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Definition

Gratuity is a monetary gift from an employer to an employee. It is a gratuitous pay and is, by its very nature, discretionary.

Payment of a gratuity and the applicable terms and conditions are governed by one’s contract and by the employer’s policies.

The rationale for payment of gratuity is in appreciation of services rendered and also as a retirement benefit.

General rules

  1. It is normally paid at the end of the contract.
  2. It is not normally paid if the employer has made arrangements for a pension scheme.
  3. Unlike NSSF, where both an employer and employee contribute, an employee does not contribute towards gratuity.
  4. It is normally paid at the rate of one month’s basic salary for every year of service. However, it could be less or more depending on the terms of the contract.
  5. In most cases, it is not paid if an employee is summarily dismissed. This was the holding in Bamburi Cement Limited v W K [2016] eKLR.
  6. As long as an employee’s contract provides for gratuity, the employee will be entitled to the payment whether or not he is a member of NSSF (Wells Fargo Limited v J I G [2018] eKLR).
  7. Where the contract provides that gratuity will be payable upon successful completion of a contract and the employee is terminated before the end of the contract through no fault of his, the gratuity will be payable on a pro-rata basis (B P S  v Kenya Urban Roads Authority [2014] eKLR).

An employee who receives a gratuity is not entitled to service pay – Section 35(5) of the Employment Act, 2007.

XOX

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About Anne Babu

Anne is an Advocate of the High Court of Kenya and the Founding Partner of Anne Babu & Co. Advocates. She has practiced employment law for over 10 years. She is a repository junkie and a lover of editing.

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Comments

  1. ANGELINE says:

    Dear Ann,
    Good morning. Kindly confirm to me whether a Union Official(kudheiha) officer is supposed to attend a disciplinary hearing. Can an employee also bring in a none employee, an outsider working in another organization as a representative.

    1. Anne Babu says:

      The employee can attend with a union representative or a fellow employee.

  2. ANGELINE says:

    Hi Ann, there was an inquiry I made to you but went unanswered or rather unnoticed. It was about an employee claiming for unpaid rest days (off days) totaling 1644 equivalent to 533000/- These dates back from 2002. Kindly advice on the most appropriate way to address this.

    1. Anne Babu says:

      Under the Employment Act, such a claim can only be made for the past 3 years, claims beyond that are time-barred. It’s the employer’s responsibility to keep records, therefore, if the claim is valid, it should be settled at usual overtime rates.

  3. Caroline says:

    Hi Anne, Thank you so much for your articles they been such a source of information.Kindly where can i get the full notes on judgments mentioned above.

    Thank you in advance.

    Caroline Wanga.

    1. Anne Babu says:

      Thanks. You can get them at http://kenyalaw.org/caselaw/. I normally initial the names of the individuals.

  4. there is this guy who came for advice. he had worked for company X for 8years on temporary appointment…. is he entiltled to anything after dismisal?

    1. Anne Babu says:

      What do you mean by temporary appointment?

  5. Peter says:

    Can a separation agreement help me win a court case against an employee who has a fairly strong discrimination case against my company.

    1. Anne Babu says:

      I don’t understand your question.

  6. Gloria Mwikali says:

    Hi. If an employee resigns before lapse of his contract, will he be entitled to his gratuity?

    1. Anne Babu says:

      Gratuity is only paid if provided in the contract and subject to the terms of the contract.

  7. Ayub says:

    Hi Ann i was working with parliamentary service commission under a 5 year contract..i later served the commission with a 2 months notice of intendend resignation after working for 4 months am i eligible for gratuity payment for the six months i received my salary?

    1. Anne Babu says:

      Gratuity is only payable if provided in your contract or in your terms and conditions of service.

  8. Okoyo Gabriel says:

    This is so good. Up to date information, well researched.

    1. Anne Babu says:

      Thank you

  9. Mourine says:

    Hi, kindly what is the standard formula for calculating service pay ?

    1. Anne Babu says:

      15 days’ pay for every year worked.

  10. Jane Muchiri says:

    Hi Anne, HOW LONG AFTER ONES CONTRACTS END WITH GOVERMENT SHOULD THEIR GRATUITY BE PAID? ITS’ BEEN SLIGHTLY OVER A MONTH AND I FEEL i M BEING TAKEN ROUND IN CIRCLES?

    1. Anne Babu says:

      Confirm from the terms of service that govern your employment.

  11. JOHN MUTHUI says:

    VERY EDUCATIVE.

