End of Service Gratuity
Employment Details
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Calculation Standard
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Gratuity is usually exempt from income tax up to Rs. 300,000 if paid by an unapproved fund, or fully exempt if paid by a Commissioner-approved Gratuity Fund. Check with your HR.
Understanding End of Service Gratuity in Pakistan
Gratuity is an end-of-service benefit given by employers to employees as a token of appreciation for their service. In Pakistan, it is governed primarily by the West Pakistan Industrial and Commercial Employment (Standing Orders) Ordinance, 1968.
Who is eligible?
- An employee must have completed a minimum of one year of continuous service (though practically, any tenure crossing 6 months is rounded to a year).
- The employer does not maintain an approved Provident Fund (PF) scheme where the employer matches the employee's contribution. If a PF scheme exists, Gratuity is often not legally required, though some companies offer both.
- The employee is resigning, retiring, or was terminated (other than for proven misconduct).
How is it calculated?
The standard legal calculation stipulates 30 days of wages for every completed year of service, or any part thereof in excess of six months.
Since a working month is counted as 26 days under labor laws, the formula used is: (Gross Salary ÷ 26) × 30 × Years of Service
Example: If you worked for 4 years and 7 months, your tenure is counted as 5 years.