THIS IS WHAT YOU SHOULD DO:
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.