What to do if you are retrenched

Times are tough, and many companies are retrenching people as they cannot afford to keep them on.

Retrenchment can happen when you least expect it, and this can have a big impact on your financial situation. It is a good idea to be prepared for the worst case scenario, to ensure that you can survive financially should you be retrenched. If you or someone you know has been retrenched, here are some tips to help you manage your new financial situation.

Contact your creditors immediately

The moment that you have been retrenched, you should contact your creditors to inform them about your change in the situation, as it will have an impact on your ability to pay back your loans.

Check to see if you have a retrenchment cover

It could appear as credit life insurance or another kind of policy. While you are unemployed, it will help you pay off your debt. Retrenchment insurance policies often pay out for up to six months following your retrenchment.

Be wise with your retrenchment package

Be aggressively protective of your retirement benefits and severance package. Be intentional about creating a clear financial strategy for your funds because it is likely that you will need to live off of your emergency funding and your retrenchment package until you have a secured source of income.

Find an impartial financial expert who can help you through the legal, tax, and financial ramifications and develop a workable plan. Your anxiety will be reduced and your confidence will increase as you plot your course forward if you have a clear financial road plan.

Be cautious when investing your retrenchment package in a new company venture, especially if it is in a sector of the economy you are unfamiliar with.

Know your legal rights

The Labour Relations Act and the Basic Conditions of Employment Act both outline the retrenchment process to provide explicit instructions on what must be taken into account when determining your severance payout.

During the retrenchment process, it is the obligation of your employer to make sure that all legal criteria have been satisfied and that you receive all benefits that are owed to you, such as retirement fund benefits, leave pay, notice pay, pro rata bonuses, and severance pay. A Section 189 letter, certificate of service, and settlement agreement are just a few of the forms and papers your employer must give you in order for you to file a UIF claim.

Legally, you are entitled to one week of pay for each year of employment; however, some employment contracts include retrenchment plans that offer a higher level of severance pay; as a result, thoroughly review your employment contract and get legal counsel as needed.

Claim on credit life insurance

If you have taken out a long or short-term loan, chances are that you have credit life insurance. Many people are not aware that all unsecured loans come with credit life insurance. This is to cover the value of the debt you owe should you pass away, or assist in paying off your debt if you are retrenched or disabled.

Should you lose your job due to retrenchment, then the policy will pay you out for up to six months, to help cover your loan repayments. However, each policy is different in the amount it will pay out, and you should check with your credit provider as to the terms of the cover.

Claim UIF

If you contributed towards UIF while you were working (this will appear as a deduction on your pay slip), you are entitled to claim unemployment should you be retrenched.

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Manage your finances

It is important to have a budget no matter your financial situation, however, it becomes more so if you are retrenched.

If you have been retrenched it is important to be moneywise. Sit down with your family and discuss your financial situation. Draw up a list of expenses that you can cut-out, and areas where you can cut-back. It is important that the entire family understands that money may be tight and you may have to do without certain luxuries.”

Redo your monthly budget

Recreating a personal budget after losing your job can be a difficult task, but it is important to take control of your finances as soon as possible.

Start by reassessing your income sources and updating your budget accordingly. You may need to cut back on expenses or find new sources of income. It's important to prioritize your expenses and focus on the essentials such as housing, food, and insurance. Look into government assistance programs or unemployment benefits to help supplement your income.

Additionally, it may be helpful to reach out to financial advisors or debt counsellors for guidance.

Be realistic about your situation and be prepared to make changes to your spending habits in order to stay within your means. Remember that this is a temporary setback and with a proper budget, you can work towards finding a new job and getting back on track.

Change your bank account

If you have a bundled bank account, it gives you the benefit of a number of transactions and services included in the monthly service fee, however, this can be costly. To save money on your banking when you are retrenched, change to a pay-as-you-transact account. This way, you only pay for the transactions you make, and not services that you don’t make use of and do not need. While it may not be a topic that many people want to dwell on, it is important to be prepared for the worst.

Having a sound financial plan and budget is an important part of money management no matter your financial situation. Knowing what insurance policies you have and when they pay-out will help ease the burden when an unforeseen event, such as being retrenched.

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