What you need to know about The Employment Code of 2019: Severance and Gratuity – Part 3

Gratuity

Gratuity has always been a bit of a sore subject. Some organisations give it, others don’t. Some give 5%, others give 30%. Who decides!?

The act has explicitly stated that an employer shall pay gratuity under the two following circumstances;

  • At the end of a long-term contract period.
  • When an employees contract is terminated where it shall be paid on a prorated basis.

At the rate of not less than 25%.

Severance Pay & Packages

According to the act, severance pay shall be paid in the following instances with the prescribed calculations;

  • Medical Discharge – lump sum of not less than three months basic pay for each completed year of service.
  • Death in Service – two months basic pay for each year served under the contract of employment.
  • Redundancy – a lump sum of two basic pay for each year served under the contract of employment.
  • Expiry of a Fixed Term Contract – twenty five percent of an employee’s basic pay earned during the contract period or the retirement benefits provided by the relevant social security scheme that the employee is a member of.
  • Termination of a Fixed Term Contract – gratuity at the rate of not less than twenty-five percent of the employee’s basic pay earned during the contract period as at the effective date of termination.

Exemptions

The following class of employees are from gratuity and severance pay;

  1. Casual Employees
  2. Temporary Employees
  3. Employees on probation

For more on the Employment Code Act No.3 of 2019, checkout Part 1 & 2, and lookout for more over the next 5 days.