Legal position on gratuity
2 years ago
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.
- It is mostly paid at the end of the contract.
- It is not normally paid if the employer has made arrangements for a pension scheme.
- Unlike NSSF, where both an employer and employee contribute, an employee does not contribute towards gratuity.
- 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  eKLR.
- 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  eKLR).
- It was held in B P S v Kenya Urban Roads Authority  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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