BASIS FOR CALCULATING SEVERANCE PACKAGES

[Ivan Israelstam]

An employer provides an employee with a section 189 notification stating that he might be retrenched. During consultations the employer and employee agree that he will receive a reduced salary in order to avoid the retrenchment. A few months later the employer is forced to retrench the employee due to worsening financial circumstances.
Must the employer calculate the employee’s severance package based on his current reduced salary or on the basis of his full salary earned before the implementation of the pay reduction? Please bear in mind that, had the employee initially accepted an unpaid temporary layoff instead of a pay reduction then, at the time of the subsequent retrenchment, his salary would have been zero.

[Patrick Deale]

It must be calculated on the employee’s salary as it was in the years before the reduction and on the lower amount for the period after the reduction.

[Michael Bagraim]

In essence they calculate the severance package on the last payment. If it differs radically such as a commission then you would take the last 3 months into account.

Unfortunately the employee might lose out because of the reduced salary basis, there’s not much you can do about it.

[Author]

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