Legal Advice

Calculation of Severance Pay for an Employee Dismissed Due to Operational Requirements

Understanding the calculation of severance pay for employees dismissed due to operational requirements is crucial. This knowledge helps ensure compliance with labour laws and minimises potential disputes. 

Legal Framework
The Basic Conditions of Employment Act (BCEA) outlines the minimum requirements for severance pay. Key points include:   
  • Eligibility: Employees with at least one year of continuous service are entitled to severance pay.   
  • Calculation: The minimum severance pay is calculated at one week's remuneration for each completed year of continuous service.   
  • Remuneration: Remuneration includes basic salary, allowances, and any other benefits received by the employee.   
  • Exclusions: Severance pay does not include overtime pay, bonuses, or commissions.

Practical Steps for SMEs
1.  Determine Eligibility: Confirm the employee's length of continuous service with the company.
2.  Calculate Weekly Remuneration: 
      o  Monthly Salary: Divide the employee's monthly salary by 4.33 to determine weekly remuneration.   
      o  Example: If an employee earns R20,000 per month, their weekly remuneration is R20,000 / 4.33 = R4,616.64.
3.  Calculate Years of Service: Determine the number of completed years of continuous service.
4.  Calculate Severance Pay: Multiply the weekly remuneration by the number of completed years of service. 
   o  Example: For an employee with 5 years of service, the severance pay would be R4,616.64 x 5 = R23,083.20.

Example:
An employee earns R30,000 per month and has worked for the company for 8 years.
  • Weekly Remuneration: R30,000 / 4.33 = R6,921.25
  • Severance Pay: R6,921.25 x 8 years = R55,370

Important Considerations
  • Collective Agreements: If your company is covered by a collective agreement, the terms of the agreement may supersede the provisions of the BCEA.   
  • Consultation Process: Before dismissing employees due to operational requirements, it is crucial to follow a fair consultation process with affected employees or their representatives.
  • Alternative Solutions: Explore alternative solutions to dismissal, such as temporary layoffs, reduced working hours, or redeployment within the company.
  • Other payments: Ensure to pay out any notice period or accrued leave.
  • Seek Professional Advice: Consult with an employment law attorney or HR professional to ensure accurate calculation and compliance with all relevant legislation.

Conclusion
Calculating severance pay accurately is essential for SMEs to comply with labour laws and manage the financial implications of operational requirements dismissals. By following these guidelines and seeking professional advice when necessary, businesses can navigate this process effectively and minimise potential risks.

Understanding the Statutory Requirements for Annual Leave Entitlements

As a business owner, understanding and complying with the statutory requirements for annual leave is crucial. The Basic Conditions of Employment Act (BCEA) sets out clear rules about annual leave to ensure fairness and protect employees' rights. Understanding these requirements will help you comply with the law and maintain a productive and satisfied workforce.

What Does the Law Say About Annual Leave?
Under the BCEA, full-time employees are entitled to a minimum of 21 consecutive days (three weeks) of paid annual leave per leave cycle. A leave cycle is defined as a 12-month period starting from the employee’s first day of work.

For those employees working a five-day week, this translates to 15 working days of leave, and for those working a six-day week, it's 18 working days of leave.   

Part-time or irregular employees are entitled to one day of paid leave for every 17 days worked or one hour of leave for every 17 hours worked.

Key Principles to Know
1.  Accrual of Leave
  • Annual leave is earned as the employee works, but you cannot make employees take leave on a “no work, no pay” basis unless they have exhausted their entitlements.
  • Leave accrues even if the employee is on maternity leave, sick leave, or other statutory leave.

2.  Timing of Leave
  • Employers and employees must agree on when leave is taken. Employment contracts often indicate leave must be taken during specific periods such as during quiet business seasons or annual Christmas shutdown.
  • Employees cannot be forced to take annual leave during periods when they are entitled to sick leave or maternity leave.

3.  Unused Leave
  • Unused annual leave can be carried over into the next leave cycle. However, it may be forfeited if not taken within six months of the end of the leave cycle.   
  • Unused leave must be paid out when the employee resigns, is dismissed, or retires.

