When employment ends in Zambia, several payments may be due, and they are taxed differently. Understanding which is which affects what actually reaches your account.
What may be owed
Sections 52 to 59 of the Employment Code deal with termination entitlements:
- Notice pay — or compensation where notice was not served
- Severance pay
- Redundancy pay
- Gratuity — at not less than 25%, where applicable
- Leave pay for days not taken
- Outstanding wages
The tax difference
Different terminal benefits have different tax treatments under the Income Tax Act (Cap 323), section 21, which covers gratuities, leave pay and compensation for loss of office.
The most notable: redundancy pay enjoys a substantial tax exemption — reported at K2,000,000.
That is a meaningful amount, and it means the label attached to a payment matters. A payment characterised as redundancy is treated differently from the same sum characterised as something else.
Notice pay
Compensation is due where the employer or employee does not serve the required notice period. The amount is equivalent to salary for the statutory notice period, which ranges from one week to three months depending on service.
Notice pay is taxable.
How leave pay is calculated
The Ministry's guidance gives a specific formula: salary multiplied by the number of leave days, divided by twenty-six.
The 26 represents the number of days a general or domestic worker is expected to work in a month.
Gratuity pro rating
Where a fixed-duration contract is terminated before its end, gratuity is paid at a pro rated rate.
What to check before signing
- Which contract category you fall under
- Whether you were contracted before or after 9 May 2019
- That gratuity is calculated on basic pay at not less than 25%
- That leave pay uses the divisor of 26
- That payments are correctly characterised for tax purposes
Where to raise a problem
The Labour Officer for your district, under the Ministry of Labour and Social Security.