Chapter 8
The Retrenchment and Severance Benefits Act, Chap. 88:13
Last reviewed 1 October 2026
Retrenchment and Severance Benefits Act, Chap. 88:13 · Administered by: Ministry of Labour and Small Enterprise Development, www.labour.gov.tt
Why This Matters
The Retrenchment and Severance Benefits Act (Chap. 88:13) governs the termination of employment where a business no longer requires a role, not for reasons of misconduct or performance, but for genuine operational, economic, or structural reasons. The financial exposure from a retrenchment conducted without correct notice, without proper severance calculation, or without required government notification can be substantial. Understanding this Act before retrenchment is contemplated, rather than after, is a business imperative.
What Retrenchment Is
Retrenchment is the termination of employment arising from the redundancy of a position. It is fundamentally different from dismissal for misconduct or performance. An employer cannot use retrenchment as a mechanism to remove an employee who would otherwise be protected by the disciplinary process. The Industrial Court will examine the true reason for termination and, if it finds that the stated redundancy was pretextual, will treat the termination as an unfair dismissal.
Practical Insight: Employer Risk The most significant risk is selecting the wrong employees for redundancy, on subjective grounds such as performance concerns or personal friction, rather than objective criteria tied to genuine operational need. Selection criteria must be objective, documented, and applied consistently. If the Court finds selection was pretextual, the employer faces the full consequences of an unfair dismissal claim in addition to any severance obligation. |
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Notice Requirements
Each affected employee must receive a minimum of 45 days' written notice before retrenchment takes effect. This is non-negotiable and cannot be waived. The notice must specify the effective date and set out the employee's severance entitlement. Payment in lieu of notice is permissible, the employee must receive the equivalent of 45 days' salary.
Ministerial Notification
Where five or more workers are to be retrenched, written notification must be provided to the Minister of Labour and Small Enterprise Development at least 45 days before the retrenchment takes effect. This must be submitted simultaneously with or before the notice to employees. Failure to notify the Minister is an offence under the Act.
Calculating Severance Benefit
Two weeks' basic pay (or half a month's pay for monthly-paid workers) for each of the first four years of service, and three weeks' basic pay (or three-quarters of a month's pay) for each year from the fifth year onwards. Part years are pro-rated by completed months. Severance is calculated on basic pay only; allowances, overtime and commissions are not included.
| Years of Continuous Service | Weekly, daily or hourly-paid workers | Monthly-paid workers |
|---|---|---|
| Years 1 to 4 | 2 weeks' basic pay per year | Half a month's basic pay per year |
| Year 5 onwards | 3 weeks' basic pay per year | Three-quarters of a month's basic pay per year |
| Part years | Pro-rated by completed months | Pro-rated by completed months |
Severance Calculator – Worked Examples
Example 1 – Short Service (3 Years 4 Months) | Weekly wage: TT$2,000
Years 1–3 (2 wks each): 3 × 2 × TT$2,000 = TT$12,000
Incomplete year (4/12 × 2 × TT$2,000) = TT$1,333.33
Total severance payable: TT$13,333.33
Example 2 – Mid-Career (8 Years 9 Months) | Weekly wage: TT$3,500
Years 1–4: 4 × 2 × TT$3,500 = TT$28,000
Years 5–8: 4 × 3 × TT$3,500 = TT$42,000
Incomplete year (9/12 × 3 × TT$3,500) = TT$7,875
Total severance payable: TT$77,875
Example 3 – Long Service (15 Completed Years) | Weekly wage: TT$5,000
Years 1–4: 4 × 2 × TT$5,000 = TT$40,000
Years 5–15: 11 × 3 × TT$5,000 = TT$165,000
Total severance payable: TT$205,000
Tip: Tax Treatment of Severance Severance benefit is, in practice, exempt from income tax up to TT$500,000 — this figure is applied administratively by the IRD following a Cabinet decision of December 2018. The underlying statutory exemption in Section 5(6) of the Income Tax Act (Chap. 75:01) remains TT$300,000 and has not yet been formally amended. Where severance exceeds TT$500,000, the excess is taxable at the applicable rate. Employers must ensure the TD4 correctly reflects the severance paid and the taxable portion. Inform the employee of the tax treatment at the time of payment and, for large severance packages, consider taking specific tax advice on the interaction between the statutory figure and the administrative practice. |
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Key Rules from the Act
- Severance is payable to any eligible retrenched worker, whatever the size of the workforce.
- It is an offence to put a retrenchment into effect during the 45-day notice period.
- Severance may be withheld if the worker unreasonably refuses comparable alternative employment.
- Unpaid severance 30 days after the notice expires can be taken to the Industrial Court.
- An employer who breaches the Act can be fined TT$10,000.
Retrenchment Process Checklist
✔ Genuine operational, economic, or structural reason identified and documented
✔ Objective selection criteria defined and applied consistently across affected group
✔ Selection decisions documented with supporting rationale
✔ 45-day written notice issued to each affected employee
✔ Ministerial notification submitted to Ministry of Labour where 5 or more employees affected
✔ Recognised majority union notified where applicable
✔ Severance calculated correctly using the tiered formula
✔ Severance to be paid on or before the employee's last working day
✔ TD4 implications identified, severance reported correctly
✔ Final pay calculation prepared including accrued leave, notice pay, and severance
Template: Severance Calculation Record
Complete this record for each retrenched employee and retain on file.
| Field | Details |
|---|---|
| Employee Name | |
| Position | |
| Date of Commencement | |
| Date of Retrenchment | |
| Total Years of Service | |
| Weekly Wage at Retrenchment (TT$) | |
| Years 1–4 Severance (2 wks × rate × yrs) | TT$ |
| Year 5 Onwards Severance (3 wks × rate × yrs) | TT$ |
| Pro-Rata for Incomplete Year | TT$ |
| Total Severance Payable | TT$ |
| Tax Exempt Portion (up to TT$500,000) | TT$ |
| Taxable Portion (if any) | TT$ |
| Calculated by | |
| Authorised by | |
| Date of Calculation |