GRATIS IS NOT ALWAYS GRATUITY

Sep 27, 2012 Features / Columnists, Peeping Tom

There are two types of gratuity payments that are available for persons who work within the public sector of Guyana. The government should in the spirit of a working class government institute laws that would make it compulsory for private sector employees to be entitled to gratuity payments.
The first type of gratuity is a “gratuitous” payment which is made to employees who enjoy statutory protection, that is, tenured employees. It is payment when the person’s employment is terminated after having worked for a specified period of time or when the person retires.
It is not a contributory scheme. However, while it is a payment made in gratitude for the long services of an employee, it is also not a discretionary payment made by the employer. The Courts have held that the payment of a gratuity is no longer a bounty of employers but now a part of the entitlement of workers.
In fact, there is usually in law a prescribed formula for calculating the gratuity thus removing the need for discretion in determining the amount payable. The formula is usually based on a number of factors including years of continuous service and the level at which one retires or worked.
In many jurisdictions, there are laws which safeguard this entitlement for workers. However within these laws there is usually the requirement of continuous service by the employee. Laws also prescribe that the employee must leave in good standing, that is, the gratuity is only payable based on attainment of a prescribed period of continuous employment. The right to a gratuity is often, but not always, forfeited if the employee is dismissed.
In some cases persons may be eligible for a gratuity for working as few as five years of service. But once the minimum number of years, as prescribed in law, has not been attained, then someone who had worked for a shorter period, cannot claim an entitlement of a gratuity. This position finds expression in business law.
Once a public servant retires then that person has a legitimate expectation to a gratuity. The person will look forward to a pension and to a gratuity upon retirement.
Usually when someone retires the gratuity is not taxable but there are cases where the relevant laws of provisions allow for situations in which a person who is eligible for gratuity prior to retirement may have his or her gratuity subject to tax. The general rule however is that the gratuity of a retiree however is not subject to taxation.
The second type of gratuity is a misnomer. It is not a gratuity at all. It is not gratis but an earned contractual right but which is often dependent on satisfactory performance on the job. This type of payment is usually built into the contract or employees, usually those that are not tenured, and the justification for this is usually given as being in lieu of pension.
The issue of pension, however, needs to be delinked from the payment of a contractual right to periodic payments of a gratuity. The two are not in any way remotely related and the absence of one is merely suggested as the reason for offering a contractual benefit, known as a gratuity.
As such no gratuity can be said to be a payment in lieu of a pension more so since a pension is a contributory scheme while a contractual benefit payable during the term of employment and which is called a gratuity is not. Employers should therefore resist equating a contractual gratuity, which has conditions attached, to that of a payment in lieu of pension.
This second gratuity is often seen as a benefit of employment but is not an entitlement since it is often a condition of a contract and as in most contracts may be linked to other variable such performing to the satisfaction of the employer.
This is where problems usually arise since in many instances, the employer has discretion in determining what constitutes satisfactory performance since contracts are usually vague when it comes to performance standards that have to be attained.
This is the downside to contractual gratuities in that the employee is almost totally exposed to the discretion of the employers when it comes to deciding on what constitutes satisfactory performance.
The government can correct this problem through law and ensure that similar payment of gratuity is granted to workers in the private sector.

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