Lump Sum or Monthly Settlement Payments?
Enter the offer, why the employment is ending and what your income may look like next. The calculator compares estimated after-tax cash, tax-year timing, debt repayment, time value and employer-payment risk.
Compare the two offers using the facts that change the answer.
Start with the settlement and severance amount. Enter leave and notice pay separately because SARS treats those components as normal income.
Why classification can change the answer
The same negotiated lump sum produces very different estimates depending on whether it is normal income or a qualifying severance benefit. Leave and notice pay remain normal income in both estimates.
Net if normal income
R 374 124
Net if severance table
R 591 000
Classification difference
R 216 876
See tax-year calculation detail
Lump-sum option: normal-income components
| Tax year | Other taxable income | Added normal income | Estimated tax on addition |
|---|---|---|---|
| 2027 | R 450 000 | R 600 000 | R 225 876 |
Monthly option: normal-income components
| Tax year | Other taxable income | Added normal income | Estimated tax on addition |
|---|---|---|---|
| 2027 | R 450 000 | R 150 000 | R 49 990 |
| 2028 | R 0 | R 450 000 | R 82 917 |
Planning estimate only. It uses the SARS 2027 individual rates and current retirement/severance table, holds those rates constant for later years, ignores medical credits and most deductions, and does not reproduce payroll withholding formulas. Actual PAYE, assessed tax and directive results can differ.
A settlement agreement is not automatically a severance benefit.
The label in the agreement is less important than the legal reason for the termination and the way the employer applies for the SARS directive.
Potentially qualifying
Age 55 or older, permanent incapacity, the employer ceasing the relevant trade, or redundancy caused by a general reduction in personnel.
Not automatic
A resignation, performance exit or ordinary mutual separation is normally treated as a normal termination unless the underlying facts meet a qualifying condition.
Always separate
Salary, pro-rata bonus, accrued leave and notice pay relate to services or contractual entitlements and should not be rolled into the severance amount.
Cumulative table
SARS aggregates prior retirement withdrawals, retirement lump sums and severance benefits. The R550,000 band is not a fresh allowance for every exit.
Separate the money before comparing the payment schedule.
- Negotiated gratuity or settlement amount.
- Statutory or contractual severance pay.
- Accrued leave pay.
- Notice pay or payment in lieu of notice.
- Salary, bonus, commission and reimbursable expenses.
- Retirement-fund benefit paid by the fund, not the employer.
Employment-law floor
For an operational-requirements dismissal, the Basic Conditions of Employment Act provides at least one week's remuneration for each completed year of continuous service, subject to its rules and any more favourable contract or collective agreement. It also requires payment for qualifying untaken annual leave on termination.
A settlement can include additional negotiated compensation, but signing may settle dismissal or other claims. Obtain employment-law advice where the reason, process, waiver or enforceability is disputed.
The better tax result is not always the better financial decision.
Debt repayment
Clearing a credit card, overdraft or personal loan creates a return equal to the interest avoided. Protect an emergency reserve before paying every rand into debt.
Time value
R50,000 received months from now is worth less than R50,000 today. Compare the present value using a realistic after-tax alternative return or borrowing cost.
Payment security
Monthly payments add employer solvency, dispute and enforcement risk. Consider security, acceleration clauses, guarantees and what happens if a payment is late.
Behaviour and runway
A lump sum helps only if it is protected and allocated deliberately. Monthly cash can preserve discipline and income runway while the next job or business income is uncertain.
Do not blend employer settlement money with pension or provident-fund money.
A fund withdrawal on resignation or retrenchment can use the withdrawal-benefit table, while a qualifying retirement or severance benefit uses the retirement/severance table. Both feed the cumulative history that can reduce the tax-free portion available later.
Since the two-pot system and compulsory-annuitisation rules can affect what may be taken in cash, request a fund-specific projection and tax-directive estimate before electing a withdrawal or transfer.
Before you sign
Ask for one schedule that shows every payment, date and tax category.
Then compare the employer's SARS directive result with the agreement, payroll calculation and fund projection. A neat total without a component schedule is not enough.
The calculator is anchored to current SARS and labour guidance.
Rates and rules can change. Recheck the official source for the payment date and keep the directive and agreement with your tax records.
Employment settlement questions
Does every employment settlement qualify for the R550,000 tax-free amount?
No. The special retirement and severance table applies only when the statutory severance-benefit conditions are met. Age 55 or older, permanent incapacity, the employer ceasing the relevant trade, or genuine redundancy from a general reduction in personnel can qualify. An ordinary resignation, performance exit or mutual separation does not automatically qualify.
Are leave pay and notice pay part of the severance benefit?
SARS says leave pay and notice pay must be excluded from the severance-benefit amount and treated as normal income. The agreement and payroll records should show each component separately.
Does moving payment into a new tax year always reduce the tax?
No. Timing can help where normal taxable income is genuinely spread across tax years and future income is lower, but the answer depends on the accrual date, payment terms, other income and final tax treatment. A qualifying severance amount uses a cumulative lump-sum table instead of ordinary marginal rates.
Who applies for the SARS tax directive?
The employer applies for the relevant IRP3(a) directive. The employee cannot submit the employer's application in a personal capacity. The employer must follow the directive issued by SARS.
Should retirement-fund money be included in this calculator?
No. Keep pension, provident, preservation and retirement-annuity benefits separate. Fund withdrawals and retirement benefits have their own directive reasons, tax tables, cumulative history and two-pot or annuitisation rules. Ask the fund administrator for a separate projection before signing the employment settlement.
Get the tax classification and cash-flow comparison checked before you sign.
LBA can review the payment schedule, separate normal-income and potential severance components, model the tax-year scenarios and prepare the questions your employer or legal adviser should answer.