The law makes no distinction between voluntary retrenchment and forced retrenchment. This means that the same benefits apply whether you accepted the package voluntarily or were forced to take it.

These benefits include a tax exemption of up to R500 000 on your package, the ability to claim retrenchment insurance such as credit insurance, and to apply for UIF.

Labour lawyer Michael Bagraims says the concept of voluntary retrenchment is a way for an employer to speed up the retrenchment process and avoid legal challenges.

“Rather than simply applying the principle of “first in, first out” employers will open up the retrenchment process to all employees and offer a financial enhancement to accept the package.”

Listen to Maya discussing this topic with Michael Bagraims in the My Money, My Lifestyle podcast.

Bagraims says this creates an opportunity for employees to negotiate a better package rather than being paid only what is due to them under the Labour Act.

“We recently had a case where a pregnant woman asked her retrenchment package to include remaining on the company’s medical scheme for a year. The company agreed to this.”

Bagraims adds that companies are often prepared to sell electronics such as computers and cellphones and even office furniture for next to nothing as part of the package.

“The company has no need for the items, and it is not worth much second hand. We have cases where employees can take all their office furniture and laptops for a nominal amount.”

Tax benefit of retrenchment

Bagraim says these voluntary retrenchment packages are extremely attractive to employees due to the tax benefit. If you have not used the tax benefit in a previous retrenchment, the first R500 000 of your retrenchment package is tax free.

However, it is important to note that this is only a once-in-a-lifetime tax break. If you are retrenched again and have already used this tax break, you will not qualify again. You will also not qualify for the R500 000 tax-free portion at retirement.

Bagraim says it is important that employers fill in the correct forms to claim UIF. On the UI19 form the employer must specify retrenchment – which is code 11.

“Some overzealous UIF staff see the word voluntary and think it is a resignation in which case you do not qualify for UIF. It is important the employer ticks the correct boxes.”

Bagraims advises employees to request a letter from their employer stating that they have been part of a retrenchment process so that they can claim for other benefits such as retrenchment insurance and credit insurance.

What is important to understand, however, is that once you sign and agree to voluntary retrenchment, you waive all rights to a later dispute. An employer can only insist on full and final settlement if an enhancement has been paid.

“If the employer has only paid what they are obliged to under labour law, then the employee still has a right to dispute. But if the employee accepted an enhanced package, they lose that right,” says Bagraim.

An employee cannot force a company to retrench them. “We have had cases where a highly skilled employee wanted to force the company to include them in a retrenchment process. However, the company wanted to retain his skills.”

Bagraim is worried about the number of employees rushing to take voluntary retrenchment.

“I have never before seen cases where there are more people wanting to take the voluntary retrenchment option than the employer wishes to retrench. I am seeing this for the first time.”

Bagraim believes this is due to the current financial crisis where so many people are faced with significant debt and are hoping to use their packages to reduce the debt burden.

“This is deeply concerning because job prospects right now are not good. People are taking a big chance and it is not likely they will find work again.”

This article first appeared in City Press.