Em­ployee Ben­e­fits Post-em­ploy­ment

Lesotho Times - - Opinion -

AN em­ploy­ment re­la­tion­ship is bound to end; ei­ther at the ini­tia­tive of an em­ployee or an em­ployer but it is im­por­tant to give an em­ployee ben­e­fits he/she is en­ti­tled to. Sev­er­ance pay, prov­i­dent fund and notice pay are some of the many en­ti­tle­ments post-em­ploy­ment (when one is no longer with a cer­tain em­ployer and in most cases un­em­ployed).

All over the world sev­er­ance pay pro­grams ex­ist. Sev­er­ance pay is pro­vided in a form of cash to em­ploy­ees who vol­un­tar­ily or in­vol­un­tar­ily leave work. The pay­ment is usu­ally re­lated to the num­ber of years worked with the same em­ployer and it is linked to the last salary of an em­ployee (Holz­mann & Vodopivec, 2012). Ac­cord­ing to Holz­mann & Vodopivec (2012), his­tor­i­cally there are three main de­ter­mi­nants of sev­er­ance man­dates around the world: the cre­ation of broader labour codes, early in­dus­trial re­struc­tur­ing and spells of high­level un­em­ploy­ment in the in­ter­war pe­riod, and the wel­fare state af­ter the World War 2. These his­toric events may not have been of any sig­nif­i­cance to Le­sotho but leg­is­la­tion seems to have arisen by copy­ing the colo­nial pow­ers’ labour codes and so­cial se­cu­rity sys­tems. His­tory tells us that Le­sotho was col­o­nized by Great Bri­tain and be­fore Le­sotho’s in­de­pen­dence most leg­is­la­tion was bor­rowed from the Great Bri­tain and that has had an ef­fect on leg­is­la­tion post-in­de­pen­dence. A lot of labour laws were en­acted post-in­de­pen­dence which ul­ti­mately led to the cre­ation of the Labour

Code Or­der No. 24 of 1992 which in essence has also lost its mo­men­tum due to the evolv­ing na­ture of the world of work brought about by fac­tors such as glob­al­iza­tion.

Sev­er­ance pay is one of the many so­cial se­cu­rity sys­tems glob­ally. Holz­mann & Vodopivec (2012) show those el­e­ments for the emer­gence and per­sis­tence of sev­er­ance pay­ments were the tech­no­log­i­cal changes of the late 1800s and the large scale un­em­ploy­ment of the Great De­pres­sion in the 1930s. Sev­er­ance pay was used as a form of se­cu­rity in the event of dis­missal. Le­sotho does not have nu­mer­ous so­cial se­cu­rity mech­a­nisms deal­ing with em­ploy­ees who have vol­un­tar­ily/in­vol­un­tar­ily left their jobs and thus far sev­er­ance pay is the widely used form of se­cu­rity by the pri­vate sec­tor and some­times the pub­lic sec­tor for em­ploy­ees not gov­erned by the var­i­ous gov­ern­ment com­mis­sions. Sec­tion 79 of the Labour Code Or­der No

24 of 1992 ex­plains that an em­ployee is en­ti­tled to sev­er­ance pay af­ter con­tin­u­ous em­ploy­ment of over one year with the same em­ployer and should be equiv­a­lent to two weeks’ (90hrs) wages for each com­pleted year of con­tin­u­ous ser­vice with the same em­ployer.

As it has been men­tioned above, an em­ployee is en­ti­tled to sev­er­ance pay when he/she has been con­tin­u­ously em­ployed for over a year with the same em­ployer and the rea­son for ter­mi­na­tion of em­ploy­ment is not mis­con­duct. An em­ployee who is dis­missed from work due to mis­con­duct is not en­ti­tled to sev­er­ance pay. How­ever, an em­ployee should be af­forded a fair hear­ing to es­tab­lish whether in­deed there has been mis­con­duct. The audi al­teram partem prin­ci­ple should ap­ply.

The idea be­hind sev­er­ance pay is to bet­ter one’s life post-em­ploy­ment. There­fore, if there is a scheme that of­fers bet­ter cash re­wards post-em­ploy­ment, it is ad­vis­able for an em­ployer to use it in­stead of sev­er­ance pay. How­ever, for the scheme to be op­er­a­tional an em­ployer has to ap­ply for ex­emp­tion in the Labour Com­mis­sioner’s of­fice and af­ter thor­ough con­sul­ta­tions (in­volv­ing the em­ployer and em­ploy­ees) the Labour Com­mis­sioner can grant the ex­emp­tion. This is re­it­er­ated in the fol­low­ing case: Seeiso Leche Vs Tele­com Le­sotho

