All about End of services Gratuity in Kuwait

Article 51 of Kuwait Labour Law explains an end of service benefits as follows:

• The workers who are paid on daily, weekly hourly or piecework basis shall be entitled to 10 days for each of the first five years of service and a 15 days remuneration for each year thereafter. The total end of service benefit shall not exceed one-year remuneration.
• The workers who are paid on monthly basis shall be entitled to 15 days for each of the first five years of service and one-month remuneration for each year thereafter. The total end of service benefit shall not exceed one-and-a-half-year remuneration.

The worker shall be entitled to a benefit for the fraction of the year in proportion to the period of service. Loans and credits owed by the worker shall be deducted from the end of services benefit. The provisions of the Social Security Law shall be taken into consideration in this regard, and the employer shall pay the net difference between the amounts accrued due to the subscription of the worker in social security and to the end of service benefit.

Gratuity is the amount of money an employer is lawfully required to pay their employee and it is mainly dependent on two factors: last drawn salary and number of years of service. It is usually calculated at the time of resignation or termination. Here, our payroll experts in Kuwait take you through a set of questions and answers that will help in clearing all your doubts related to end-of-service gratuity in Kuwait.

1. What is Gratuity?

   Gratuity is a monetary payment eligible to an employee as a lump sum at the end of his tenure. Gratuity payment is a liability to the employer which accrues as the employee service period progresses.

2. Who is entitled to a Gratuity?

   Employees who are not beneficiaries of the Social Insurance Law are entitled to an end-of-service gratuity

3. When does an employee become eligible for gratuity payment?

   Employees are eligible for gratuity pay at the end of their service period, upon the death of the worker, by a disability preventing his work performance, by a period of sickness which exceeds his entitlement to sick leave, the bankruptcy of the employer or if the establishment was permanently closed. If the female worker terminates the contract because of her marriage within a year after the date of marriage, she is also eligible for Gratuity.

4. What is the basis amount that is used to calculate gratuity?

   As per Article 62 Kuwait Labour Law, the calculation of worker’s entitlements shall be made based on the last remuneration received by the worker.  In the event where the worker is paid based on a daily basis, his remuneration shall be defined by an average of remuneration earned by him during the actual working days in the last three months.

5. What is the number of days used to accrue gratuity?

   15 days wages for each year of the first five years of service and one-month wage for each year of service thereafter.

   Below given table shows the calculation of accrual at a given time;
   

6. What is the effect of unpaid leave taken during the period of service?

   Any period taken by the employee as unpaid leave is excluded when determining the service period. That means unpaid leave days are excluded when accruing gratuity. The period of service is reduced by the number of days served as unpaid leave.

7. Can an employer withhold gratuity payments?

   As per Article 41 Kuwait Labour Law, the employer may terminate the services of a worker without notice, compensation, or benefit in the event where the worker has committed any of the following acts:

   • If the worker has committed a mistake that resulted in a large loss for the employer.
   • If it was found that the worker obtained employment through cheating or fraud.
   • If the worker divulged secrets related to the establishment which caused or would have caused real losses.

8. What is the maximum limit of gratuity paid to an employee, at the time of final settlement?

   The total end-of-service benefit should not exceed one-and-a-half-year remuneration for employees who are paid monthly. The total end-of-service benefit shall not exceed one-year remuneration for employees who are paid on a daily, weekly, hourly or piecework basis.

9. Does type of termination of an employment contract make any difference in gratuity payment?

   Yes, If an employer terminates the contract of an employee (Termination by employer), the employee is eligible to receive gratuity as mentioned in Article 51. If an employee terminates the contract (Resignation of an employee), the employee is entitled to gratuity as specified in Article 53 of Kuwait Labour Law. The following table shows the treatment of Gratuity in these two scenarios: Please see the below example for a better understanding table shows the calculation of gratuity payment in case of Termination

   Table shows the calculation of gratuity payment in case of Resignation

   

10. In addition to termination, what are the types of separation in which employee is eligible for entire end-of-service benefits?

    The worker shall be entitled to the entire end-of-service benefits as stated in the below-mentioned cases:

    • If the duration of the contract expires without being renewed.
    • If the female worker terminates the contract as a result of her marriage within a year after the date of marriage.
    • If the work contract shall be terminated by the death of the worker or in the event where the worker is proven incapable of performing his work, or due to a sickness that uses up all the worker’s sick leave entitlements as evidenced by a medical report approved by competent official medical bodies
    • If a final verdict was issued declaring bankruptcy of the employer
    • If the establishment was permanently closed
    • If worker terminates the contract as per Article 48 i.e.
      • If the employer does not abide by the terms of the contract or the provisions of the law;
      • If the worker was assaulted by or by provocation from either the employer or his deputy;
      • If continuing work will endanger his safety and health pursuant to the decision of the medical arbitration committee at the Ministry of Health.
      • If the employer or his deputy committed an act of cheating or fraud with regard to work conditions upon signing the contract.
      • If the employer has accused the worker of committing a punishable act and the final verdict acquitted him.
      • If the employer or his deputy commits an act that violates public morals against the worker

Whether you are someone who has resigned from work, or has been terminated by the employer, the gratuity that you are eligible to receive at the end of your service can be of great help while transitioning to your next job. Hence, it is important to be aware of the gratuity payment policies and any changes to it.

For information on the payroll process in Kuwait click on this link

Payroll Process in Kuwait

The process of payroll is a little complicated and time-consuming; hence it is always recommended to outsource your company’s payroll function. Outsourcing payroll will ensure the assistance of a team of trained payroll professionals and it frees up the time of the organization, helping them focus on other projects that add value to their business.

One should be extra vigilant while selecting their payroll provider, as payroll data is highly sensitive, and one should opt for a provider that can ensure high levels of data security.

As a leading payroll outsourcing company, HLB HAMT can help solve your payroll complexities through customized strategies. We take care of our client’s entire payroll cycle that includes the preparation of payroll reports, processing salary payments with WPS compliance, accrual management including Gratuity, and pension funds, an online portal for accessing payslips, and many more. Our leadership team spends the necessary hours in every project, ensuring our clients get refined consulting services to take your business forward.

To know more about our payroll process, click here

Disclaimer:
Whilst every effort has been made to ensure the accuracy of this information, HLB HAMT will not accept any liability arising out of errors or omissions. Please note that this blog is not all-inclusive. Our guidance is designed only to give general information on the issues/topics covered. It is subjected to change and not intended to be a comprehensive summary of all laws which may be applicable to your situation, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion.

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