Are you an employee (or former) looking for ways to calculate the gratuity amount you qualify from your employer? Then you are in the right place.
Gratuity in Kenya is calculated by multiplying the employee’s monthly basic salary by the total number of years worked. However, the gratuity amount can also be different based on a contractual agreement between the employer and the employee.
For complete procedure, continue reading.
What is Gratuity?
Gratuity is money paid by an employer to an employee when he/she resigns or retires from the organization. It should be noted that this lump sum is not deducted from the employee’s salary during their active employment.
Gratuity payment (sometimes known as Service Pay Scheme) has been established under the Employment Act (cap 226, Laws of Kenya). To qualify for gratuity, an employee should have worked for five or more years (continuous employment with no gaps in between).
Gratuity is paid for two main reasons:
- To encourage employees to work longer for the employer. (More years in services equals more gratuity pay).
- To offer consolation to the employee in case of termination of employment.
Circumstances under which Gratuity is paid
Gratuity in Kenya is paid in the following circumstances:
- When the employee retires
- When the employee dies (in this case, the Gratuity is paid to next of kin or personal representative).
- In case the employee resigns (having fulfilled the five years requirement)
- In case of disablement (caused by accident, illness, or other unfortunate circumstances).
Circumstances under which Gratuity is not paid
An employee is not entitled to a gratuity payment if he/she is a member of:
- a registered pension or provident fund scheme under the Retirement Benefits Act (No. 3 of 1997)
- a Gratuity or service pay scheme established under a collective agreement
- Any other scheme established by the employer whose terms are more favorable than the gratuity scheme
- National Social Security Fund (NSSF).
Tip: If you are a member of NSSF, you are not qualified for a Gratuity fund from your employer. This is because Kenyan courts have recognized membership to NSSF as sufficient social security for an employee.
How is Gratuity Calculated in Kenya?
We have already seen that gratuity is generally calculated by multiplying the basic monthly salary by the number of years worked.
This means that if an employee used to earn Ksh. 30,000 basic salary and worked for six years, her gratuity amount would be as follows:
30,000 * 6 = Kes. 180,000.
However, it is worth noting that the amount can also be subject to change based on the agreement between the employer and the employee.
For example, they may agree (in writing) that if the employee served for five years continuously, the gratuity amount is Kes. 200,000. Then for each extra year served, the gratuity amount would be Kes. 2,500.
The Final Answer: It depends.
Frequently Asked Questions:
Can I receive gratuity funds if I am summarily dismissed from employment?
No. The Gratuity fund is not payable in Kenya if the employee has been dismissed (fired).
However, this does not prevent the employee from staking a claim in the Industrial Court for unfair dismissal (citing that the employer did so as to avoid paying the gratuity).
Does having NSSF disqualify one automatically from receiving gratuity?
Of course not. Mere membership in National Social Security Fund does not prevent one from receiving the Service Pay Scheme. In such cases, the courts have in the past ordered the NSSF to be deducted from the Gratuity fund to ensure the employee doesn’t receive a double benefit.
That was the complete guide on how to calculate gratuity in Kenya. Got any question? Leave a comment below.
Disclaimer: The information offered in this article is meant to provide information only, and should not be taken as legal advice.