone seeking work, you must go to the nearest Labour Centre in your area and ask to sign the unemployment register. The Department of Labour takes about eight weeks to get back to you, and you will have to sign the unemployment register every four weeks to prove that you still need to claim the UIF benefits.

Your salary and UIF contributions over the last four years will determine how much you receive in benefits from the UIF. For example, if you earned R15 000 a month and were employed for four years (48 months), you would be entitled to R35 297.87 in UIF benefits and this would be paid out over eight months, with payments of R4 412.33 a month.

You can check your individual benefit calculation here.

4. Contact your creditors

This is critical. Ideally, the sooner you contact your creditors to let them know about the change in your circumstances, the better. Your retrenchment is going to impact your ability to pay back your debt. “Be honest with your creditors and, where possible, try to renegotiate your current payment plan,” Swart advises.

5. Check your numbers

This is not just about checking what the company owes you. You should also check if you have any retrenchment cover attached to your life policy or income protection policy. Some insurers, such as Liberty, offer standalone retrenchment insurance, which pays out a maximum of R30 000 a month for up to six months. This payout, however, is not linked to your income but is based on the cover amount you selected when taking out the policy.

Swart adds that you should find out precisely what your severance package looks like. Typically, a retrenched employee is paid one week’s pay for each completed year of service. “However, many employment contracts come with retrenchment policies in place, which will provide the employee with a higher level of severance pay than the national minimum. You also need to determine all other payments that are owed to you; unclaimed leave, notice pay, commission, overtime, and other payments unique to your position,” he advises.

How are retrenchment payouts taxed? 

Tsimane says the tax applicable to retrenchment packages is similar to that paid upon retirement. “You get the first R500 000 of your payout free of tax [assuming no previous withdrawals],” he says, adding that the balance will be taxed as detailed below.

2020 tax year (March 1, 2019 to February 29, 2020)

Taxable income from retrenchment payout

Rate of tax

R0-R500 000

0% taxable income

R500 001 – R700 000

18% of taxable income above R500 000

R700 001 – R1 050 000

R36 000 +27% of taxable income above R700 000

R1 050 001 and above

R130 500 +36% of taxable income above R1 050 000

Source: South African Revenue Service

Thousands of retrenchments in 2019

In the last year, the lives of thousands of South Africans changed when their employers announced pending job losses. According to the Commission for Conciliation, Mediation and Arbitration’s 2018/2019 annual report, a total of 529 large-scale retrenchment referrals were received in the past year. Of the 38 588 employees who were the subjects of these large-scale retrenchment referrals, 21 391 were retrenched, while 15 787 jobs were saved.

Read: West Coast region hard-hit by Saldanha Steel closure

Some of the more publicised recent and upcoming retrenchment cases include:

  • ArcelorMittal (Saldanha Steel plant) – 1 000 employees
  • South African Airways – 1 000 employees
  • South African Post Office – 776 employees
  • Absa – 870 employees
  • Standard Bank – 1 200 employees
  • Sibanye-Stillwater – 3 000 employees
  • MultiChoice – 2 000 employees
  • Tongaat Hulett – 5 000 employees.

While economists have gone on record stating that the country has narrowly escaped a recession, the outlook remains bleak. Late last week, credit rating agency Moody’s revealed that it only expected the South African economy to grow by 1% next year.

Read: Banks continue quietly cutting staff

Managing director of the Banking Association of South Africa, Cas Coovadia, says retrenchments in the banking sector and elsewhere are happening due to low business growth. “Businesses are restructuring just to remain efficient … just to remain afloat and keep their heads above water,” he says.

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I would add that especially those of an unfashionable hue need to start sideline businesses while they still have a job. This will provide some kind of cover, should the worst happen, and also help greatly with below-inflation salary increases.

Most people have an “idea” of a small business BUT lack the marketing skills, thus 80% fails in the 1st year.

Even if you were a desk jockey start getting used to getting your hands dirty. Learn to weld, plumb, paint any skill that people need.

If you’re on medical aid and won’t be able to continue on it, get full checkups and any necessary follow-up treatment done while you still can. Shop around for cheap basic cover so that you are still ‘in the system’ or it may cost you in surcharges later.

