A gratuity is a once-off payment made to an employee to mark a particular event, most commonly long service or retirement. It is not regular pay, and parts of it may qualify for special tax treatment.
What it means
Gratuities differ from ordinary bonuses because they often relate to the end of a long period of service rather than performance in a year. Certain gratuities, like those paid on retirement, fall under the lump-sum tax tables with a tax-free portion, which is why a directive is usually needed to fix the tax.
Where it fits in
A gratuity is an earnings component paid in the relevant pay run, frequently the final one. Where it is a qualifying lump sum, a lump-sum directive (indicator L) governs the tax, and it is reported under the IRP5 source code for that type of payment.
Key rules
- A once-off payment for an event such as long service or retirement.
- Some gratuities fall under the lump-sum tables with a tax-free portion.
- A directive usually fixes the tax on qualifying gratuities.
- Reported under the prescribed IRP5 source code.
