1 July 2010

Zimbabwe: Fair Retrenchment Package


Harare — MY article last week talked about retrenchment in general and the procedure that should be followed when one wants to retrench in terms of the Labour Act Chapter 28:01.

I received numerous e-mails from different readers asking numerous questions ranging from what constitute a fair or unfair package as well as formula to be applied and how other benefits that are level specific are supposed to be negotiated for and so on.

For starters, it should be known that there is no universally accepted formula as packages vary from company to company and from industry to industry.

The level of package to be paid depend on a number of factors chief among them being the organisation's ability to pay as well as the bargaining and negotiating power and skills of employee representative and general trends within the industry.

It is bad enough to be retrenched, but you do not want a badly structured payout package to compound your woes.

Nowadays stories abound of companies downsizing, rightsizing, merging, restructuring and so on, often with thousands of jobs being lost.

The package should obviously contain notice pay which depending on length of service and what is contained in the contract is usually three month's basic pay and severance pay which may range from two to as many months basic pay per for each year served.

Some Works Council have also come up with what is known as settlement or relocation allowances to assist employees and this again may range from 1,5 months to as many months basic pay.

Best employers have also managed to cover medical aid for their departing staff for a reasonable period while the affected employees look for alternative employment.

Usually employees who were allocated company cars, phones and even machines like computers may be given the right of first refusal or may be given those assets as part of the package.

However, it should be noted that all these are negotiated for and depend on the ability to pay.

Loans that may be outstanding on the part of the employee may be cleared at a reasonable rate so that the affected employee's package is not severely strained.

As regards pension employees may be allowed to either get a cash payout or may be advised to continue or pursue other investment options depending on the fund rules and regulations.

Funeral cover for a certain period may be provided, and of course if you don't die during the given period ceases when the period expires.

The employee still also remains entitled to his or her cash in lieu of leave and should be paid accordingly.

Depending on the employment contract, the employee may get pro rata payment of bonus.

Instead of giving you money, the company can give you assets, such as a computer or a company car.

You will have to pay perks tax on the market value of the asset, but in the case of a computer this may be negligible as they devalue quickly.

Whether you should take the car option depends on your situation. It's all very well for the company to offer you the executive BMW, but you will have to pay tax on its value.

You are also lugged with high maintenance and insurance costs. You could be better off taking the money and buying a cheap run-about.

As a word of advice common mistake made by the newly retrenched is in buying a small business. Eddie Johnstone, senior consultant at Absa Entrepreneurial Projects, says people who have been retrenched often cash in their pension, packages and bonds their house to the hilt in order to buy a business.

They often pay too much for their business, he says, because they don't know how to value it or to run feasibility studies. Worse still, they often don't have the expertise to run it and at the end of the day, the business crashes, leaving them on the bones of their backside.

You may negotiate for medical aid, group life cover, financial advice, training and other assistance in getting another job.

Your company may allow you to take your group life cover with you. This means you will pay the premiums in future. The same thing applies to medical aid. Try to negotiate that you stay on the medical aid fund but continue to pay your own premiums -- this is essential if you are unlikely to get on to another medical aid after leaving your present one. Some companies are progressive in helping re-skill retrenched staff members so that they can find another job.

Ask your company to show you how to do your CV, and so on. Other companies have been paying for staff members to visit a financial adviser to get the best advice on structuring the package and your finances and you would also do well by negotiating for this, though highly depended on availability of funds on the part of the employer.

The moral of the story is that you seek out expert advice on structuring your retrenchment package and make sure you squeeze the most from your employer while you can.

However, it's not like what you negotiate for will be given outright. I know of one mining company that was asked by the Retrenchment Board (Ministry of Labour) to pay a recommended package that included a one-and-half months' salary per every year served, severance pay of up to three months' salary, relocation allowances and the provision of transport allowances for 12 months.

The workers were also expected to benefit from the payment of two terms' school fees for their children. The packages also included housing allowances for 12 months or up to the time the company re-opened its mines, insurance cover as per company policy, medical aid to cover six months all paid in United States dollars.

However, the company appealed against the retrenchment package at the Labour Court arguing that the, "total package awarded by the first respondent (the Ministry) is in excess of US$15 million, which is almost twice the applicant's market capitalisation."

The company went on to say, "even if the company was to sell all its assets, it will still not be able to pay the package."

Taurai Musakaruka is Human Resources Practitioner.

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