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

Important points to note about Gratuity

Gratuity is only payable if it is provided for in the contract. It is not a mandatory payment under the labour laws and therefore anyone expecting a gratuity should confirm that it is provided for in the contract.

Gratuity is not the same as service pay. Service pay is due under Section 35(5) of the Employment Act and it is only a mandatory payment to employees who are not on NSSF.

Payment of a gratuity and the applicable terms and conditions are governed by one’s contract and by the employer’s policies – this includes the formula to be used when calculating the gratuity.

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

General rules

  1. It is mostly 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. In most cases, subject to the terms of the employment contract, it is not paid if an employee is summarily dismissed. This was the holding in Bamburi Cement Limited v W K [2016] eKLR.
  5. 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).
  6. It was held in B P S  v Kenya Urban Roads Authority [2014] eKLR that 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.


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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. She has practised employment law for over 12 years and her employment law practice has been recognized by the prestigious Chambers & Partners. Anne cares about employers and their labour issues.


The information on this website is for general guidance on your rights and responsibilities and is not legal advice. If you need more details on your rights or legal advice about what action to take, please contact a lawyer.

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  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 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:


    1. Anne Babu says:

      Confirm from the terms of service that govern your employment.

  11. JOHN MUTHUI says:


    1. Anne Babu says:


  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.


    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.

  23. Johanna says:

    After five years we will be leaving Kenya, and we would like to leave our staff well provided, so they have time to look for new employment.
    At the moment they get paid 15,000 shillings a month, for two days work per week. We also give them the same amount at Christmas every year.
    How much service pay do I need to pay them, to comply with the Kenyan rules? I cannot afford to pay them each 75,000 shillings (one month per year), but since they work two days a week can I pay 2/5 of this amount (plus a bit extra)? Thank you.

    1. Anne Babu says:

      The courts compute it using half a months’ pay for every year worked.

  24. Peter Mururu says:

    I noticed that you are a repository junkie and a lover of editing thus I hope you wouldn’t be offended by my kind correction. Your article reads “An employee who receives a gratuity is not entitled to service pay – Section 35(5) of the Employment Act, 2007.” I believe the correct position would be Section 35(6). From my comment I hope you could discern that I am a fellow counsel.

    1. Anne Babu says:

      Corrected wakili. Asante.

  25. Lynn says:

    What happens if the gratuity is to be transferred to a pension scheme? How will it be taxed at pension level?
    If it was paid tax will be 30% but if it was to be transferred to a pension/provident fund then it would be taxed at exit level.

    1. Anne Babu says:

      Sorry, perhaps a tax person can help you with that query 🙂

  26. Alice says:

    Hi Ann, If someone has worked for ten years , what is the standard formula for calculating service pay ?

    1. Anne Babu says:

      Service pay, when payable, is based on 15 days pay for every year worked – that’s the formula applied by the labour courts.

    2. Anne Babu says:

      15 days pay for every year worked.

  27. GK says:

    Is an employee entitled to gratuity after having served on an undefined contract with a county government where upon the contract termination (after having served for a period of 36 months) they are employed afresh on a probation basis pending confirmation for a permanent and pensionable terms but on a lower grade and lower salary as well

    1. Anne Babu says:

      Gratuity is payale if provided in the contract or the terms and conditions of service.

  28. Maggie says:

    Hi Ann,
    What is the difference between gratuity and service pay?

    1. Anne Babu says:

      Gratuity is contractual whereas service pay is statutory. Service pay is only paid if an employee is not on NSSF.

  29. niccholas lwande sanya says:

    thanks for the info

    1. Anne Babu says:


  30. Nguwil says:

    Being in an institution where Gratuity was being paid after 3 years then when its due the employer scraps it of. under the law is one entitled to get the payments

    1. Anne Babu says:

      It’s unlawful for an employer to change the terms and conditions of service to the employee’s prejudice without the employee’s consent.

  31. Priscilla says:

    Have been employed for the last 4yrs without any contract. No salary increment or leave. Am planning to quit.
    Do I qualify for any benefits?

    1. Anne Babu says:

      You only get service pay if you have not been paying NSSF. Nothing else is due unless indicated in your contract.

    2. Anne Babu says:

      You are entitled to service pay only if you were not a member of NSSF. You are entitled to gratuity only if it is provided in the contract. You are, of course, entitled to accrued leave pay and salary up to your last day of employment.

  32. Zainab says:

    Hi Ann, I have been working for a private company for close to five years. Upon my termination due to redundancy, they agreed to pay me gratuity for only 4 years yet I have worked for 4 years and nine full months. Is this right? Kindly advice on the 9 months. Thanks.

    1. Anne Babu says:

      On redundancy, you are supposed to get severance which is based on complete years of service.

  33. Sumedha says:

    Hi Ann,
    kindly explain following
    1. If an employee works 5yrs contract, but it was contract of agreement of 01 year renewable, is he eligible for Gratuity.
    2. if an employee works 5years with 01 yr renewable contract what are the benefits can earn from org.

    1. Anne Babu says:

      Hi, gratuity is only due if provided in the contract. It is not a mandatory legal right.

  34. Oty says:

    My contract ends in 11mnths time… In my contract form their is no any accord of gratuity, I am entitled to any severance from my employer

    1. Anne Babu says:

      Gratuity is only paid if provided in the contract. Do not confuse gratuity and severance. Severance is paid if you are terminated on account of redundancy.

  35. Richard Muoka says:

    My organization has a gratuity policy for all its employees which is payable yearly,upon expiry of each contract. Is the gratuity taxable? and at what rate? Can it be combined with the following month’s salary as a lump sum payment and taxed collectively? Kindly clarify.

    1. Anne Babu says:

      Gratuity is taxable. The modalities of payment are determined by the organization.

  36. Sumedha Bandara says:

    Hi Anne, please clarify this please.
    if an employee works on Sunday, do we need to pay pay double OT & allow rest day within next 7 days.
    if not, is there any law for that.

    1. Anne Babu says:

      You should either give monetary compensation at twice the normal rate or give time off.

  37. M. Kalyanasundaram says:

    Whether the prejudiced retiree is eliginle get gratuity for his retirement prejudiced for the pending of DVAC case?

    1. Anne Babu says:

      I don’t understand your question.

  38. mercy says:

    dear Ann I resigned recently from my security company after working for a period of 8yrs and above having followed all procedures of resignation rules but they only paid me my leaves but refused to pay gratuity was I really entitled to gratuity.please just help me understand

    1. Anne Babu says:

      As indicated in the article, you only get gratuity if it is provided for in your contract.

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