· Built around the Severance pay calculator
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A retrenchment letter usually arrives with a number on it and very little explanation. The law sets a floor under that number, and SARS taxes most of it far more gently than your salary. This post builds a package line by line - severance, notice pay, leave pay and fund cash - for one real-world example, checks the tax against a published example, and shows why the reason you leave matters as much as the amount. The severance pay calculator below does it for your salary and years.
Run your own numbers
Type your gross monthly salary and your years of continuous service. "Weeks per year" is 1 under the BCEA - change it if your package or bargaining council pays more.
The package, line by line
The example: R30 000 a month gross, 8 years and 4 months with the same employer, retrenched for operational requirements, no earlier retirement or severance lump sums.
- A week's pay is R6 923.08. The BCEA counts a month as 4 1/3 weeks (s35), so a week is the monthly salary x 3 / 13.
- Severance: R55 384.62 - at least one week's pay for every completed year of continuous service (BCEA s41). The extra 4 months do not count.
- Notice pay: R27 692.31 - after a year's service the notice period is 4 weeks (s37). Your employer may let you work it or pay it out instead (s38).
- Leave pay on top - unused annual leave must be paid out when you leave (s40). The leave pay calculator works out your days and their value.
- Package before tax: R83 076.92 plus leave pay, plus anything your employer adds voluntarily.
Check your own notice period and its end date with the notice period calculator. If you refuse an offer of reasonable alternative work, you can lose the right to severance (s41(4)).
How each part is taxed
- Severance goes on the retirement lump sum table, unchanged for 2026/27: the first R550 000 at 0%, then 18% to R770 000, R39 600 + 27% to R1 155 000, and R143 550 + 36% above.
- In the example the R55 385 severance pays no tax at all - it is well inside the R550 000.
- Notice pay and leave pay are taxed as salary, through PAYE at your normal rate - they do not get the lump sum table.
- The R550 000 is for your whole life, shared with retirement fund lump sums taken since 1 October 2007. Took R200 000 from a fund before? An R800 000 severance then pays R101 700 instead of R47 700, because only R350 000 is left tax-free. The calculator's "Earlier lump sums" field does this sum.
- Severance only qualifies if you are retrenched because the employer is cutting staff or closing, or you are 55 or older, or permanently incapacitated - and you never held more than 5% of the company.
Checked against a published example
- R800 000 severance, no earlier lump sums: R47 700 tax - TaxTim's retrenchment tax worked example: R39 600 + 27% x (R800 000 - R770 000) = R39 600 + R8 100.
- CalcSA gives the same R47 700: the retirement lump sum tax calculator with R800 000, "retiring, retrenched or death", uses the same table the severance calculator taxes on. Add R200 000 under "Lump sums taken before" and it shows the R101 700 above.
- TaxTim's example is labelled 2026; the SARS table is unchanged for 2027, so the answer holds for 2026/27.
Retrenched or resigning: the difference can be six figures
Same person, same 8 years, with R600 000 in a pension or provident fund that can be taken in cash (not the two-pot retirement pot, which stays locked either way). The retrenchment or resignation calculator puts the two side by side:
- Retrenched: severance R55 385 + fund cash R600 000 = R655 385, taxed on the retirement table at 18% of the R105 385 above R550 000 = R18 969. In hand: R636 415.
- Resigning: no severance, and the R600 000 goes on the withdrawal table - only R27 500 tax-free, then 18% - so the tax is R103 050. In hand: R496 950.
- Difference: R139 465, before UIF. Most of it is tax, not severance.
- UIF pays only if your employer ended the contract - retrenchment qualifies, resigning does not (UIF benefits calculator).
- Taking the fund cash is still the expensive choice either way - it is retirement money spent early. Preserving it, or moving it to a preservation fund, keeps the tax-free R550 000 for retirement (retirement lump sum tax calculator). A two-pot savings pot withdrawal is taxed at your marginal rate instead.
Not modelled - check your own position.
- Bargaining council agreements and your contract can pay more than the BCEA minimum - the BCEA is the floor, not the norm.
- If you believe the retrenchment was unfair, the time limit to refer it is short. The CCMA compensation calculator shows the caps on an award. Get advice from a labour practitioner or the CCMA before you sign a settlement.
- Your employer must get a tax directive from SARS before paying severance or fund cash; the directive, not this estimate, sets the tax.
Sources
- SARS, retirement lump sum benefits and severance benefits, and withdrawal benefits tables (no changes for 2027): sars.gov.za, read by CalcSA 16 October 2026.
- SARS, tax and retrenchment (qualifying severance benefits, tax directives): sars.gov.za. Summarised from the CalcSA severance calculator's notes, not re-read for this post.
- Worked example, R800 000 severance = R47 700 tax: TaxTim, retrenchment tax calculator, read 16 October 2026.
- Basic Conditions of Employment Act 75 of 1997: s35 (a month is 4 1/3 weeks), s37 and s38 (notice and pay in lieu), s40 (leave pay on termination), s41 (severance of one week per completed year), as summarised by SERR Synergy (2 October 2020). Secondary source - the Act itself was not re-read for this post.
- UIF on dismissal, not on resignation: Unemployment Insurance Act 63 of 2001, s16, as used by the CalcSA retrenchment or resignation calculator. Not re-read at the primary source for this post.
- The salary, years of service and fund value are an example - type your own into the calculators.
Calculators used in this post
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