Gratuity is paid at discretion of employer

Claris Ogangah

QUESTION: My employer has a policy that provides for payment of gratuity upon the successful completion of a contract. The employer has interpreted this to mean no payment is made on termination of contract by either party. Kindly explain what gratuity is and the difference between it and service pay?

　

Gratuity is a monetary gift from an employer to an employee especially for services rendered. The Employment Act provides for its definition and also for instances when it should be given.

Gratuity is a lump sum amount that an employer pays an employee if he or 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.

However, it is important to note that gratuity is given at the discretion of the employer, especially in cases where the employer has registered with a pension scheme and is contributing on behalf of the employees or the employer pays out service pay at the end of the contract.

Your employer pays out gratuity at the completion of a contract. There is nothing wrong with this. The employer is not in breach of the Employment Act because the employer expects the employee to perform work, which takes time to complete, and if the employee leaves midway then it means the employer has to employ someone else to complete the job. If the employer is to do this it means the organisation will lose out every time an employee leaves without completing the project.

Project oriented

Your kind of work seems to be project oriented, meaning the contract period is equal to the completion of the project. As such, your employer is correctly concerned with the completion of the contract and in some such projects, probably gratuity is to be paid out at the completion of the contract and does not factor in payment to an employee leaving midway.

Service pay on the other hand is similar to gratuity save that it 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.

An employee cannot get both service pay and gratuity and the employer has discretion to pay either of the two to the employee. In fact, Section 35 is clear on payment of gratuity and service pay and from the reading you can only get one of the two.