End-of-Service Gratuity Calculator
Calculate the gratuity owed to employees in Pakistan based on last drawn salary, years of service, and provincial regulations. 30 days' wages per year of completed service.
What is Gratuity in Pakistan?
Gratuity is a statutory end-of-service benefit paid to employees in Pakistan upon termination, resignation, retirement, or death. It serves as a financial reward for long-term service and is governed by various provincial and federal laws, including the Sindh Terms of Employment (Standing Orders) Act 2015, the Punjab Industrial and Commercial Employment (Standing Orders) Ordinance 1968, and similar legislation in other provinces.
The standard formula across all provinces is 30 days' wages (equivalent to one month's salary) for each completed year of service. To be eligible, employees must generally complete a minimum of 5 years of continuous service with the same employer. The gratuity is calculated on the employee's last drawn monthly salary at the time of separation.
| Province / Territory | Minimum Service | Rate | Governing Law |
|---|---|---|---|
| Sindh | 5 years | 30 days / year | Sindh Terms of Employment Act 2015 |
| Punjab | 5 years | 30 days / year | Punjab ICA (Standing Orders) Ordinance 1968 |
| KPK | 5 years | 30 days / year | KPK Shops & Establishments Act 1969 |
| Balochistan | 5 years | 30 days / year | Balochistan ICA Standing Orders |
| Federal / ICT | 5 years | 30 days / year | Federal ICA (Standing Orders) Ordinance 1968 |
Employees must complete a minimum of 5 years of continuous service with the same employer. The benefit applies upon resignation, termination, retirement, or death of the employee.
Gratuity is calculated as the last drawn monthly salary multiplied by the number of completed years of service. Partial years exceeding 6 months are generally rounded up.
Gratuity from an approved fund may be exempt up to PKR 300,000. Amounts exceeding the exemption limit or from non-approved funds are taxable as income in the year of receipt.
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Frequently Asked Questions
About gratuity in Pakistan
Under most provincial laws in Pakistan, an employee must complete a minimum of 5 years of continuous service with the same employer to become eligible for gratuity. This threshold applies in Sindh, Punjab, KPK, Balochistan, and the Federal/ICT jurisdiction. Some company policies may offer gratuity with a shorter service period, but the legal minimum is generally 5 years.
Gratuity received by an employee is generally taxable under the Income Tax Ordinance 2001. However, certain exemptions apply. Gratuity received from an approved gratuity fund is exempt up to PKR 300,000 or the actual amount received, whichever is lower. If the gratuity is not from an approved fund, it is fully taxable as part of the employee's income in the year of receipt. Tax treatment may vary based on individual circumstances, so consulting a tax professional is recommended.
Gratuity entitlement primarily applies to permanent employees who have completed the minimum continuous service period. Contract workers and temporary employees are generally not entitled to gratuity unless their employment contract specifically provides for it, or unless they are later converted to permanent status and meet the service requirement. Some labor courts have awarded gratuity to long-serving contract workers on a case-by-case basis.
The last drawn monthly salary (basic salary plus dearness allowance, where applicable) is used as the basis for calculating gratuity in Pakistan. This means the gratuity is computed on the employee's most recent monthly wages at the time of separation, not an average of wages over the employment period. Allowances such as housing, transport, or bonuses are typically excluded unless the employment terms state otherwise.
If an employer refuses to pay the legally mandated gratuity, the employee can file a complaint with the relevant Labour Court or the provincial Labour Department. Under the applicable provincial laws, employers who fail to pay gratuity can face penalties and be ordered to make payment with interest. Employees should maintain records of their employment tenure and salary to support their claim. Legal aid services and labor unions can also assist in pursuing such cases.
