Ghana redundancy and severance: Labour Act 651 in 2026

A Ghanaian employer is winding down a unit or restructuring a senior team. The Labour Act 2003 (Act 651) governs the procedure — but unlike Kenya's 15-day formula or Nigeria's NGN 50m exempt cap, Ghana's framework prescribes no fixed amount. Section 65(4) requires the redundancy payment to be negotiated between the employer and the worker or trade union, and the entire payout is taxable as employment income with no statutory exemption. This guide walks through what Section 65 actually requires, the floor that has emerged from National Labour Commission settlements, and how the Ghanaian math compares to the rest of West and East Africa.

Section 65 — what the Act actually requires

Section 65 of the Labour Act 2003 sets out the framework for redundancy. The substance:

Where an employer contemplates the introduction of major changes in production, programme, organisation, structure or technology of an undertaking that are likely to entail terminations of employment of workers, the employer shall provide the workers' representative with information on the proposed changes and the reasons for them.

The Act then requires the employer to "consult the workers' representative on … measures to avert or minimise the terminations and measures to mitigate the adverse effects". On the financial settlement specifically:

A worker affected by termination shall be entitled to redundancy pay, the amount of which shall be negotiated between the employer and the worker or the trade union concerned.

Per Mondaq's 2025 practical overview of Ghanaian redundancy law, Section 65(4) explicitly does not prescribe a fixed formula — the quantum is determined entirely by negotiation, taking into account length of service, salary, contractual terms, collective agreements, and the circumstances surrounding the redundancy. Where the parties fail to agree, the National Labour Commission resolves the dispute, and its mandate is limited to the quantum and terms of payment, not whether redundancy was justified in the first place.

In practice, NLC-supervised settlements have produced an emerging market floor of around three months' basic salary for permanent employees regardless of tenure, with longer-serving employees and unionised workplaces typically settling between three and six months' pay per year of service. The floor is not statutory — it is a practical norm enforced through dispute resolution and collective bargaining.

This is structurally different from Nigeria's Section 20 redundancy procedure and Kenya's 15-day formula under Section 40. Ghana's regime trusts negotiation more and codifies less.

The tax treatment — fully taxable, no exemption

Unlike Nigeria (₦50m loss-of-employment exemption under NTA 2025) and Kenya (KES 600,000 cumulative cap with KRA spreading), Ghana applies no specific severance exemption. Per Bentsi-Enchill, Letsa & Ankomah's Ghana employment guide, redundancy pay, ex-gratia, and contractual gratuity are all treated as employment income subject to PAYE at the employee's marginal rate.

The brackets matter. PAYE on annual income above GHS 240,000 is 35%, with 30% on the next slice down. A senior executive's lump-sum redundancy package frequently lands the entire payment in the top two brackets, producing an effective tax rate of 30–35% on the gross.

Two narrow exceptions apply:

• Gratuity from an approved retirement scheme — if the gratuity is paid from a scheme registered with the National Pensions Regulatory Authority (NPRA) under the Tier 2 or Tier 3 framework of the National Pensions Act 2008 (Act 766), the payment to the scheme on the employee's behalf is treated under pension rules, which generally exempts the contribution but taxes the eventual withdrawal. The pension routing is the only meaningful way to defer Ghanaian severance tax.
• Compensation for genuine loss versus contractual rights — case law has, in narrow circumstances, distinguished between true compensation for loss of employment (capital in nature, potentially non-taxable) and contractual redundancy entitlement (income in nature, taxable). Per Ghana Revenue Authority practice notes from 2024, the GRA treats the vast majority of severance as employment income, and the capital characterisation is reserved for unusual disputes.

For tax planning, the practical implication is: there is little optimisation on the lump-sum side. Where the optimisation lives is in pension scheme structuring before the exit event, not at the exit itself.

Notice periods — Section 17

Section 17 of the Labour Act sets minimum notice periods that apply to all terminations, including redundancies:

Contract type	Minimum notice
Permanent (3 years' service or more)	1 month
Permanent (under 3 years)	2 weeks
Weekly contract	7 days
Casual / piece work	None statutory

These are minimums. Senior contracts routinely extend them — three months is common for executive roles, six months for C-suite. Payment in lieu of notice (PILON) is permitted; it is taxable as employment income at the employee's marginal rate, separately from the redundancy lump sum.

Where the contract is silent on notice, Section 17 fills the gap. Where the contract conflicts with Section 17 (offers less), the statutory minimum prevails — the contract is void to the extent of the conflict.

