Every contract of employment has a beginning and an end.
For fixed-term contracts, the end is normally known from inception, whilst it is uncertain for contracts of unspecified periods of time commonly known as permanent contracts.
Permanent contracts can come to an end due to retirement which is known from inception. Resignations, dismissals or death on the other hand come as a surprise hence the element of uncertainty. When the time comes, every employee or their next of kin is entitled to terminal benefits and these are the final entitlements of an employee upon termination of an employment contract.
These entitlements can include: leave pay, notice pay, remuneration for the work done prior to termination of employment, severance pay (in the absence of pension or gratuity), pension or gratuity. Gratuity is a common substitute for pension in Botswana however, in some cases, it is paid monthly along with the employee’s wages for the month. For most this is common and normal practice, but did you know it actually has its drawbacks for both employers and employees? Read on!
Every employment contract has a commencement and a conclusion. While the termination of fixed-term contracts is typically predetermined, contracts of unspecified periods, commonly known as permanent contracts, introduce an element of uncertainty regarding their conclusion. Permanent contracts may terminate due to anticipated events such as retirement, but events like resignations, dismissals, or unforeseen circumstances like death bring an element of surprise.
Upon termination, every employee or their next of kin is entitled to terminal benefits, encompassing the final entitlements due at the conclusion of an employment contract. These entitlements include leave pay, notice pay, remuneration for work completed before termination, severance pay (in the absence of pension or gratuity), and pension or gratuity.
Gratuity often serves as a substitute for pension in Botswana. However, in certain cases, it is disbursed monthly along with the employee’s wages for the month. While this practice is commonplace, it carries drawbacks for both employers and employees. Explore further to uncover these nuances!
Definition
Gratuity is a payment made by an employer to an employee as a form of appreciation or reward for long service and devotion to the company, above and beyond the usual wages or salary. It is paid at the end of an employment contract as a form of terminal benefit. This is a benefit meant to be enjoyed by employees at the end of their employment with a specific employer.
Drawbacks
The error that is normally made is paying employees their gratuity on a monthly basis. At first glance this may seem like a brilliant idea, employees would get to enjoy “the fruits of their labour” whilst they still can. For some, it also acts as a bit of a boost as far as their monthly wages are concerned however, “not all that glitters is gold.” The first drawback is that employees stand the chance to miss out on financial aid that may cushion them at the end of their employment contract or whilst they are searching for their next job. Basically, what they would receive at contract termination would be their wages for that month and their leave pay only, for most this is not much. However, had they not received their gratuity on a monthly, in addition to the previously mentioned such employees would receive their gratuity as well.
The second drawback goes towards the employer. As per the above-mentioned definition, gratuity must be paid at the end of an employment contract. If an employer opts to pay its employees gratuity on a monthly basis, they would be in direct violation of this principle. This practice implies that the concerned employee’s contract of employment is being terminated and renewed every month, something that is rather unusual. Thirdly, a more controversial drawback is that employees stand to lose out on a potentially higher gratuity payout as it would have incorporated the earlier salary increment(s).
This further digs into the pockets of employees. The gratuity in this case does not accrue therefore no lumpsum payment is received by the employee, furthermore, increments make a very insignificant difference to the gratuity pay. On the contrary, for employers, this is beneficial in the sense that they get to pay less towards gratuity. This is exactly what draws most employers towards the monthly payments.
Conclusion
Gratuity is meant to be savoured at employment contract termination. The labour law recognises it as a terminal benefit, thus making it unlawful to pay gratuity monthly. Additionally, it is a massive disadvantage for employees to receive it monthly. It is therefore imperative that employers refrain from such a practice.
Contacts
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