Retrenchment is a word that employees dread. Unfortunately due to Covid19 downsizing and retrenchments could be on the horizon for many of us.
If you are retrenched, stay calm and do not panic even if you are in shock and anxious. Do not take your retrenchment personally. This was probably a tough decision for your employer to make. Make an effort to maintain good relationships with your previous employer, colleagues, clients and service providers.
Know your rights in terms of the Labour Relations Act and the Basic Conditions of Employment Act. Your employer must provide you with the necessary forms to register a UIF claim, as well as a Section 189 letter, certificate of service and settlement agreement.
Once you know the situation at work, inform your family and be brave enough to have the difficult conversations with them. Allow them to support you and remember this is not your fault.
Revise your budget – go through your monthly household budget with a fine toothcomb and identify the expenses that are unavoidable and those that are non-essential. Slash, re-evaluate, and reduce. Work out how much you need per month to survive. Plan well, shop smartly and assess what you can do yourself.
Be intentional about developing a clear financial plan for your funds. Ideally, contact your financial advisor or find a financial advisor who can guide you through the legal, tax and financial implications, and assist you in putting a realistic plan in place. Having a clear financial road map will help settle your nerves and give you confidence on your way forward.
Be pro-active and contact your creditors before you fall into arrears with your payments. Notify them of your change in circumstances and ask them what payment arrangements can be made such as lower interest rates, reduced instalments or payment holidays.
Make use of the Covid19 relief offered by the banks, insurance companies, medical aids as well as the relief programmes for businesses. This is temporary and usually only for three to six months but it can provide you with the time needed to assess your situation thoroughly and to apply for employment.
There are also food relief, government relief and independent relief funds.
Risk assurance, i.e. life, disability, income protection and dread disease cover.
Try to maintain risk cover even if it is tempting to cancel it. Cancellation can have the effect that when re-applying the premiums may be higher and there may be underwriting requirements or additional loading or exclusions.
Apart from the Covid19 relief referred to above, check for premium breaks, different premium payment options, a contingency option for you to retain the group cover without medical underwriting, and premium waivers.
Try not to let your medical scheme cover lapse. First establish whether your employer has an option for you to continue on the same medical aid. Be aware that the option is only available for a limited time after the employment contract is ended. If there is no such option ensure that there is no break in membership when moving from the employer’s medical aid to your own. You can also consider downgrading to a cheaper option while you are unemployed. The Council for Medical Schemes has advised that schemes will grant relief. Each scheme will assess on merit what to allow, for example some schemes with members who have unspent savings would be allowed to offset their monthly premiums for 3 months. Check with your medical scheme what relief they offer.
If you absolutely are unable to continue with the monthly premiums, do not allow this to last longer than three months, as a three- to 12-month waiting period could be placed on any existing condition, and late-joiner penalties could be applicable if you are over the age of 35.
Check with your credit providers in respect of your credit cards, retail store accounts, car finance, personal loans or home loan whether you have credit life insurance, as the purpose of this cover is to cover the value of your debt in the event of your death or to cover your instalments if you are retrenched or unable to pay back your loan.
Most banks are willing to assist financially distressed clients and have structures and mechanisms in place for clients who are experiencing financial difficulties, such as restructuring your loan, allowing you a payment holiday, reducing your repayments for a limited period, or allowing for interest-only payments.
Where discretionary investments and unit trust retirement annuities are concerned you can put the contributions on hold without any penalties or loss of benefits. Once you are able you can restart the contributions.
Your emergency fund should be used to cover your monthly expenses. If you do not have one you will need to make use of your severance package until you start earning again. You will have to calculate how long your emergency fund and/ or severance package will provide for monthly living expenses.
Preserve and protect pension and provident funds at all cost, if at all possible, never use any of your retirement savings. It is a short-term strategy with long-term consequences. There may also be penalties. Early withdrawal may have serious tax implications. If you are forced to use your retirement savings to survive, draw only what you absolutely have to.
You can avoid paying any tax by leaving your retirement savings in your employers’ fund until you find a new employer or you can transfer it to a retirement annuity or preservation fund and pay no tax.
Severance package and tax
The benefits due to you could be in the form of outstanding leave, the severance offering, notice pay, your pro-rata share of any bonuses, commission, and retirement fund benefits. If at all possible, guard your severance package fiercely as until you have secured new employment you may need to live off your retrenchment package.
Bear in mind that leave pay and pro rata bonuses do not form part of the severance package and are subject to the normal income tax rates applicable to individuals.
There is, however, as far as the lump sum benefits at severance or retrenchment are concerned a tax incentive. To qualify for these special tax rates your employment must have been terminated due to general reduction of personnel or trading having ceased. The first R500 000.00 of the lump sum is thus subject to tax at 0%. From R501 000.00 the lump sum is taxed at 18% – 36% depending on the lump sum amount. This is a once in a lifetime benefit.
Please note that you won’t qualify for this benefit if you own more than 5% of issued shares in the company.
Register your UIF claim – check your latest salary slip to ensure that it reflects the UIF deductions. Be sure claim as soon as possible by going to https://www.ufiling.co.za/uif/unemployment-benefits and logging your online claim. To find out more about this process and to download the required documents, visit www.labour.gov.za.
Take the time to update and improve your CV. Be sure to include details of all courses, certificates, qualifications, achievements and projects that you have worked on. Do not be shy to ask for written references from your colleagues, clients and service providers which you can use on your updated CV.
Set up a LinkedIn profile if you do not already have one. Use a professional photograph of yourself. Ask for endorsements from your network.
Develop a job seeking business plan. Be strategic about where you send your CV, who you network with, and how you market yourself. Research the businesses/ organisations you are interested in and customise your application to specifically meet their criteria.
Do not forget to ask the HR specialist handling your retrenchment about the possibility of redeployment within your company
While looking for something permanent, you should try to create your own freelance or temporary work
When there is additional time upskill by developing new skills or expanding your existing skill set. Register for free online courses or offer your services freely where there is a need, especially in these uncertain times where one is hyper aware of social needs.
Consider making use of any free employee assistance programme your employer has on offer.
Most of all if you are not coping or feeling overwhelmed or alone talk to someone and get help. You can call the South African Depression and Anxiety Group (SADAG) on its 24hour helpline 0800 456 789 or Lifeline on 0861 322 322 amongst others such as your pastor or a psychologist.