Legal position on gratuity
9 months ago
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.
- It is normally 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.
- 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.
- In most cases, 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).
- 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  eKLR).
An employee who receives a gratuity is not entitled to service pay – Section 35(5) of the Employment Act, 2007.
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