  12. Major Oduk says:

    When an employee’s contract lapses at a time when he had gone for his leave days and got a leave allowance but 7 days remained as balance on the leave days. Do i pay for the seven leave days and at what rate if payable should the amount be calculated. Second of all. How does one calculate the gratuity step by step.

    1. Anne Babu says:

      Gratuity is only payable if provided in the employment contract which should also provide the mode of conputation. The leave days not taken should be paid. You should first get the daily rate – monthly wage divided by 30 days – then multiply by the number of leave days.

  13. benjamin says:

    Hi Anne Babu,
    I would like to enquire whether an employee entitled to gratuity will be subjected to statutory deduction such as PAYE, NHIF and NSSF.

    Kind regards

    1. Anne Babu says:

      Statutory deductions are mandatory. Gratuity is only payable if provided in the contract.

  14. Evans says:

    Dear Ann,

    Iam a unionisable employee working in a private company for now almost 5yrs. My question is if i decide to tender my resignaton tomorrow will i be paid gratuity?

    1. Anne Babu says:

      Gratuity is only paid if it is provided in your contract or CBA.

  15. Mary says:

    Hi Anne, Came across your informative article on gratuity and I have a question on the same. My boss has a CBA with a union that states gratuity will be paid to all non-teaching staff as teachers were not union members when the CBA was signed. More than half the number of teachers came together and joined the union. When my boss found out, about teachers joining the union she was mad and she has threatened only to pay us for services rendered if she sacks us and not upon resignation. Question is, Can the teachers sue her for discrimination if she refuses to sign a new CBA stating that she will pay teachers gratuity when one decides to resign? Secondly, Can the same organization have two CBA for its employees? One with gratuity and one without?

    1. Anne Babu says:

      Are teachers eligible to join the union according to the union’s constitution? Secondly, if the CBA only provides for payment of gratuity to non-teaching staff, there is nothing to compel your boss to pay teachers gratuity unless the CBA is amended.

  16. Triza says:

    Good evening. I was employed by a certain company. The employment contract provides for gratuity at end of contract period. The contract was signed up for 5 years. I resigned after one year. Before resignation I confirmed that company will pay gratuity for the period served up to resignation. All members of staff who left earlier on were paid their gratuity upon resignation. Now the company says they can’t pay since I should have worked for 5 years. The contract provides for resignation on 30 days notice. It does not state minimum period to qualify for gratuity on the letter neither did it say if I resign I will lose my gratuity for the year worked. Advice if I can recover.

    1. Anne Babu says:

      The governing provisions are those of the contract. What does the contract say about when gratuity will be paid?

  17. Daniel Ochieng says:

    Hi i’v am serving a certain one of the leading security company in nairobi now for 13 yrs and now i want to teminate my service already i’v served the operations with notice letter am i entittled to be paid service for the last worked years or not pliz assist i will be so gratefull for for your information

    1. Anne Babu says:

      Service pay is paid if you are not on NSSF or if your contract/HR manual provide for it.

  18. JEPHITHA KIRIMI says:

    Dear ann,
    I am impressed by your great advice. One of our employees has resigned and the terms of the contracts agrees for him to give 3 months notice but the employer has told him to leave immediately.As per the law he will be paid his salary for those 3 months but my question is whether he will be paid gratuity for those three months.

    1. Anne Babu says:

      Thanks for the compliments. The gratuity should be paid because it is the organization that has decided that he should not work the 3 months, but check from your HR manual.

  19. Raphael Lewa says:

    I was employed by a Water company in 2015,the contract document does not state payment of gratuity but it is provided for in the human resource policy of the company upon satisfactory completion of the contract term,I resigned one month to the completion of the contract term,what is the legal position about this? am i entitled for payment of gratuity?

    1. Anne Babu says:

      It depends on what the manual says as the circumstances when you’re entitled to the gratuity.

  20. Linus Agoro says:

    Evening Ann,
    Many thanks for your Insight highlight on this Gratuity pay. please advise, Legally, how may days are payable per year for gratuity settlement

    1. Anne Babu says:

      The terms of the gratuity are as indicated in the employment contract.

  21. Sammy says:

    Thanks for the information.

    1. Anne Babu says:

      You are welcome.

  22. Mrs.Gitau says:

    Majority of my employees have been working for over 5years as casuals,no nssf was being paid for them.They were later absorbed as permenent employees.Are the supposed to receive their service pay for the years they worked without being members of nssf?
    And what is the formular for calculating service pay?

    1. Anne Babu says:

      Yes they should be paid. The courts use 15 days for every year worked.

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