How gratuity is calculated in Pakistan
Private sector gratuity comes from the Standing Orders laws of each province. For a workman in a covered industrial or commercial establishment:
- Punjab and Islamabad: 30 days' wages for each completed year of service.
- Sindh and Khyber Pakhtunkhwa: one month's wages for each completed year.
- Service of more than six months in the last year counts as a full year; six months or less is ignored.
- The wage is your last monthly wage, including regular allowances but not bonus or profit share.
- Gratuity is paid when you resign, retire, are laid off or die in service, but not when you are dismissed for misconduct.
Worked example
Last wage Rs 120,000, service 7 years 8 months, Punjab. The 8 months count as a full year, so 8 years are counted. 8 × Rs 120,000 = Rs 960,000. If your employer uses 30 days at wage ÷ 26 (Rs 138,461.54 a year), the gratuity is Rs 1,107,692.31.
| Service | Years counted | Gratuity on Rs 100,000 |
|---|---|---|
| 2 years 4 months | 2 | Rs 200,000 |
| 2 years 7 months | 3 | Rs 300,000 |
| 5 years | 5 | Rs 500,000 |
| 10 years 9 months | 11 | Rs 1,100,000 |
Who is covered
The Standing Orders cover workmen, meaning people doing skilled, unskilled, manual or clerical work, in establishments above a minimum size set by each province. Managers and supervisors may be outside the law and rely on their contract. If your employer runs a provident fund to which it pays at least half, gratuity may not be due for that period. Government employees have their own pension and gratuity rules.
Tax on gratuity
Gratuity from an approved gratuity fund, and some other gratuity, can be fully or partly exempt from income tax under the Second Schedule of the Income Tax Ordinance 2001. Ask your employer or a tax adviser how yours is treated, and use the Pakistan salary tax calculator for your regular salary.
If it is not paid
Ask your employer in writing first. If it is still not paid, you can file a claim with the authority under the Payment of Wages Act 1936 or your province's equivalent, generally within three years.
Sources
- West Pakistan Industrial and Commercial Employment (Standing Orders) Ordinance 1968, Standing Order 12(6) (Punjab and Islamabad)
- Sindh Terms of Employment (Standing Orders) Act 2015
- Khyber Pakhtunkhwa Industrial and Commercial Employment (Standing Orders) Act 2013
- Payment of Wages Act 1936 and provincial equivalents, for claims