(Pty) Ltd LAC/REV/26/09. To sum­ma­rize the case: Leche wanted sev­er­ance while the re­spon­dent was of the view that the com­pany was ex­empted by the Labour Com­mis­sioner from pay­ing sev­er­ance. It turned out that the Labour Com­mis­sioner did not af­ford em­ploy­ees an op­por­tu­nity to voice their con­cerns on the is­sue of ex­emp­tion and fail­ure to con­sult em­ploy­ees meant that the audi prin­ci­ple did not ap­ply there­fore Leche was awarded sev­er­ance

pay. Em­pha­sis on ex­emp­tion ap­pears in Sec­tion 79 (7) of the Labour Code (Amend­ment) Act

1997 which stip­u­lates that “where an em­ployer op­er­ates some other sep­a­ra­tion ben­e­fit scheme which pro­vides more ad­van­ta­geous ben­e­fits for an em­ployee than those that are con­tained in sub­sec­tion (1) he may sub­mit a writ­ten ap­pli­ca­tion to the Labour Com­mis­sioner for ex­emp­tion from the ef­fect of that sub­sec­tion.”

Cal­cu­la­tion of sev­er­ance pay has al­ways been the crux of the mat­ter for both em­ploy­ees and em­ploy­ers. It is im­por­tant for these two par­ties to know how to cal­cu­late sev­er­ance pay so that both par­ties do not feel cheated when do­ing their trans­ac­tions post-em­ploy­ment. Sev­er­ance pay is cal­cu­lated in the fol­low­ing man­ner:

(Salary× 90hrs×num­ber of years worked)÷195hrs= sev­er­ance pay.

An ex­am­ple:

(M2000×90hrs×8yrs)÷195hrs=m7384-62. It is worth not­ing that ac­cord­ing to Sec­tion 79

(5) of the Labour Code Or­der No. 24 of 1992 when ter­mi­na­tion has been done at the ini­tia­tive of an em­ployee, the em­ployer may pay the sev­er­ance im­me­di­ately or hold the sev­er­ance in a trust for a pe­riod not ex­ceed­ing 12 months. The un­der­stand­ing is that upon ex­pi­ra­tion of the 12 months the em­ployer will give the em­ployee the sev­er­ance pay with in­ter­est.

It is an em­ployee’s right to get his/her sev­er­ance pay post-em­ploy­ment if he/she de­serves it. It is still a prob­lem as to what hap­pens if an en­ter­prise is un­able to make sev­er­ance pay­ment ow­ing to in­sol­vency.

Prov­i­dent Fund

Prov­i­dent Fund (PF) is an­other form of a so­cial se­cu­rity sys­tem. Sev­er­ance pay as a form of so­cial se­cu­rity was dis­cussed ear­lier. There is no pro­vi­sion for PF in the Labour Code but that does not de­ter an em­ployer from pro­vid­ing PF as an al­ter­na­tive to sev­er­ance pay for his/her em­ploy­ees. There are nu­mer­ous es­tab­lish­ments in Le­sotho which use PF. How­ever, for PF to be op­er­a­tional in any es­tab­lish­ment an em­ployer has to ap­ply to be ex­empted from the sev­er­ance pay sys­tem in the of­fice of the Labour Com­mis­sioner. PF can be la­belled as a modern so­cial se­cu­rity sys­tem in Le­sotho be­cause tra­di­tion­ally sev­er­ance pay sys­tem was the only pre­dom­i­nant sys­tem op­er­a­tional in the pri­vate sec­tor.

The main ob­jec­tives of any so­cial se­cu­rity sys­tem are con­sump­tion smooth­ing over an in­di­vid­ual’s life­time, in­surance, in­come re­dis­tri­bu­tion for so­ci­ety as a whole, and poverty re­lief (Asher, 2010). PF ac­tu­ally acts as an in­surance and re­lief from poverty post-em­ploy­ment. PF is es­sen­tially a sav­ings scheme and good sav­ings en­able in­di­vid­u­als to live bet­ter post-em­ploy­ment. PF con­tri­bu­tions are typ­i­cally by em­ploy­ers and em­ploy­ees. Le­sotho has not yet reached a pin­na­cle where gov­ern­ment con­trib­utes to­wards PF but one would like to see Le­sotho gov­ern­ment con­tribut­ing to­wards PF in fu­ture.

Tra­di­tion­ally, so­cial pro­tec­tion sys­tems have been based on em­ployer-em­ployee re­la­tion­ships and ex­tend­ing their cov­er­age to the in­for­mal sec­tor will re­quire in­no­va­tive ap­proaches (Asher, 2010). The in­for­mal sec­tor in Le­sotho has been aban­doned for a long time with most of our leg­is­la­ture not cov­er­ing it. Le­sotho is a mem­ber state of the United Na­tions and goal 8 of the 2030 Sus­tain­able De­vel­op­ment Goals (SDGS) fo­cuses on de­cent work for all.

Le­sotho has the re­spon­si­bil­ity to en­sure that by 2030 it achieves the SDGS agreed upon by mem­ber states. In that re­gard Le­sotho has to en­sure that the in­for­mal sec­tor is cov­ered/pro­tected by leg­is­la­ture to en­sure de­cent work for all in all sec­tors of the econ­omy. This sim­ply means that PF could be ex­tended to the in­for­mal sec­tor.

