When your employment ends in Zambia, you may be entitled to several different payments depending on your contract type and the reason for leaving. Gratuity is just one of them. This guide explains each type of terminal benefit, who qualifies, and when they apply.
Use our gratuity calculator to check your gratuity entitlement, and our PAYE calculator to estimate the tax on any terminal payment.
The five types of terminal benefits
1. Gratuity
A lump-sum payment at the end of a qualifying fixed-term contract - typically one exceeding 12 months, though shorter contracts may qualify depending on the terms of employment. Minimum 25% of total basic pay earned during the contract. Governed by Section 73 of the Employment Code Act 2019.
Who qualifies: Employees on fixed-term contracts - typically those longer than 12 months, though shorter contracts may qualify depending on the terms of employment
When it applies: Contract expiry, early termination, mutual agreement, or redundancy
Calculation: Monthly basic pay x total months worked x gratuity rate
Taxable: No - paid in full without deductions
2. Redundancy pay (severance)
Compensation paid when an employer terminates employment due to redundancy. Governed by Section 55 of the Employment Code Act. The statutory minimum is two months' basic pay for each completed year of service.
Who qualifies: Employees terminated due to redundancy (business closure, position elimination, downsizing)
When it applies: Only on redundancy - not resignation, dismissal for cause, or contract expiry
Calculation: Basic monthly pay x 2 x completed years of service
Notice required: 30 days to the employee, 60 days to the Labour Commissioner
Taxable: Partially - first K2,000,000 is exempt under s.21(5) of the Income Tax Act
3. Death in service severance
If an employee dies during employment, the employer must pay severance to the deceased employee's estate. This applies regardless of whether the death was work-related. Governed by Section 54(1)(e) of the Employment Code Act.
Who qualifies: The estate of any employee who dies during active employment
When it applies: Death during employment, regardless of cause
Calculation: Basic monthly pay x 2 x completed years of service (same as redundancy)
Taxable: Partially - first K2,000,000 is exempt under s.21(5) of the Income Tax Act
4. Leave pay
Payment for accrued but unused leave days at the time of contract termination. Employees earn at least 2 days of leave per completed month of service (24 days per year).
Who qualifies: All employees with unused leave days at termination
When it applies: Any termination except desertion or summary dismissal
Calculation: Daily rate (pay / 26) x number of unused leave days
Taxable: Yes - subject to PAYE, NAPSA, and NHIMA
5. Notice pay (pay in lieu of notice)
If either party terminates employment without serving the required notice period, the other party is entitled to payment equivalent to the notice period. The standard notice period is one month for contracts exceeding six months.
Who qualifies: The party who did not receive proper notice
When it applies: Termination without the required notice period being served
Calculation: Daily rate (pay / 26) x unserved notice days
Taxable: Yes - subject to PAYE, NAPSA, and NHIMA
Side-by-side comparison
Benefit | Trigger | Who Qualifies | Taxable? |
|---|---|---|---|
Gratuity | Contract ends | Fixed-term >12 months | No |
Redundancy pay | Redundancy | All made redundant | First K2M exempt |
Death in service | Death | Employee's estate | First K2M exempt |
Leave pay | Any termination | All with unused leave | Yes |
Notice pay | No notice given | Party not given notice | Yes |
Run the numbers: open the Zamcalc gratuity calculator to see your tax-free gratuity entitlement at the 25% statutory rate, or any negotiated rate up to 40%.
Can you receive more than one?
Yes. These benefits are not mutually exclusive. An employee terminated by redundancy could receive:
Redundancy pay (because the reason was redundancy)
Gratuity (if they were on a qualifying fixed-term contract)
Leave pay (for any accrued but unused leave days)
Notice pay (if the employer did not serve proper notice)
Key point: Gratuity and redundancy pay serve different purposes. Gratuity compensates for being on a fixed-term contract rather than permanent employment. Redundancy pay compensates for losing your job through no fault of your own. You can receive both.
When must terminal benefits be paid?
Under Section 66(4) of the Employment Code Act, an employer must pay all wages and accrued benefits - including gratuity, leave pay, severance, and any outstanding salary - on the date of termination of the contract.
Failure to comply may attract administrative penalties. If your employer has not paid, you can report the matter to an authorised officer under Section 121.
Who gets what: by contract type
Contract Type | Gratuity | Redundancy | Death in Service | Leave Pay | Notice Pay |
|---|---|---|---|---|---|
Fixed-term (>12 months) | Yes | If redundancy | 2mo/yr | Yes | If not served |
Permanent & pensionable | No (pension) | If redundancy | 2mo/yr | Yes | If not served |
Casual (<1 month) | No | No | No | No | No |
Probation | No | No | No | Pro-rata | As per contract |
Frequently asked questions
Can I receive gratuity if I resign before my contract ends?
Yes. Gratuity is calculated on the months actually worked, not the full contract term. If you resign after 18 months of a 3-year contract, you receive gratuity for 18 months of service.
Is severance pay the same as gratuity?
No. Gratuity is paid at the end of any qualifying fixed-term contract regardless of the reason. Severance pay is only paid when employment ends due to redundancy. You can receive both if you are on a fixed-term contract and are made redundant.
What happens to my NAPSA contributions when I leave?
Your NAPSA contributions remain in the fund and count towards your retirement benefits. They are not paid out as a terminal benefit. You can only access NAPSA benefits at retirement age, or earlier in specific circumstances like permanent disability or emigration.
For a step-by-step calculation walkthrough, see our guide to calculating gratuity. To understand the tax implications, read Is gratuity taxable in Zambia?.