Estimate your severance pay and gratuity based on South African labour law.
What is Severance Pay?
In South Africa, Severance Pay is a mandatory payment that an employer must pay to an employee who is dismissed for operational requirements (commonly known as retrenchment).
Under the Basic Conditions of Employment Act (BCEA), the statutory minimum is one week’s remuneration for every completed year of continuous service.
Important 2026 Update: New legislative amendments have proposed a “doubling” of the statutory floor to two weeks’ pay per completed year of service for years worked after the law’s commencement. Our calculator allows you to input your specific contract terms to ensure accuracy.
Severance Pay vs. Gratuity: What’s the Difference?
While often used interchangeably, they serve different legal purposes:
- Severance Pay: A legal right triggered specifically by retrenchment (Section 189 of the LRA). If you resign or are dismissed for misconduct, you are generally not entitled to severance pay.
- Gratuity: A voluntary payment or “bonus” given by an employer upon termination or retirement. This is usually governed by your Employment Contract or a Bargaining Council agreement rather than the BCEA.
How to Calculate Your Payout
To get an accurate estimate, you will need to input:
- Total Remuneration: This is not just your basic salary. It includes the value of allowances (housing, car, etc.) and the employer’s contribution to medical aid and retirement funds.
- Years of Service: Only completed years of continuous service count toward the statutory minimum calculation.
- Notice Pay: If you are not required to work your notice period, this must be added to your payout.
- Accrued Leave: Any annual leave days you haven’t taken must be paid out in cash.
Tax on Severance Benefits
Severance benefits are taxed differently from your normal monthly salary. They fall under a special Lifetime Lump Sum tax table provided by SARS.
Tax Rates for Severance Benefits:
| Taxable Income (R) | Rate of Tax |
| R1 – R550,000 | 0% (Tax-Free) |
| R550,001 – R770,000 | 18% of taxable income above R550,000 |
| R770,001 – R1,155,000 | R39,600 + 27% of taxable income above R770,000 |
| R1,155,001 and above | R143,550 + 36% of taxable income above R1,155,000 |
Note: This is a lifetime threshold. If you received a severance payout or a retirement lump sum in the past, it counts toward your R550,000 tax-free limit.
Frequently Asked Questions
What if I am offered another job?
According to Section 41(4) of the BCEA, an employee who unreasonably refuses an offer of alternative employment with the same or another employer is not entitled to severance pay.
Is commission included in the calculation?
Yes. If your pay fluctuates, your “week’s remuneration” is typically calculated based on your average earnings over the previous 13 weeks (3 months) of employment.
Can my employer pay me MORE than the minimum?
Absolutely. The law only sets the minimum floor. Many companies have policies or “Social Plans” that offer two or three weeks’ pay per year of service to avoid labor disputes.