The Retrenchment Process in South Africa: Section 189 Step by Step
Retrenchment is the only dismissal where the employee did nothing wrong — which is exactly why the retrenchment process in section 189 of the LRA is so exacting. The law demands that job losses be a genuine last resort reached through real consultation, not a spreadsheet decision announced on a Friday. This guide walks the process step by step, with the documents and the money at each stage.
- ✔Retrenchment is dismissal for operational requirements — the business’s reason, not the employee’s fault.
- ✔Section 189 requires written notice and genuine consultation BEFORE decisions are final.
- ✔Alternatives must be explored: hiring freezes, short-time, voluntary packages, redeployment.
- ✔Severance: at least one week’s remuneration per completed year of service.
- ✔Fair selection criteria are objective — LIFO, skills retention, or criteria agreed in consultation.
Before anything: is the reason genuinely operational?
Operational requirements means needs based on the economic, technological, structural or similar needs of the employer — falling sales, a lost contract, automation, restructuring, closure. It does not cover poor performance in disguise, a personality clash, or replacing an expensive employee with a cheaper one. Commissioners test the genuineness of the reason hard, and a retrenchment letter used to exit a problem employee converts the case into a misconduct dismissal with no hearing — one of the most expensive shortcuts in labour law.
Advertising the retrenched employee’s job within months of the retrenchment is close to an admission that the operational need was false. If the role might return, say so during consultation and offer re-employment rights instead.
The section 189 retrenchment process, step by step
The money: severance, notice and leave
The BCEA floor is one week’s remuneration per completed year of service as severance pay — many employers pay more by policy or negotiation. Add contractual or statutory notice pay (one to four weeks by service length), accrued leave payout, and any contractual extras. Severance has specific tax treatment — the first R500,000 of qualifying severance can be tax-free with a SARS directive, which your payroll should obtain before paying.
| Component | Calculation | Amount |
|---|---|---|
| Severance (BCEA minimum) | 5 weeks × (R20,000 × 12 ÷ 52) | ±R23,077 |
| Notice pay | 4 weeks (>1 year service) | ±R18,462 |
| Leave payout | Accrued days × daily rate | Per records |
| UIF | Claimable after UI-19 submitted | Via the Fund |
Severance paid without a SARS tax directive is taxed at normal rates — an unnecessary haircut for the employee. Apply for the directive before payment; it is routine for genuine retrenchments.
Larger retrenchments and the section 189A overlay
Employers with more than 50 employees retrenching above certain thresholds fall under section 189A: longer consultation periods (60 days before notices can issue), the option of a CCMA facilitator, and different dispute routes. If your retrenchment touches double digits, get advice early — the procedural bar rises sharply.
For most small businesses, the winning formula is humble: disclose fully, consult honestly, select objectively, pay correctly, document everything. The employers who lose retrenchment cases almost always skipped the consultation, not the severance. The full framework is in the discipline and dismissal pillar.
Always confirm current requirements with the official source — rules and deadlines change.
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Frequently asked questions
What is the correct retrenchment process in South Africa?
Section 189 of the LRA: a written notice disclosing the reasons and proposed approach, genuine consultation on avoiding job losses and selection criteria, fair objective selection, written confirmation, and payment of severance, notice and leave. The decision must remain open until consultation is complete.
How much severance pay must I pay?
At least one week's remuneration per completed year of service under the BCEA, plus contractual notice pay and accrued leave. Severance above the minimum is common by policy or negotiation.
Can I choose who gets retrenched?
Only through fair and objective selection criteria — LIFO, skills retention, or criteria agreed in consultation. Selecting individuals by preference or to remove problem employees makes the dismissals unfair.
Must I consult if I am only retrenching one person?
Yes. Section 189 applies to a single operational-requirements dismissal as much as to fifty — written notice, genuine consultation and fair selection are required regardless of numbers.
Can a retrenched employee take me to the CCMA?
Yes — within 30 days, claiming unfair dismissal (genuine reason or process challenged) or unfair selection. Substantively genuine retrenchments with documented consultation are routinely upheld; announced-after-deciding retrenchments are routinely not.
Last reviewed: July 2026 · How we research our guides
EmployerGuide.online provides general information about South African employer obligations — not legal, tax or professional advice for your specific situation. Laws, rates and deadlines change; confirm current requirements with the official sources linked above, or ask Admin Boss. See our disclaimer.