It’s counterintuitive, but be as cooperative as possible in transferring your functions. If you’ve nothing to do no-one will mind if you physically leave (and even start your next employment) before your termination date ; and in any case it keeps your reputation up in future job applications and references.

They are prepping you for your upcoming retrenchment when we go full junk and R 214 BILLION leaves the country.

1. Stay as far away from financial advisers as possible (commission and fees are their only concern).

2. Preserve your pension (or use it to settle your mortgage).

I have watched this happen for 20 years. The fallout is terrible but no one wants to write about it BECAUSE, a lot of their advertising comes from these companies!!!!!!!!!!!!!

The majority of victims focus on the financial aspects (and rightly so). Guess what, when you’re alone/ stuck in traffic it starts to hit you – you have been chased away like a decrepit rabies-infected dog after many years of faithful service, lots of times putting your family second to the company’s needs. All because you are double cursed – white skin and hair that is also “transforming” into white as well.

Don’t underestimate the psychological issues that you yourself will experience, “cowboys don’t cry” is nonsense. Get qualified and experienced help timeously, a colleague and fellow retrenched victim committed suicide.

Why is everyone saying white people are most affected by retrenchment? My 27 year old black BCom graduate girlfriend got retrenched in May this year and I know many other black people. Stop playing victim!

More importantly, I’ve been considering a job in machine learning. I kinda like it but don’t know if I’ll be able to live with myself knowing I’m taking people’s jobs.

Keep your powder dry, learn a trade and have a plan B. In the event it all blows over, you’ll be a handyman and you can sell the ammo.

A bit late to this article but I, unfortunately, have some firsthand experience on this topic.

I was retrenched, very unexpectedly, from an engineering firm earlier this year. At the ripe old age of 28.

It’s a massively stressful event leaving one questioning your self-worth.

It’s surreal, staggering and confidence-destroying.

While trying to deal with all these internal demons, there is, of course, the financial aspect of the entire debacle.

I can honestly say that living well below my means since beginning my career, afforded me a safety net which allowed me to mentally deal with the event. Without having to worry about money.

That peace of mind is enormous.

At the time of my retrenchment I had amassed about 1.5x my gross salary in savings. I’m not advocating that you do the exact same. But PLEASE, build up a SUBSTANTIAL emergency fund.

The surefire way to achieve this is to live below your means and save in a disciplined manner.

Your potential future self will thank your past self profusely.

I agree with you 100% live below your means. Simple rule when you get your monthly salary take 10% immediately and put in a savings account or fixed deposit so you already have 10% less to spend and that nest egg growing can later be used for any business opportunities that may arise even while you employed . Drive that car longer opt for 2nd hand car to save money and do your own maintenance. My car is 19years old and gets me A to B. In addition when in any bind owing anyone money offer to pay reduced amounts even R10 per month as long as you are paying they can do nothing and this gives you breathing room and reduces your stress and shows them you have ethics and willing to solve your debt! Be transparent with all family so that everyone mobilises as a team during this tough period and supports everyone with suggestions and motivation. Dont try and shoulder everything yourself. Dont be ashamed. This system is a system to bleed us dry but you can survive following these simple rules.I hope this helps someone out there. Oh and be ready to fight those insurance companies when you claim for that 6month retrenchment policy protection benefit etc they dont pay out easily. ASSUPOL.

Well done and I have the t shirt (old now) from a firm now in business rescue. Savings does help I agree 100% but the loss of self worth is difficult to devastating. So counselling, not necessarily from a registered practitioner, but even a trusted friend or mentor can be valuable.

If employed, unless you are an executive, you have no say in the company’s direction and strategy; you are a pawn. Look ahead to try and change that.

I would add that, if possible, wheedle everything you can out of the company and take it (retrenchment doesn’t always mean the company is really in dire financial straits). Nail down a tax free bonus, medical aid payments, small (any) assets (computer, programmes, plant, contracts, contacts etc etc) if you can. Get payment for a training or re-training course. Ask while and if there is a sympathy vote for you and grab anything offered with both hands, immediately and nail it down. I learnt from getting screwed over.

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