Understanding gratuity is essential for employees and employers alike. Kuwait’s end-of-service benefit is a financial payment. It is made to a worker at the end of their employment contract. These benefits provide employees with financial security. Especially when transitioning to a new job or during periods of unemployment.
Gratuity can be complex with regard to Kuwait’s labor law. The guide aims to clarify the:
- Important aspects of end of service benefits in Kuwait, including
- What is gratuity?
- How it is calculated?
- Who is entitled to receive this
And much more! Helping employees and employers understand their obligations.
What Is Gratuity?
Gratuity is a lump sum payment. The amount made to workers on ending their employment. The gratuity amount is based on the employee’s final salary. Their service length with the employer also depends on it.
Gratuity is considered a liability for employers. It accrues over the duration of the employee’s service. Employees may receive this benefit upon:
- Resignation
- Termination, or
- Other forms of contract completion.
Governed by the Kuwait Labor Law Article 51. Applied those not covered by the Social Insurance Law. Workers receiving gratuities do not contribute to the Kuwaiti pension system.
Who Is Eligible for Gratuity?
Employees are entitled to gratuity. Those may receive under the following circumstances:
Completion of Contract:
Employees who have completed their contract. One who is leaving the company is eligible for gratuity.
Resignation or Termination:
Resignation and termination make an employee eligible for gratuity. However, it is under certain conditions.
Death:
Employee family who passes away during their tenure. They are entitled to the employee’s gratuity benefits.
Disability:
Those unable to continue working due to a permanent disability. These workers are entitled to gratuity payments.
Prolonged Illness:
Those workers who have been absent due to illness and have exhausted their sick leave entitlements. They may qualify for gratuity.
Bankruptcy of Employer:
When the employer declares bankruptcy. If the business closes permanently, then workers are still entitled to gratuity.
Female Workers:
A female employee who resigns within a year of her marriage. She is entitled to gratuity.
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How is Gratuity Calculated?
Gratuity is calculated based on the employee’s last drawn salary. It is outlined by Article 62 of the Kuwait Labor Law. However, the calculation varies. It primarily depends on the employee’s method of payment. It can be daily, weekly, hourly, or monthly. We breakdown of how gratuity is calculated below:
For Monthly-Paid Employees:
For the First Five Years:
Employees are entitled to 15 days of pay for each year of service.
After Five Years:
Employees are entitled to one full month’s salary. This is for each year of service beyond the first five years.
Maximum Limit:
The total end of service benefits in Kuwait for monthly-paid employees are capped. However, it is at one-and-a-half years’ worth of remuneration.
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For Daily, Weekly, Hourly, or Piecework Employees:
For the First Five Years:
Employees are entitled to 10 days of pay for each year of service.
After Five Years:
Workers may receive remuneration of 15 days for each year beyond the first five years.
Maximum Limit:
The gratuity is paid on a daily, weekly, hourly, or piecework basis. They are capped at one full year’s remuneration.
Fractional Year of Service:
The gratuity is calculated proportionally based on the employment duration. In cases where an employee has worked for a year fraction
Example Calculation:
The table illustrates the gratuity calculation. Breaking down for the employee who worked for 7 years with a monthly salary of 1,000 KWD. The maximum gratuity limit of 1.5 years’ salary is not exceeded.
| Period of Service | Gratuity Calculation | Total Gratuity |
| First 5 Years | 5 years × 15 days × (1,000 KWD ÷ 30 days) = 2,500 KWD | 2,500 KWD |
| Next 2 Years | 2 years × 1-month salary (1,000 KWD) = 2,000 KWD | 2,000 KWD |
| Total Gratuity | 2,500 KWD + 2,000 KWD = 4,500 KWD | 4,500 KWD |
What Happens to Unpaid Leave During the Service Period?
Unpaid leave periods are excluded from the employee’s total service. If an employee has taken extended unpaid leave. Then those days will not be counted towards their gratuity calculation. The total service period will be reduced by the time length the employee was on unpaid leave.
Can Employers Withhold Gratuity?
Kuwait employers may withhold gratuity payments in certain circumstances. For instance, if the employee has violated the employment contract terms.
As per Article 41 of the Kuwait Labor Law:
“An employer is allowed to terminate the employee’s services without notice or compensation. These may include gratuity under the following conditions:
- The employee caused significant financial loss to the employer.
- The employee obtained employment through fraud or misrepresentation.
- The employee divulged company secrets or caused damage to the employer.
- The employee was involved in illegal activities. Those harmed the employer’s interests.
The employer may refuse to pay the gratuity in such cases. These exceptions are limited to serious violations. However, the employer must provide the employee’s wrongdoing proof.
What is the Maximum Limit for Gratuity?
Table illustrating the gratuity calculation. Its corresponding maximum limits are based on the employee’s pay type.
| Employee Type | Gratuity Calculation | Maximum Gratuity |
| Monthly-Paid Employees | 15 days of salary for each year of the first 5 years, 1 month of salary for each year thereafter. | One-and-a-half years of salary |
| Daily, Weekly, Hourly, or Piecework Employees | 10 days of salary for each year of the first 5 years, 15 days of salary for each year thereafter. | One year of salary |
Impact of Resignation vs. Termination on Gratuity Payment
Employee resignation or termination can affect the gratuity they are entitled to receive.
Resignation:
Workers are granted gratuity payments when they voluntarily resign. The amount may be less than the employer’s contract termination. Further, workers who resign without three years of service completion may face a reduction in their gratuity.
Termination by Employer:
When an employer terminates the employee’s contract. In this case, the employee can receive full gratuity benefits. These are outlined in the Kuwait Labor Laws of Article 51. Regardless of how long workers have worked, they are granted a full gratuity
Types of Separation Entitling Employees to Full End of Service Benefits in Kuwait
Full end-of-service benefits are granted to workers in the following situations:
Expiry of Contract:
When the employment contract expires without being renewed. Then, the employee is entitled to the full gratuity.
Marriage of Female Workers:
Female employees who resign within one year of marriage. They are entitled to full gratuity.
Death or Disability:
When an employee passes away, or is medically declared. They are unable to continue working. The family/employee is entitled to full gratuity.
Sickness:
Workers who face a long-term illness and have exhausted their sick leave. They are granted to full gratuity.
Employer’s Bankruptcy:
Employees may receive full gratuity if the employer is declared bankrupt.
Permanent Closure of Business:
In case the employer shuts down their business permanently. In this scenario, the worker is granted full gratuity.
Unlawful Termination:
Workers who are terminated due to the employer’s failure. It can be any reason. Failure to adhere to the terms of the contract or violations of the law. These can be:
- Assaults or
- Unsafe working conditions are entitled to full gratuity.
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Conclusion
Gratuity is a significant entitlement for Kuwait employees. It provides financial security at the employment tenure end. However, provisions understanding is essential. Those related to gratuity calculations, eligibility, and payments. Imperative for both employees and employers. This way, they can ensure compliance with the Kuwait Labor Law.
Workers should be aware of the conditions under which gratuity may be withheld. They make sure that they are aware of their rights. Particularly when their service period comes to an end.
Both parties can avoid misunderstandings by understanding key aspects of gratuity payments. This gives them surety that all legal obligations are met. From job resignation to facing termination. Even retiring, gratuity can provide a vital cushion during your transition.
