Gratuity: Protection of workers or killer of business in Zambia
Opinion, Personal Finance

Gratuity was initially crafted as a benefit, intended for employees who have worked for a sustained period of time, as a kind of reward for long-service. This benefit is hugely popular and a huge incentive for Zambian employees. Before the new Employment Code Act came into force, the employment benefit of gratuity was only a statutory benefit (a benefit provided for in law) for vulnerable workers who were classed as either general workers (cleaners, office clerks, drivers etc) and shop workers. For all other workers, gratuity was only a benefit if their contract of employment provided for it.


The position as it stood before the law changed seems fair. Vulnerable workers who earn very little compared to other workers in Zambia should have the compulsory gratuity benefit of 25% of the salary they earned during their employment if they have worked for 10 or more years. For all other employees, employers had the discretion to decide whether to award the benefit, depending on the workers’ performance and the financial means of the company.


In 2019, the Zambian Parliament introduced the Employment Code Act which provides that gratuity is a benefit for all workers in Zambia who serve on fixed-term (as opposed to permanent contracts) – therefore all workers who have a contract which has an end or expiry date are entitled to gratuity.


For workers, this is definitely a huge benefit because not only does it create further motivation to work – this benefit is not tied to number of years in service – therefore as long as you work on a fixed-term contract, whenever you leave employment, you get the benefit.


A problem however for employers is that it does not matter whether or not the employee resigns or is dismissed for misconduct such as stealing, they will be entitled to this benefit. Before, gratuity was only payable when the employee retires and provided they served a certain number of years. Most contracts provide that gratuity would not be payable if an employee resigned or was dismissed but now, this is not the case.


A further problem with the new gratuity law is that it applies to all employers. Not all employers in Zambia have the financial means or capacity to pay 25% of the salary earned during the contract period to all their employers. It is for this reason that the law as it stood before was favourable because employers had the discretion to decide whether they can give this benefit depending on what they could afford.


Whilst it is clear that the application of gratuity could have a detrimental effect on employers, it is critical in this respect. In Zambia, many employers use fixed-term contracts to avoid placing employers on permanent status. This is problematic because when employees are not on permanent terms, employees are under constant anxiety not knowing if their contract will be renewed and employers do not have to follow the full procedure when dismissing them but just wait for the contract to expire. Therefore, the intention of gratuity was to provide an additional benefit for those employees who are less protected than those on permanent terms. This is as it should be, given that employers could abuse fixed-term contracts by choosing to renew the contract several times instead of placing the employee on permanent and pensionable terms. Therefore, to subvert this potential abuse, a payment of gratuity will be due each time the fixed term contract expires. Thus, because this benefit is only for those on fixed-term contracts, not only does it reduce abuse of fixed terms contracts, but it also acts as an incentive for employers to place employees on permanent terms.


Thus, notwithstanding the shortcomings of gratuity, its intentions are clear and the long-term effect is to allow more employees to serve on permanent contracts, which only expire when the employee retires – thus relieving the anxiety many workers in Zambia face for fear of not having their fixed contract renewed. It should be noted that whereas employers would save money on gratuity by placing employers on permanent contracts, they would be bound to only dismiss them for a valid reason and cannot wait for their contract to expire as permanent contracts expire at the retirement age of 60.


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