What Business Owners Can Do
1.  Have a Clear Leave Policy
A well-documented leave policy ensures everyone understands the rules. Include:
  • How leave is calculated and accrued
  • When can leave be taken
  • Procedures for applying for leave
  • The treatment of unused leave
For example, that leave requests must be submitted at least two weeks in advance and approved by the manager.

2.  Track Leave Accurately
Use a leave tracking system to monitor accrual and usage. This could be a manual spreadsheet or HR software tailored to South African labour laws.
  • Record leave balances monthly to avoid errors.
  • Review balances quarterly to address any anomalies early.

3.  Communicate with Employees
Employees should know their leave entitlements and how to apply for leave. Regularly remind them to take leave so they do not stockpile unused days. Encourage employees to take breaks to prevent burnout and improve productivity.

4.  Manage Peak Leave Periods
Balancing operational needs with leave requests can be challenging. To manage peak times:
  • Use a leave calendar to coordinate requests and avoid overlaps.
  • Process leave requests promptly and fairly.
  • Limit the number of employees who can take leave simultaneously, but ensure fairness in approvals.
  • Communicate any black-out periods, such as year-end deadlines, in advance.

5.  Handle Disputes Fairly
Disagreements over leave are common but manageable. For example, if an employee requests leave during a critical business period, explain the operational challenges and offer alternative dates. Ensure any decision complies with labour laws and is applied consistently across the team.

Frequently Asked Questions
Can I Pay Employees Instead of Giving Leave?
No, except upon termination of employment. The BCEA does not allow payment in lieu of leave to discourage employees from working without breaks.

What Happens If an Employee Works on a Public Holiday?
If an employee works on a public holiday, they must be paid double their normal wage or given a paid day off, separate from annual leave.

Can I Cancel Approved Leave?
Avoid cancelling approved leave unless absolutely necessary based on operational requirements. If unavoidable, explain the reasons and agree on a solution with the employee, such as rescheduling leave or compensating any inconvenience caused.

Conclusion
Understanding and complying with South Africa’s statutory annual leave requirements is vital for building a fair and harmonious workplace. By developing a clear leave policy, tracking leave accurately, and managing it effectively, you can ensure compliance while supporting your employees’ well-being. Taking these practical steps will help your business thrive while fostering trust and transparency with your team.

How to Conduct a Fair Disciplinary Hearing to Avoid Claims of Unfair Dismissal

Disciplinary hearings are essential for addressing misconduct in the workplace, but they must be conducted fairly to comply with labour law. An unfair disciplinary process could lead to a claim of unfair dismissal at the CCMA, which can cost you time and money.  Here are some steps on how to conduct a fair disciplinary hearing and protect your business.

Step 1: Investigate the Misconduct
Before initiating a hearing, conduct a thorough investigation to establish the facts.
  • Gather Evidence: Collect documents, emails, CCTV footage, or witness statements related to the misconduct.
  • Interview Relevant Parties: Speak to those directly involved to understand the situation fully.
  • Decide on Next Steps: If the evidence supports potential disciplinary action, proceed to issue a notice for a hearing.

Step 2: Issue a Notice of the Hearing
The employee must receive a written notice of the hearing at least 48 hours in advance (or more, depending on your company policy). The notice should include:
  • The date, time, and venue of the hearing.
  • A detailed description of the alleged misconduct.
  • The employee’s rights, such as the right to representation (by a colleague or union representative) and the right to present evidence.

Step 3: Appoint an Independent Chairperson
To ensure impartiality, appoint someone neutral, such as a senior manager not involved in the case, or hire an external chairperson.

Step 4: Conduct the Hearing
The hearing must be structured and fair. Follow these steps:
  1. Opening Statements: Allow both parties to state their case. The employer outlines the misconduct, and the employee responds.
  2. Present Evidence: The employer presents evidence and calls witnesses. The employee can cross-examine witnesses.
  3. Employee’s Case: The employee presents their side, including evidence and witnesses.
  4. Questioning: The chairperson and both parties can ask clarifying questions.
  5. Closing Statements: Both parties summarise their arguments.

Step 5: Evaluate the Evidence
After the hearing, the chairperson evaluates all evidence presented and determines whether the employee is guilty of misconduct.

