How to survive retrenchment

Being retrenched can be a daunting prospect, and trying to figure out your next move can be difficult. Often, people will find themselves accumulating debt due to job loss, and do not know what to do. Moneybags journalist, Ashleigh Brown, looks at the options you have, if you have been retrenched.

 

If you’ve just been told that you are going to be retrenched or if you have heard rumours that retrenchments are imminent you can at first stand and fight your corner. Under South African law, there must be a valid economic, technical or structural reason to initiate retrenchments. Companies have to inform you that they are considering retrenchments and then give you a chance to motivate reasons why you should not be retrenched. Possible alternatives to dismissal should also be investigated and considered.

But if your company has gone through all the correct steps and is going to retrench you anyway there are things you can do to ease the burden. One of the first steps you should take is to review your budget. Make sure you know what your expenses are, and how you are going to manage the money you do have.

If you have debts, you should go to your credit providers and negotiate new terms on your payments so that you don’t fall behind. Also put big spending plans on hold – you do not want to rush into financial decisions before you have an income to support and before you have spoken to an authorised financial advisor.

“Retrenchment can lead to financial ruin if the correct measures are not put in place. I encourage people to have a rainy day account that will cover three to six months of daily living expenses. This will give them the peace of mind of knowing that they can meet their expenses while considering their future employment options,” says Michelle Dubois, legal marketing specialist at Liberty Group Limited.

It’s possible to make some extra money until you land your next job. Check out our story on ‘How to make money in your spare time’ to find some inspiration.

What can you expect as payment on retrenchment?

When you are retrenched from your job, there are payments which you are entitled to. Severance pay is one of them. This is the payment and benefits an employee receives when they leave a company.  Severance pay should be at least one week’s remuneration per completed year of service, according to the Labour Department.

“Upon retrenchment, an employee is entitled to payment of a severance package to ease the financial burden of losing employment. In terms of the Basic Conditions of Employment Act, the employee is entitled to one week of pay for each completed year of service, as well as payment for accumulated leave, which he was entitled to up to the date of termination of employment, but which had not yet been taken,” explains Dubois.

 

Your outstanding leave should also be paid in full and you should also get notice pay. The amount you will be paid for notice pay depends on how long you were employed at the company for, before being retrenched.

  • If you have been employed for between one and four weeks you get one weeks’ notice pay.
  • If you have been employed for four weeks to one year you get two weeks’ notice pay.
  • If you have been employed for more than a year you get four weeks’ notice pay.

Depending on your employment contract, you may be entitled to a pro-rata payment of your annual bonus, and the balance of any pension or provident fund benefits.

Unemployment Insurance Fund

The Unemployment Insurance Fund (UIF) is there to help you in the event you have lost your job. You can only apply for UIF if you have been paying towards it, i.e. 1% of your monthly salary.

In order to claim for UIF benefits, you must register as a work seeker as soon as you become unemployed. All the relevant documents for UIF can be found here.

If you are not sure how much you are entitled to, the South African Labour Guide says: “If you have been contributing to the Fund for four years or more, then you can claim for up to 238 days. If you have been contributing for a shorter period, then you can claim one day for every six days that you worked while you were contributing to the Fund. If you take maternity leave, you can only claim up to 121 days.

“The Fund pays a percentage of the wage/salary that you earned while you were contributing to the fund. The highest amount that can be paid is 58% of what you earned per day.”

There are five different benefits covered by the UIF:

  • Unemployment benefits
  • Illness benefits
  • Maternity benefits
  • Adaption benefits
  • Death benefits

For more information on each benefit, click here.

Pension pay-out

Once you have been retrenched you might get a pension pay-out along with the benefits of your severance package if you requested for your pension money to be withdrawn. However, the rules are changing and soon you may no longer be able to withdraw funds from your pension if you become retrenched or switch jobs.

Experts warn against withdrawing money from your pension. Instead, they encourage you to invest it elsewhere. Rowan Burger, head of investment strategy at Liberty Life, advises: “If you get a pension pay-out it may be very tempting to spend it on settling debts, even to ‘live a little’ after retrenchment. Firstly, you will be taxed on the pension money and secondly, it will set you back for your retirement. You should reinvest the money in a preservation plan. A financial adviser will be able to assist with this.”

Starting your own business

It’s also possible to start your own business following a retrenchment but it won’t be easy. Applying for a loan through a bank will be difficult as you have to provide a robust business plan. Adding to that, it will be more difficult to obtain a loan, particularly as banks will see that you don’t have a salary to fall back on.

You could use your pension payout money to start your business, but make sure you know exactly what your plan is. A few have gone down this road and succeeded – but many have also failed. It’s important to think long and hard about this course of action because you could jeapordise your retirement plans if your business goes bust.

Finding another job

If you need the money you will have no choice but to join the millions of other people out there looking for jobs.Two South African Job sites, which allow you to put in the location and area of work you are looking for, are Jobvine and Careers24. On Careers24 you can even build your Curriculum Vitae (CV) and save it, so that you can send it out to potential employers with the click of a button.

There are a host of sites dedicated to helping you write the perfect CV, such as the CV Centre. If you are not familiar anymore about how the interview process works it’s important to brush up on your knowledge.

There are a few strategies you can adopt to ensure you are financially sound following a retrenchment. Ultimately, by contacting a financial advisor, and taking measures to ensure you have enough money until you find another income stream, you can make it through retrenchment.



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