THIS IS WHAT YOU SHOULD DO:

Finweek English Edition - - ON THE MONEY -

How should you fi­nance your liv­ing ex­penses and pay off debt when you get re­trenched?

In terms of the Ba­sic Con­di­tions of Em­ploy­ment Act, em­ploy­ees are legally en­ti­tled to the fol­low­ing pay­ments in the event of com­pul­sory re­trench­ment:

An­nual leave ac­crued but not yet taken;

Con­trac­tual no­tice pay in the event that the em­ployee is not re­quired to work their no­tice pe­riod; and

Sev­er­ance pay. The min­i­mum amount re­quired by law is one week for ev­ery com­pleted year of ser­vice.

If the em­ployee is con­trac­tu­ally en­ti­tled to cer­tain pay­ments, for ex­am­ple a guar­an­teed 13th cheque, the em­ployee is en­ti­tled to this pay­ment or pro-rata thereof.

Note that a sev­er­ance pack­age will be taxed, though the first R30 000 of the pack­age will be tax free. This ben­e­fit can only be claimed once, so any sub­se­quent re­trench­ment ben­e­fits will be fully taxed.

Wouter Fourie of As­cor ad­vises in­di­vid­u­als to speak to a fi­nan­cial ad­viser be­fore they make any de­ci­sions about their re­trench­ment pack­ages: “It of­ten makes sense to pay off your per­sonal debts with your sev­er­ance pack­age, but I would sug­gest that you get sound fi­nan­cial ad­vice be­fore mak­ing that de­ci­sion.”

Ci­tadel’s Hesta van der Westhuizen agrees, say­ing an ad­viser will be able to help with re­struc­tur­ing your budget to see which ex­penses can be amended or dropped. The aim is to re­duce liv­ing ex­penses as much as pos­si­ble while look­ing for an­other job, and not to take on any more debt.

“An ad­viser will also be able to help with pre­serv­ing your re­tire­ment fund credit – or if you re­ally need to take some of that money with the op­tions avail­able (de­pend­ing on your age) and the most ap­pro­pri­ate level of with­drawal with re­gard to the tax payable on the amount,” says Van der Westhuizen.

It is also im­por­tant to in­form all your cred­i­tors of the fact that you’ve been re­trenched, says Fourie. “Cred­i­tors and banks are usu­ally much more le­nient when they know about your sit­u­a­tion be­fore­hand than when they only learn about your sit­u­a­tion when you do not have the money to pay them back.”

For highly in­debted in­di­vid­u­als, debt re­view may be an op­tion, but that should be a last re­sort, adds Van der Westhuizen.

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