General Guidelines for Severance & Gratuity

Tags: Severance, Gratuity

Contract Gratuity Payments

  • Tax Rate – 25% up to $1,000,000; 30% in excess of $1,000,000
  • No exemptions
  • No tax returns required for the processing of Contract Gratuity
  • Where there is an outstanding tax liability, a garnishee order will be issued

Severance Payments

RETRENCHMENT AND SEVERANCE BENEFITS ACT Chapter 88:13 section (3)(1a-e) – workers with less than one year completed service, casual workers, temporary workers, contracted employees and seasonal workers do not qualify for the tax exemption.

The tax exemption for severance payments is $500,000 with effect from November 30th 2018.

Severance Payments Less than or equal to $500,000

  • Exempt from tax
  • No income tax returns required for the processing of Severance
  • Where there is an outstanding tax liability a garnishee order will be issued

Severance Payments Over $500,000

  • Tax Rate - based on the average rate of tax from the previous income year
  • In the year the severance is being paid, it is only the tax return for the preceding year that has to be filed to determine the average rate of tax. For example: Severance payments to be paid in 2018, ONLY 2017 Income Tax Returns are required.
  • Where there is an outstanding tax liability a garnishee order will be issued