Gratuity is one of the most valuable entitlements under the Employment Code Act No. 3 of 2019, and also one of the most misunderstood.
The rate
Section 73(1) provides that at the end of a long-term contract, the employer shall pay gratuity at a rate of not less than 25% of the employee's basic pay earned during the period of the contract.
Note: basic pay, not gross. And earned during the contract, not annualised.
Which contracts
The 25% gratuity applies to long-term contracts — fixed-term contracts exceeding twelve months.
For short-term contracts — fixed-term not exceeding twelve months — section 54 provides for severance pay in the form of gratuity at 25%, or a retirement benefit from the relevant social security scheme. Where such a contract is terminated early, gratuity is paid pro rata.
Who is exempt
This is the part that catches people out. The Exemption Regulations exclude several categories from the statutory gratuity entitlement:
- Expatriate employees
- Employees in the agricultural sector
- Employees in the domestic sector
- Management employees with written contracts that already provide for gratuity
For management employees, the position is nuanced: where a written contract provides for gratuity, they are entitled to it, but the amount is a matter of contract rather than the statutory 25%.
Who never gets it
Section 54 does not apply to casual employees, temporary employees, employees on long-term contracts, or employees serving probation.
The 2019 cut-off
Something important: to benefit from the Code, you must have been contracted after 9 May 2019, the date it came into operation.
Employees contracted before that date continue to be regulated under the old law, where gratuity was generally at the employer's discretion.
If you have been with the same employer since before May 2019, this is worth checking carefully.
Pension as an alternative
Where an employer has established a pension scheme approved by the relevant Minister, retirement benefits are paid in accordance with that scheme.