Step 6: Decide on the Outcome
If the employee is found guilty, decide on an appropriate sanction. Consider:
  • The severity of the misconduct.
  • The employee’s disciplinary record.
  • Mitigating and aggravating factors, such as length of service or prior warnings.
Sanctions can range from a warning to dismissal, depending on the case. Ensure the punishment is proportional to the offense to avoid claims of unfair dismissal.

Step 7: Communicate the Decision
Provide the employee with a written outcome of the hearing, detailing:
  • The finding (guilty or not guilty).
  • The sanction (if any).
  • The reasons for the decision.
If dismissal is the outcome, include details about their notice period, final pay, and the right to appeal.

Step 8: Offer the Right to Appeal
The employee has the right to appeal the decision. Outline the appeal process in your disciplinary policy and handle the appeal with impartiality.

Practical Tips for SMEs
1.  Have a Clear Disciplinary Policy
Your policy should outline:
  • Examples of misconduct.
  • Disciplinary procedures.
  • The roles and responsibilities of all parties.
Ensure employees are aware of and have access to this policy.
2.  Keep Records
Document every step, from the investigation to the final decision. Accurate records can serve as evidence if the case escalates to the CCMA.
3.  Provide Training
Train managers and supervisors on handling disciplinary issues fairly and in line with the law.
4.  Seek Professional Advice
If the case is complex, consult a labour lawyer or HR consultant to avoid missteps.

Why Fairness Matters
Fair disciplinary hearings are not just about legal compliance – they also maintain trust and morale within your team. Employees are more likely to respect decisions if they see a transparent and impartial process.

By following these steps, you can conduct a fair disciplinary hearing that minimises the risk of disputes and helps maintain a productive workplace.

The Process for Legally Extending or Terminating an Employee’s Probation Period

Probation periods allow you to assess whether a new employee is suitable for the role. However, sometimes additional time is needed to make a fair decision. South African labour law, governed by the Labour Relations Act (LRA), provides clear guidelines for extending or terminating probation periods. Here is how you can navigate this process legally and practically.

Extending the Probation Period
  1. Assess the Employee’s Progress: Before the probation ends, review the employee’s performance and identify specific areas where improvement is needed.
  2. Provide Feedback: Meet with the employee to discuss your concerns and explain why an extension is necessary. Be clear about the goals they need to meet.
  3. Issue a Written Agreement: If you decide to extend probation, put the extension in writing, stating the new end date and performance expectations. The employee must agree and sign the document.
  4. Offer Support: Provide additional training, mentorship, or resources to help the employee succeed.

Terminating Employment After Probation
  1. Conduct a Fair Process: You cannot terminate employment without a valid reason. Hold a meeting to discuss the employee’s performance and give them an opportunity to respond.  Allow the employee to be assisted by a fellow employee.
  2. Provide Written Notice: If termination is necessary, issue a letter explaining the reasons and ensuring compliance with notice period requirements in the contract.
  3. Keep Records: Document performance reviews, feedback discussions, and any support provided during probation.

Practical Tips for SMEs
  • Review probation clauses in your contracts to ensure they align with labour law.
  • Address performance issues early and provide ongoing feedback.
  • Seek advice from a labour consultant if you are unsure about the process.

By following these steps, you can handle probation decisions fairly and legally, protecting both your business and employees.

Fixed-Term vs. Permanent Employment

Hiring the right employees is a critical decision for any entrepreneur. One of the fundamental choices business owners face is whether to offer fixed-term or permanent employment contracts. While both have advantages and risks, fixed-term employment requires careful management to ensure compliance with labour laws.

Understanding Fixed-Term Employment
A fixed-term contract is an employment agreement for a specified period or task. Unlike permanent employment, which continues indefinitely, a fixed-term contract automatically ends when the agreed period expires or the task is completed.

Entrepreneurs often use fixed-term contracts for:
  • Project-based work where employees are needed for a specific assignment.
  • Seasonal employment, such as hiring extra staff for peak business periods.
  • Trial periods to assess whether an employee is a good fit before offering a permanent role.

