What You Must Pay an Employee on Their Last Day

What you owe on the last day, in one paragraph

On termination for any reason, an employer owes everything already earned: pay for days worked, outstanding overtime and Sunday or public-holiday pay, commission earned to the last day, accrued but untaken annual leave under BCEA section 21, notice pay if the notice is not worked, a pro-rata bonus where the contract provides one, and severance where the exit is a retrenchment. Three documents go with it and none of them is optional: a certificate of service, an itemised final payslip, and a completed UI-19.

What is not owed is just as fixed. Unused sick leave, family responsibility leave and parental leave lapse and carry no cash value. And almost nothing may be deducted: section 34 permits statutory deductions, a deduction the employee agreed to in writing for a specific amount, or one a court ordered. Nothing else.

The seven things that make up final pay

• Pay for days actually worked in the final period, to and including the last working day.
• Overtime, Sunday and public-holiday pay already earned and not yet paid. These sit in the previous cycle and are the most commonly forgotten line.
• Commission and variable pay earned to the last day, per the contract or scheme rules. Where commission is only earned on collection, say so in the contract — arguing it at exit is too late.
• Accrued untaken annual leave (section 21), at the statutory daily rate. Owed on every termination, no exceptions. Work it out with the leave payout calculator.
• Notice pay, where notice is paid instead of worked — section 37 minimums below.
• Pro-rata 13th cheque or bonus, if the contract or a consistent practice provides for one. A discretionary bonus with no accrual term usually does not survive to exit; a contractual one does.
• Severance, on a retrenchment: at least one week’s remuneration per completed year of continuous service under section 41. Use the retrenchment package calculator.

Notice: the section 37 minimums

A contract may give more notice, never less. Where the employer pays instead of letting the employee work it, the payment is calculated on the same remuneration the employee would have received — including regular allowances, not just basic salary. And note the rule that trips most employers: section 20(5)(b) forbids annual leave being taken during a notice period, in either direction. Notice is worked; accrued leave is paid out in money.

What you may take off — a very short list

This is where clean exits become CCMA referrals. Section 34 of the BCEA permits a deduction from remuneration in only three situations: it is required by law (PAYE, UIF, a statutory levy), the employee agreed in writing to a specific amount for a specific debt, or a court or arbitration order requires it.

That means an unreturned laptop, a damaged vehicle, an informal loan or a training bond is only recoverable if the written agreement was signed when the item or the money was handed over, not on the last day. Leave taken in advance of accrual is the same: without the written agreement, the employer carries the loss. A unilateral deduction is itself a breach of the Act — and the employee keeps both the laptop argument and a referral.

Two tax treatments, and the promise not to make

Final pay is not taxed as one thing. Leave payouts, notice pay and pro-rata bonuses are ordinary income under PAYE, taxed in full in the month of payment. Severance on a genuine retrenchment is a severance benefit with its own SARS treatment and a lifetime tax-free band — and a tax directive is required before the run.

The promise to avoid is “your leave comes out tax-free.” It does not, and it is not covered by the severance band even when it is paid inside a retrenchment package. Confirm the current band and whether the employee has already used part of it in an earlier retrenchment; the band is lifetime, not per-employer.

The three documents that are never optional

Money is only half of a lawful exit. Three documents are compulsory and may not be withheld — not while a dispute runs, not while a debt is being chased, not because the employee resigned without working notice:

• Certificate of service (section 42). Owed on every termination, with contents the Act prescribes. It is not a reference and it may not carry a performance comment. Use the free certificate of service template.
• Final payslip (section 33). Every component and every deduction shown separately. A lump sum with no breakdown is the fastest way to turn a correct calculation into an argument.
• UI-19, with the right termination code. Code 1 (resignation) does not qualify for unemployment benefits; code 11 (retrenchment) does. A careless code is the most common reason a claim is refused. See the UI-19 guide and all 18 codes, then estimate the payout with the UIF calculator.

Six mistakes that turn a final payslip into a referral

• Forfeiting leave because the exit was ugly. Section 21 does not care how someone left. Accrued leave survives resignation without notice and dismissal for misconduct.
• Setting notice off against leave. Section 20(5)(b) forbids it. Notice is worked or paid; leave is paid out separately.
• Deducting without written agreement. The agreement has to exist before the deduction, for a specific amount.
• Using basic salary instead of remuneration. Severance, notice and leave are all calculated on remuneration, which includes regular allowances. Basic-only understates every one of them.
• Dating service from the wrong day. Where the employee transferred in under section 197 of the LRA, service runs from the original start date. Getting this wrong understates both severance and notice.
• Holding the certificate of service hostage. It is compulsory, and withholding it is a breach that costs more than whatever was being leveraged.

Common questions