It is there­fore cru­cial for Le­sotho to de­sign un­em­ploy­ment ben­e­fits that would add value to peo­ples’ lives. Thus far one can only men­tion PF and sev­er­ance as the only un­em­ploy­ment ben­e­fits in Le­sotho. It is there­fore Le­sotho’s duty to re­form its un­em­ploy­ment ben­e­fits. Ac­cord­ing to Robalino (2014) in re­form­ing un­em­ploy­ment ben­e­fit sys­tems, the pol­icy de­bate should be on the ap­pro­pri­ate level of ben­e­fits, the sub­si­dies needed for peo­ple who can­not con­trib­ute enough, and how to fi­nance the sub­si­dies, rather than on whether un­em­ploy­ment in­surance or in­di­vid­ual un­em­ploy­ment sav­ings ac­counts are bet­ter. Pol­icy mak­ers should fo­cus on bet­ter work in­cen­tives and bet­ter pro­tec­tion. The ques­tion would be, does sev­er­ance and PF of­fer bet­ter work in­cen­tives and bet­ter pro­tec­tion? Tak­ing into ac­count the fact that one gets no sev­er­ance if he/she is dis­missed from work due to mis­con­duct ir­re­spec­tive of the ten­ure of his/her em­ploy­ment. Re­gard­ing PF, one only gets his/her con­tri­bu­tion if he/she has been dis­missed due to mis­con­duct (mi­nus em­ploy­ers’ con­tri­bu­tion).

Ad­van­tages of un­em­ploy­ment ben­e­fits (Robalino, 2014):

1. Un­em­ploy­ment ben­e­fits can help in­di­vid­u­als find bet­ter jobs than when there is no in­surance.

2. Un­em­ploy­ment ben­e­fits can sup­port ag­gre­gate de­mand in times of cri­sis.

3. Un­em­ploy­ment in­surance can lead to more in­come re­dis­tri­bu­tion and bet­ter pro­tec­tion of work­ers.

4. In­di­vid­ual sav­ings ac­counts can im­prove in­cen­tives to search for jobs be­cause sav­ings that are not used to fi­nance un­em­ploy­ment ben­e­fits can be used to fi­nance in­vest­ments or higher pen­sions.

Mov­ing for­ward it is cru­cial for em­ploy­ees (Trade Unions), em­ploy­ers (Em­ploy­ers’ or­ga­ni­za­tions) and Gov­ern­ment to fur­ther their con­ver­sa­tion on un­em­ploy­ment ben­e­fits be­cause pro­tec­tion is nec­es­sary. It is worth not­ing that Min­istry of Labour and Em­ploy­ment is in the process of draft­ing a So­cial Se­cu­rity Bill there­fore the con­ver­sa­tions should never stop.

Notice pay

An em­ployee qual­i­fies for notice when ter­mi­na­tion is not due to mis­con­duct. Ter­mi­na­tion done by ei­ther the em­ployee or em­ployer war­rants ei­ther party to give notice to make the other party aware that the em­ploy­ment re­la­tion­ship is go­ing to come to an end at a cer­tain date. Notice gives both the em­ployer and em­ployee time to psy­cho­log­i­cally deal with the em­i­nent loss that is about to hap­pen. It helps an em­ployer find am­ple time to look for a sub­sti­tute so that his/her busi­ness pro­duc­tion may not be af­fected. It also helps an em­ployee find al­ter­na­tive means to em­ploy­ment while an­tic­i­pat­ing end­ing of the em­ploy­ment re­la­tion­ship. Sec­tions 63-65 of the Labour Code Or­der No. 24 of 1992 de­lib­er­ate more on notice. How­ever, it is vi­tal to point out that an em­ploy­ment re­la­tion­ship of less than six months war­rants one week notice, an em­ploy­ment re­la­tion­ship of more than six months but less than a year war­rants two weeks’ notice, and fi­nally an em­ploy­ment re­la­tion­ship of over one year and above war­rants one month notice. The bur­den of pay­ment lies with the party that ini­ti­ates ter­mi­na­tion of an em­ploy­ment re­la­tion­ship where notice is not given.

Cal­cu­lat­ing notice pay:

(Monthly salary ×8hrs or 9hrs× num­ber of notice days)÷ 195hrs= Notice pay.

N.B: The cal­cu­la­tion uses 8 hours or 9 hours be­cause some em­ploy­ees work 8 hours and oth­ers 9 hours per day in or­der to ful­fill the 45 hours week as stip­u­lated by the Law.


1. One week notice

(M2000× 8hrs× 7days)÷195hrs= M574

2. Two weeks’ notice

(M2000× 8hrs× 14days)÷ 195hrs= M1149

3. One month notice

An em­ployee whose salary is M2000 per month will get an equiv­a­lent amount for his/her notice pay, which is M2000.

WORK­ERS at the TZICC gar­ment fac­tory in Maseru, Le­sotho - file pic.

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