You can either get gratuity or service pay

By Claris Ogangah

Gratuity basically means a monetary gift from an employer to an employee especially for services rendered.

Service pay is similar to gratuity save that service pay is paid out at the end of employment while gratuity can be paid at the end of every year or at any time if the employer so wishes.

Severance pay, as discussed last week, is only paid when an employee is declared redundant.

Gratuity is a lump sum amount that an employer pays an employee if he/she retires or resigns from employment. An employee does not contribute any portion of her salary towards this amount. Gratuity is only paid out at the time of retirement or resignation, and in the event of death or being rendered disabled because of an accident or illness.

An employee must have worked for some time to qualify for gratuity. However, this rule is normally relaxed in the event of death and in this case the gratuity will be paid to the nominee of the employee.

Section 35 of the Employment Act provides instances where an employee should be paid service pay or gratuity. Sub-section 5 provides that ‘an employee whose contract has been terminated under sub-section 1(c) (which talks about notice period) shall be entitled to service pay for every year worked, the terms of which shall be fixed’. Sub-section 6 further states that this section shall not apply to an employee who is a member of a registered pension or provident fund scheme, a gratuity or service pay scheme, or any other scheme established and operated by the employer.

Benefit twice

You indicate that your employer gives you gratuity at 70 per cent of your basic salary as gratuity at the end of every contract year. The Act provides that service pay should be calculated at 15 days salary for every year worked. Your employer is giving you 70 per cent, which is a better package than the service pay.

What this means, then, is that if you resign from employment or your services are terminated, you cannot claim service pay from your employer. The amount you have been receiving as gratuity will be taken into account when your dues are being calculated.

When a person is declared redundant, then the employer is required to pay the employee severance pay, which coincidentally is also calculated at 15 days salary for every year worked. Having received gratuity at 70 per cent, you cannot claim severance pay.

An employee cannot benefit twice from the employer, as is clearly provided under Section 35 of the Employment Act. So you can either receive service pay, severance pay or gratuity, but not all of them.

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