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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.

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