What Severance Pay Rules Must Employers Follow in South Africa?

Which Employees Qualify for Severance Pay?

• Employees dismissed for operational requirements (retrenchment) as defined in the Labour Relations Act.
• Employees with at least one completed year of continuous service, unless a more generous company policy applies.
• Employees who do not unreasonably refuse an offer of suitable alternative employment with your company or an associated employer.
• Employees on fixed-term contracts that end early for operational reasons, where severance is agreed or required by that contract or a collective agreement.
• Employees covered by sectoral determinations, bargaining council agreements, or company policies that provide for severance on more generous terms.
• Employees whose roles are genuinely redundant, where you have followed a fair consultation and selection process for retrenchment.

What Are the Legal Timelines for Paying Severance?

In South Africa, severance pay is typically due on the employee’s last working day or within the same timeframe as final salary and accrued leave payments. While the Basic Conditions of Employment Act does not specify a separate statutory deadline for severance, the CCMA and courts expect payment without unreasonable delay once termination takes effect. In practice, you should process severance in the same payroll run as the termination, or at worst within a few business days. Any delay can trigger disputes, interest, and potential unfair dismissal claims. Always document the calculation and payment date on the final payslip and in the retrenchment letter.

What Penalties Apply if Severance Is Not Paid Correctly?

If your company fails to pay severance correctly after a retrenchment, you risk both financial and procedural consequences. Employees can refer disputes to the CCMA or a bargaining council, and non-compliance can escalate into unfair dismissal findings, enforcement orders, and reputational damage. Underpayment or late payment can also attract interest and legal costs, especially where collective agreements or arbitration awards are ignored.

• The CCMA or Labour Court can order payment of outstanding severance plus interest.
• You may face an unfair dismissal award, including compensation of up to 12 months’ remuneration.
• Non-compliance with arbitration awards can lead to writs of execution against company assets.
• Breach of bargaining council or sectoral agreements can trigger additional fines or enforcement action.
• Reputational harm and union pressure can increase scrutiny of future retrenchments.

Does Outsourcing Employment via an EOR Change Severance Liability?

Using an Employer of Record (https://www.playroll.com/employer-of-record) in South Africa does not remove the underlying legal requirement to pay severance where a genuine retrenchment occurs. In an EOR model, the EOR is the legal employer on record and is responsible for administering severance in line with the Basic Conditions of Employment Act and the Labour Relations Act. However, your company usually funds the severance and remains the decision-maker on restructuring and role eliminations. If the retrenchment process is procedurally or substantively unfair, both your company and the EOR can be drawn into CCMA or court proceedings. Clear contracts and coordinated consultation processes are essential to avoid gaps in liability and compliance.

Be 100 Percent Compliant in Offering Severance with Playroll

Playroll helps your company navigate South Africa’s severance rules by embedding local legal requirements into every step of the offboarding workflow. From identifying who qualifies for severance to calculating the statutory minimum of one week’s remuneration per completed year of service, Playroll’s team and tooling keep you aligned with the Basic Conditions of Employment Act and Labour Relations Act. You get clear breakdowns of notice, leave, bonuses, and severance so you can sign off on accurate, defensible payouts.

When you use Playroll as your global employment partner or via its Employer of Record solution, severance is administered on time and with the right documentation. Playroll coordinates consultation timelines, issues compliant termination letters, and ensures payments are processed in the correct payroll cycle. That means fewer CCMA disputes, cleaner audits, and a consistent, respectful exit experience for South African employees, even when you are managing teams from another country.