Severance pay for retrenchment in South Africa
Section 41 of the BCEA requires an employer to pay at least one week of remuneration for every completed year of continuous service when an employee is retrenched. The first R550,000 of a severance benefit is tax-free (aggregated lifetime).
Payroll Africa Editorial · SARS Payroll Compliance Team
The Payroll Africa editorial team is composed of registered tax practitioners, payroll administrators and BCEA specialists who maintain the SARS PAYE, UIF, SDL and ETI engines that power the platform. Every article is reviewed against the current SARS BRS and Basic Conditions of Employment Act before publication.
- SARS registered tax practitioners
- SAPA-affiliated payroll administrators
- BCEA and LRA compliance reviewers
Last updated 30 Sept 2026
How much severance must I pay?
The statutory minimum is one week per completed year of continuous service, calculated on the employee's basic weekly wage plus any regular allowances forming part of remuneration.
Tax treatment of severance
Severance is taxed on the retirement fund lump sum benefit tax table. The first R550,000 is tax-free, then 18%, 27% and 36% brackets apply — aggregated across all lump sums received over the employee's lifetime.
- R0 – R550,000: 0%
- R550,001 – R770,000: 18% of amount above R550,000
- R770,001 – R1,155,000: R39,600 + 27% above R770,000
- R1,155,001+: R143,550 + 36% above R1,155,000
- Requires a SARS tax directive (IRP3(a)) before payment
Frequently asked questions
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