Fixed-term employment provides flexibility, allowing businesses to scale their workforce up or down as needed. However, employers must ensure that these contracts comply with labour laws to avoid unintended risks.

Legal Framework: What the Law Says
Fixed-term contracts in South Africa are regulated by the Labour Relations Act (LRA), particularly Section 198B, which governs their fair use.

The law states that:
  1. Duration Limitations: If a fixed-term employee earns below the earnings threshold set by the Minister of Employment and Labour (R254,371.67 per year, as of 1 April 2024), they cannot be kept on a fixed-term contract for more than three months, unless there is a justifiable reason..
  2. Justifiable Reasons for Fixed-Term Contracts: Employers must have a valid reason for extending a fixed-term contract beyond three months, such as replacing a temporarily absent employee, hiring for a specific project, or employing someone for seasonal work.
  3. Conversion to Permanent Employment: If a fixed-term employee is continuously employed for more than three months without a valid justification (i.e. there is continuous roll-over), they are deemed a permanent employee and entitled to the same rights and benefits as permanent staff.

Benefits and Risks of Fixed-Term Employment
Benefits for Entrepreneurs
  • Flexibility: Businesses can hire talent for short-term needs without long-term obligations.
  • Cost Control: Fixed-term employees are not entitled to all the benefits of permanent staff.
  • Workforce Testing: Employers can assess an employee’s performance before committing to a permanent contract.

Risks and Compliance Challenges
  • Legal Disputes: If a fixed-term contract is renewed multiple times without justification, an employee may claim permanent status, leading to legal disputes.
  • Unfair Dismissal Claims: If the employer ends the contract prematurely without a valid reason, the employee may claim unfair dismissal.
  • Equal Treatment Obligations: Fixed-term employees must receive the same access to training and benefits as permanent employees doing the same work.

Best Practices for Managing Fixed-Term Contracts
To avoid legal risks and ensure compliance, entrepreneurs should:
  1. Clearly Define the Contract Duration: Specify the end date or project completion criteria to prevent ambiguity.
  2. Provide a Justifiable Reason: Ensure that the reason for the fixed-term employment is valid under the LRA.
  3. Monitor Employment Duration: If the contract exceeds three months, assess whether conversion to permanent employment is required.
  4. Communicate with Employees: Discuss expectations regarding contract renewal or termination.

Conclusion
Fixed-term contracts offer valuable flexibility for South African entrepreneurs but must be managed carefully to comply with labour laws. Understanding the Labour Relations Act, justifying contract duration, and ensuring fair treatment of employees are essential steps in avoiding disputes. By implementing best practices, business owners can balance workforce needs while staying compliant with employment regulations.

What do businesses need to know about the CCMA?

