Calculations of Notice, Severance and Leave Pay

Calculations of Notice, Severance and Leave Pay

Payroll / eTorQue, Tax
  • We have recently dealt with labour cases where disputes have arisen regarding the value of leave pay.
  • This has not only cost the client a significant amount of money in terms of legal and consulting costs, but also led to the employer settling on a value that exceeds that legislatively prescribed.
  • By utilising the services of an external consultant, the company can show that it has endeavoured to interpret and apply the legislation, taking into account the specifics of its own organisation. This significantly reduces the risk of non-compliance.

During 2004 we held seminars and sent many emails about the changes in the BCEA legislation and Section 35(5). We have noticed that a number of organisations have not worked through these changes as yet and that many do not calculate Notice Pay, Severance Pay, Leave Pay paid out on termination or Leave Pay (while on Annual leave) correctly. Many still calculate using only the basic wage or salary, perhaps correctly, but without any consideration of the change in legislation. This could lead to your actions being found to be irregular by the Department of Labour.

We have included a number of notes below and mention that this legislation is complex and can result in an increase in payroll bills if a proper documented process is not followed. The basis of this action should include a decision to include or exclude certain allowances and an explanation as to why that decision was made.

To ensure that you have applied your mind correctly please contact David Beattie (Tax Manager) on 031 582 7410 or email him at [email protected]. Dave will send you a quotation covering the process to be taken, with the output being a recommendation on whether or not to change your payroll calculations.

I have listed below the process that will be followed during this consultative exercise and the cost thereof:

  • Consultation to introduce Section 35(5) of the Basic Conditions of Employment Act.
  • Consult with regards to the identification of various cash payments, allowances, company contributions and fringe benefits (where clients are unsure as to the totality of these items a report will be obtained from the payroll department).
  • Separation of income categories into income payments for ‘work done’ and ‘to enable work to be done’.
  • Identification of payments that are specifically excluded in terms of this legislation.
  • We will prepare a report detailing the process that has been followed in arriving at ‘inclusions’ and ‘exclusions’ in terms of this legislation. This report will include the discussion of various anomalies, identify decisions made and then be signed off by the client.
  • The outcome of this consultative process (the decision table) will be implemented into the payroll if you are a HRTorQue Payroll client.

Where the employer would like a remuneration policy detailing the company’s treatment of leave payments, one will be drafted. The cost of this policy will be quoted on separately.

The cost of this consultative and implementation process is R4 500 plus VAT. Should travel to your premises be required, the cost per kilometre is R4.00. In the event that the consultant is required to travel out of town to undertake this process all transport, meal and accommodation costs will be for the client’s account.