Ex-Gratia

What is Ex-Gratia?

Ex-Gratia refers to a monetary payment made by an employer to an employee voluntarily, without the employer being obligated to do so. The term "ex-gratia" is derived from Latin, meaning "out of goodwill" or "as a favor." Such payments are typically made as a gesture of goodwill and not as a matter of legal or contractual obligation.

Characteristics of Ex-Gratia Payments:

  1. Voluntary Nature: The employer is not legally bound to make the payment; it is given at the employer’s discretion.

  2. Goodwill Gesture: It is often provided to show appreciation or to assist employees during challenging times.

  3. Non-contractual: Ex-gratia payments are not part of the employee's salary or benefits outlined in the employment agreement.

  4. Tax Implications: Depending on local tax laws, ex-gratia payments may or may not be taxable.

  5. Purpose: It may be given during festivals, financial hardships, as compensation for layoffs, or even in recognition of exceptional service.

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