In the modern business landscape, disputes and conflicts between employers and employees are inevitable. The Commission for Conciliation, Mediation and Arbitration (CCMA) is an independent statutory body established by the South African government to promote the principles of social justice and maintain harmonious labour relations. The CCMA deals with disputes between employers and employees.
The CCMA can help companies to solve conflicts with their employees without going to court, by focusing on mediation, negotiation, and alternative dispute resolution (ADR) methods.
Some key things to keep in mind are that:
  • An employer or employee can approach the CCMA for assistance with disputes such as unfair dismissals, wage disputes, and discrimination claims;
  • The CCMA provides free services to both employers and employees; and
  • It is important to follow specific procedures when filing a dispute with the CCMA.
How to –
a. Avoid the CCMA:
  • Comply with the following legislation:
► Labour Relations Act 66 of 1995: Companies should respect employees’ rights envisaged in the Act such as freedom of association, give recognition to trade unions, bargaining councils, and strikes.
► Basic Conditions of Employment Act 75 of 1997 (BCEA): Companies should comply with the minimum wage, working hours, leave days of employees, prohibition of children and forced labour, and termination of employees’ services.
  • Sign the correct employment contracts (such as fixed-term contract). Prepare contracts with the appropriate provisions such as probation with option to extend probation or performance manage or terminate.
  • Follow due process – In the event of a breach of employment contract or company policy or the commencement of any disciplinary action always follow the procedure as set out in law as closely without deviation.
  • Consider and apply sections 8 and 9 of Schedule 8 (Code of Good Practice: Dismissals) of the Labour Relations Act. This is a guideline for the handling of, and fair dismissal in cases of, poor work performance.
► Treat employees with respect and act with fairness.
► Three grounds on which a termination of employment might be legitimate are:
  1. the conduct of the employee;
  2. the capacity of the employee; and
  3. the operational requirements of the employer’s business.
  • Record / document all key discussions and disciplinary measures.
b. Prepare for CCMA hearings:
  • Proceedings are triggered once a complaint is filed by either party. The CCMA will thereafter send out a notice to both parties advising them to attend either conciliation, or arbitration, and giving parties time to prepare for the CCMA process. A mediator is appointed to attempt to facilitate an out-of-court settlement.
  • An employer may be represented in the proceedings by a director, an employee or an employer organisation registered with the Department of Employment and Labour.  An employer is generally not allowed to be represented by a legal practitioner during conciliation phases.  Therefore, it is important to obtain adequate information when preparing for the hearings.
  • In making decisions, the CCMA considers two elements:
► Substantive fairness: the employer needs to prove that there is a valid and fair reason for the sanction imposed.
The CCMA considers if there was a rule in the workplace, if the employee was aware of such a rule, if the rule was reasonable, if the employee broke the rule, and applied progressive discipline measures.
► Procedural fairness: the employer needs to show that a proper procedure for disciplinary hearing was followed. An employer cannot dismiss an employee under any circumstances, even with a valid reason, without holding a disciplinary hearing.
Therefore, an employer should prepare and provide evidence to satisfy substantive and procedural fairness. Accepted evidence can be in the form of emails, social media messages, photographs, videos, audio, or any other correspondence legally obtained. 
c. Onus: 
  • Section 10 of the Labour Relations Act imposes a burden of proof on a party who alleges that infringement of a right or unfair labour practice must prove the facts of the conduct. This applies to any unfair labour practices.
  • However, in dismissal cases, there is a reversal burden of proof. The employer must prove the existence of the dismissal and prove that the dismissal was fair.
d. CCMA decisions:
  • However, it is crucial for businesses to understand that CCMA decisions, whether reached through conciliation, mediation, or arbitration, the decisions are legally binding. Employers must comply with the decisions and awards made by the CCMA, failing which legal consequences may follow.
  • Furthermore, the decision made cannot be appealed on the basis that the decision was wrong. The decision can be taken on review and for the review to succeed.
  • Where the matter cannot be settled, the matter will be referred for immediate arbitration.
e. Avoiding disputes:
  • It is important for businesses to develop a clear and focused code of conduct to ensure all employees know what is expected of them.
  • Businesses can avoid disputes by encouraging employee engagement through recognising trade unions for collective bargaining purposes and regular consultations with registered trade unions. This is important for the employer to address problems regularly before they escalate.
f. Dealing with disputes
  • The Labour Relations Act recognises different types of disputes that may arise from labour relations which may be referred to the CCMA. These include:
► disputes about collective agreements;
► disputes about whether a service is an essential service;
► disputes about workplace forums; and
► disputes about organisational rights.
  • When dealing with disputes, the Labour Relations Act compels employers to apply disciplinary measures progressively, such as consultations and warnings.
  • Furthermore, employers are compelled to recognise and consult with trade unions and participate in collective bargaining.
  • In the process of dealing with disputes, employees have the right to be heard and to be assisted by a trade union representative.
g. Probations
  • The Schedule 8 of the Code of Good Conduct regulates probation periods of employees. The Act recognises the purpose for probation period is to give the employer an opportunity to evaluate the employee’s performance before appointing permanent employment.
  • The Code of Good Conduct provides performance standards that applies during probation. The employer is required to provide an employee with reasonable evaluation, instruction, training, guidance, or counselling in order to allow the employee to render a satisfactory service.
  • An employer can only dismiss an employee for unsatisfactory performance provided that the employer applied all these performance standards and the employee continued to render poor work performance.
It is always recommended to have a skilled labour lawyer or HR consultant to assist with the CCMA process.
Overall, understanding the CCMA and how it works, can help you avoid costly litigation, promote better relationships with employees, and maintain a positive work environment.