Service pay is payable upon the termination of a contract of service. The law does not specify the terms of service pay therefore this definition is reserved for contracts, internal policies or collective bargaining agreements. This payment is however not payable if an employer is registered in a pension scheme recognized by the Retirement Benefit Authority. NSSF is recognised as such a scheme. This then exempts most employers from making this payment. See section 35 (5) Section 35 (6) of the Employment Act.
Gratuity is a gift. There is no requirement in law for any employer to make any gratuitous payments. However, there are employers who provide for gratuity payment whether in their contracts, internal agreements and or collective bargaining agreements. Where such provisions exist, the employer then is bound by their internal documents that have provided for gratuity to make the payment as per their policy.
Severance pay is only payable in the event a redundancy has been declared. There is no other way of contract termination that has a legal requirement for payment of severance pay other than in cases of redundancy. The Employment Act in section 40 provides that at a minimum, upon the declaration of a redundancy an employer should pay severance pay at the rate of fifteen (15) days pay for every completed year of service. In addition, courts have ruled in favour of prorating this payment for years of service that one has worked but not completed. An employer is allowed to make a more enhanced provision here but cannot pay below the legal minimum.