What a voluntary severance package is, and what it is not
A voluntary severance package (VSP) is an offer, made during a retrenchment consultation, for employees to leave by agreement in exchange for more than the legal minimum. The employee applies, the employer accepts or declines, and if accepted the employment ends by mutual agreement on a set date. It is a way of reducing forced retrenchments, which is why section 189(2) of the LRA requires you to consider it.
It is not a resignation. The exit is for the employer’s operational requirements, so the BCEA severance rules apply, the UI-19 code is 16, and the employee can claim UIF. Coding a VSP as a resignation (code 6) blocks that claim and is the most common mistake on this page.
The test
offered inside s189 consultation + at least the s41 minimum + freely accepted in writing → a retrenchment by agreement, UI-19 code 16
The two documents that decide it later
A VSP that is challenged turns on two things: the written offer with its formula and closing date, and the record that the employee had time and advice before accepting. Would both be on file?
The VSP offer, acceptance and settlement, in one document
Free Word and PDF: the invitation with the package formula and conditions, the employee’s application and acceptance with the advice record, and the full and final settlement completed when you accept. UI-19 code 16 and the tax directive step are written in.
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- Word
Offered inside the consultation, accepted in writing.
How much a VSP is: the minimum, the usual, and the worked example
The floor is the ordinary severance in BCEA section 41: one week’s remuneration for each completed year of service. A VSP is an enhancement above that, most often two weeks per year, sometimes three, plus notice pay, accrued leave and occasionally an extra amount for retraining or medical cover. The offer letter states the formula so every applicant gets the same deal.
R25,000 a month, 9 completed years, VSP at two weeks per year
| Weekly remuneration | R25,000 × 12 ÷ 52 | R5,769.23 |
| Statutory minimum (s41) | 1 week × 9 years | R51,923 |
| VSP severance | 2 weeks × 9 years | R103,846 |
| Notice pay (s37, 4 weeks) | R5,769.23 × 4 | R23,077 |
| Accrued leave, 10 days | R25,000 ÷ 21.67 × 10 | R11,536 |
| Package before tax | severance + notice + leave | R138,459 |
The retrenchment calculator runs this for a whole schedule; set the weeks per year to the VSP figure.
How a VSP is taxed, and what the employee can claim
- Tax: when the reason is operational requirements, the severance element is a severance benefit on the SARS lump sum table, first R550,000 at 0% once in a lifetime. Notice, leave and any bonus are taxed as salary. The employer gets a tax directive first. The tax on a retrenchment package page has the table and the directive steps.
- UIF: UI-19 code 16, voluntary severance package. The employee may claim unemployment benefits. Issue the UI-19 and the certificate of service on the last day.
- Pension or provident fund: the exit is a withdrawal or a retirement by the fund rules, separate from the employer’s package, with its own tax directive.
Offering a VSP without creating a new dispute
Consult first
Issue the section 189(3) notice, consult on alternatives, and offer the VSP as one of them. A VSP offered before consultation suggests the decision was made.
Put the offer in writing
The formula, what is included, the closing date, the last working day, and that the Company may decline applications on stated operational grounds.
Give time and advice
At least a week to consider, and the chance to take advice. Record that both were given. A package signed under pressure can be set aside.
Accept in writing
Accept or decline each application with reasons, consistently. Complete the acceptance and the full and final settlement.
Close the file
Final pay with the severance shown separately, tax directive, UI-19 code 16, certificate of service, IRP5.
Four VSP cases, worked out
On a VSP of two weeks per completed year.
Four completed years on R20,000 a month
Weekly R4,615.38 × 2 × 4 = R36,923 severance, plus notice (R18,461.54 for four weeks) and accrued leave. Under R550,000 and a first lump sum: R0 tax on the severance.
Application declined because the employee is the only forklift licence holder
Allowed if the offer said applications may be declined on operational grounds. Decline in writing with the reason, and apply the same reason to anyone in the same position.
Employee asks to resign instead, to leave sooner
Explain the difference before agreeing: a resignation is UI-19 code 6 with no unemployment benefit and no severance; a VSP is code 16 with both. If they still prefer to resign, record that the choice was explained.
Employee is 61
Any amount paid for loss of office on or after age 55 is a severance benefit for tax, whatever the reason. The directive route applies.
Five VSP mistakes
UI-19 code 6
A VSP is not a resignation. Code 16, or the employee’s UIF claim is blocked.
Offering it instead of consulting
Section 189 consultation comes first; the VSP is one of its outcomes.
Different deals for different people
One formula in the offer letter. Discretion exercised differently is an unfair labour practice claim.
Below the s41 minimum
A "voluntary" package under one week per year is a retrenchment that underpays severance.
No settlement wording
Without the full and final settlement and the advice record, the exit can be reopened as a dismissal.
One formula, applied the same way to everyone
The VSP is fair when every applicant’s package comes from the same start date, salary history and leave balance, calculated the same way. Synthro holds those on each record, so the offer letter, the calculator and the final payslip agree, and the consultation minutes sit beside them.
Frequently Asked Questions
What is a voluntary severance package?
An offer by an employer, usually during a section 189 retrenchment consultation, for employees to leave by agreement in exchange for a package above the legal minimum. The employee applies; the employer accepts or declines. If accepted, employment ends by mutual agreement rather than by dismissal.
Is a VSP a resignation or a retrenchment?
A retrenchment by agreement. It arises from the employer’s operational requirements, so the BCEA severance rules (section 41), the certificate of service (section 42) and the UI-19 apply. It is not a resignation, and coding it as one (UI-19 code 6) blocks the employee’s UIF claim. The correct code is 16.
How much is a voluntary severance package in South Africa?
There is no statutory amount; the minimum is the ordinary severance of one week’s remuneration per completed year of service (BCEA section 41). Two weeks per year is a common VSP, with notice pay, accrued leave and sometimes an extra amount on top. The offer letter states the formula.
Can an employee claim UIF after taking a VSP?
Yes. A VSP for operational requirements is coded 16 on the UI-19 and the employee can claim unemployment benefits. The employer must issue the UI-19 and the certificate of service on the last day.
How is a voluntary severance package taxed?
The severance element is a severance benefit on the SARS lump sum table (first R550,000 at 0%, cumulative over a lifetime) when the reason is the employer’s operational requirements. Notice pay, leave pay and any bonus are taxed as salary. The employer applies for a tax directive before paying.
Do I still have to consult under section 189 if I offer a VSP?
Yes. A VSP is one of the measures section 189(2) requires you to consider to avoid or minimise forced retrenchments, so it belongs inside the consultation, not instead of it. Offering packages before consulting invites the argument that the decision was already made.
Can an employer refuse a VSP application?
Yes, if the offer says so and the reason is operational, such as keeping a skill the business needs. Say it in the offer letter, apply it consistently, and give the reason in writing. Accepting some applications and refusing others on an unstated basis is the start of an unfair labour practice claim.
Can an employee be forced to take a voluntary severance package?
No. The agreement has to be voluntary and informed; give employees time to take advice and record that they had it. A VSP signed under pressure can be set aside, and the exit then becomes a dismissal that has to be defended on its own fairness.
