Zakah: On (employment) savings plans

Q724 :Our company deducts ten percent of the salary of its employees and invests the amount and gives profits or deducts losses and it also gives an accrued reward as well as earning on that reward. This makes the money we have in the plan fall under several items: Savings balance, which an employee takes as a loan or withdraws at any time. The other amounts will be paid to the employee only if he resigns or retires. Similarly, if his contract is terminated, the savings balance will be paid in full but the other amounts may be with-held totally or partially according to the severity of the offense which has caused termination. Which of these funds are liable to zakah?

A724 : I understand that the savings balance refers to the ten percent deducted from the salary of each employee. As such, it is part of his own money. According to the terms and conditions you have outlined, he is liable to withdraw this amount or take a loan not exceeding its total. The other items which you have mentioned, such as profits, rewards and earnings on the reward are withheld. An employee cannot make a claim against them and cannot withdraw them partially or totally [while still in service]. They are there until he reaches retirement or leaves the company. Therefore, they cannot be described as his property although the company acknowledges his right to them when the time comes. In other words, they are promised to him and there is no reason to suppose that the promise will not be fulfilled. It is a condition for any property to be liable to zakah that it should be fully owned by its proprietor. Full ownership means ability to benefit by it and dispose of it in a legitimate way, such as selling it or giving it as a gift or exchanging it for some other property. In the savings plan which you have outlined, only the "savings balances" seems to be fully owned by the employee. Therefore, this part is zakatable, provided that the employee is liable to zakah. To be so liable, he has to have more than the threshold of zakah, which is equivalent to [the value of] 634 gm of silver. A person who has this amount in excess of his normal expenditure should make a note of the date when he came in to the possession of this amount and on the same day of each following year, he calculates what he has. If it is still over the threshold of zakah, then he has to pay zakah on all that he owns of zakatable property at the normal rate of 2.5 percent. When he makes his calculation, he should include the savings balance which is fully zakatable. As to the other items in the plan, they are not fully owned by the employee. Therefore, they become zakatable only when full ownership is realized, i.e. when they are paid to him. Upon his retirement, or resignation, he receives them. On the same day, he should pay zakah on that amount for one year, provided of course that he is liable to zakah. If it is in excess of the threshold of zakah, he has to pay zakah on this amount. If it is not, no zakah is payable.

Our Dialogue ( Source : Arab News - Jeddah )