SSNIT and pension considerations on exit

Ghana's three-tier pension system (Tier 1 mandatory SSNIT, Tier 2 mandatory occupational, Tier 3 voluntary) sits alongside the redundancy payout but is governed separately. On exit:

• Tier 1 SSNIT — the employee's accumulated contributions remain in SSNIT and become payable as a pension (if the employee meets the qualifying age and contribution thresholds) or as a lump-sum withdrawal under specific conditions. The redundancy itself does not trigger an immediate SSNIT payout.
• Tier 2 occupational — managed by a private trustee. On exit, the employee can transfer their entitlement to a new employer's Tier 2 scheme, leave it preserved, or withdraw under specific conditions (typically retirement, permanent emigration, or in some cases, redundancy where the scheme rules permit).
• Tier 3 voluntary — fully employee-controlled; the redundancy event has no automatic effect on Tier 3 unless the scheme rules tie it to employment.

Per the ICLG 2025-2026 Ghana employment law chapter, the most common error in Ghanaian exit calculations is conflating SSNIT/pension obligations with the redundancy lump sum. The two are independent. The employer must continue to remit Tier 1 contributions on the final month's salary (not on the redundancy lump sum), and must close out the Tier 2 reporting cleanly.

Worked example — GHS 180,000 senior exit

A regional manager at a Ghanaian fintech with 7 years' service exits via redundancy. Final monthly basic salary: GHS 18,000. The negotiated package:

Component	Amount	Treatment
Statutory minimum (3 months × GHS 18,000)	GHS 54,000	Fully taxable PAYE
Negotiated top-up (3 months × 7 years − statutory 3 months = 18 months × GHS 18,000)	GHS 324,000	Fully taxable PAYE
Gratuity (Tier 3 voluntary scheme, NPRA-registered)	GHS 60,000	Routed to scheme; tax deferred
Payment in lieu of 3 months' notice	GHS 54,000	Fully taxable PAYE
Accrued leave (24 days × GHS 600/day)	GHS 14,400	Fully taxable PAYE
Total gross	GHS 506,400

The Ghana-specific reality: of the GHS 446,400 in non-pension components, the vast majority is taxed in the 30% and 35% brackets — producing an effective rate around 30–32%. Without an approved scheme to route gratuity through, the only optimisation lever is timing — splitting the payment across two tax years where the contract permits, to fill more of each year's lower brackets. Most Ghanaian employers do not exploit this and should.

How Ghana fits in the Pan-African picture

Country	Statutory formula	Tax-exempt cap	Spreading?
🇳🇬 Nigeria	None statutory; contractual	NGN 50m (NTA 2025)	No
🇰🇪 Kenya	15 days/year (§ 40)	KES 600,000	Yes — 3 years (KRA)
🇬🇭 Ghana	3 months minimum (§ 65) + negotiation	None	No
🇿🇦 South Africa	1 week/year (BCEA § 41)	R550,000 lifetime (SARS retirement table)	Yes — graduated 18/27/36% above

Ghana is the negotiated-floor model: minimum codified at three months, actual amount shaped by collective bargaining, no tax exemption to soften the lump sum. For Pan-African groups, this means a Ghanaian exit costs more in total tax-take than the equivalent Nigerian or Kenyan exit on identical gross — the country mix in your senior exit pipeline materially affects the all-in cost of restructuring.

For our companion guides, see Nigeria's NTA 2025 framework and Kenya's Employment Act 2007 framework. The South Africa guide in this series is upcoming.

Building a defensible Ghanaian exit process

The pieces that hold up at the National Labour Commission:

• Section 65 consultation memo — written notice to the workers' representative or trade union, dated before any termination announcement, with the reasons for and extent of the redundancy.
• Negotiation record — minutes from the meetings with the workers' representative, the proposals exchanged, and the final agreement. The NLC will ask for this in any contested case.
• Three-month floor on every individual settlement, regardless of tenure — this is the line below which no redundancy survives scrutiny.
• Selection criteria documentation — even though Ghana's Act is less prescriptive than Kenya's "LIFO unless" rule, the NLC has rejected redundancies where the selection appeared targeted at specific individuals rather than positions.
• PAYE on the lump sum at the correct bracket rate, not at a flat 25% or 30% — the marginal rate calculation is the audit risk.
• Pension routing decision documented — if any portion is going through an NPRA-registered scheme, the trust deed and contribution evidence need to be filed alongside the exit.

Ghanaian redundancy disputes in 2024 have followed a pattern: the financial settlement was reasonable, but the Section 65 consultation was either skipped or perfunctory, and the Labour Commission re-characterised the redundancy as a wrongful termination. As elsewhere on the continent, the procedure is the variable that drives outcomes.

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