Gratuity in Pakistan: who gets it, how it’s calculated, by province
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A private-sector worker in Pakistan is owed at least 30 days’ wages as gratuity for every year of service when the job ends; in Balochistan it is two months’ wages. It is worked out on your last month’s wages, and a final part year of more than six months counts as a full year. You get it when you resign too; only dismissal for misconduct rules it out.
Which law applies
The law of the place where you work applies. These laws cover industrial and commercial establishments, such as factories, shops, companies and contractors, not government employees under their own service rules. If you are a government employee, see how government pension and commutation are calculated.
| Where and which law | Gratuity per year | Establishment size |
|---|---|---|
| Islamabad: Standing Orders Ordinance 1968 | 30 days’ wages | 20 or more workers |
| Punjab: Punjab Labour Code 2026 | 30 days’ remuneration, after one year | 20 or more workers |
| Sindh: Terms of Employment (Standing Orders) Act 2015 | One month’s wages | 10 or more workers |
| Khyber Pakhtunkhwa: Standing Orders Act 2013 | 30 days’ wages | 10 or more workers |
| Balochistan: Standing Orders Act 2021 | Two months’ wages | 10 or more workers |
The Punjab Labour Code was passed in February 2026 and, under its section 1(3), takes effect from a date the government notifies in the Gazette. We have not seen that notification ourselves. If your job ended before it took effect, the 1968 Standing Orders Ordinance applied in Punjab.
How gratuity is calculated
- Wage base: your wages in the last month of service if you are on a fixed wage, or the highest pay in the last 12 months if you are piece-rated. “Wages” in these laws means pay and allowances, not just basic pay; bonus, travel allowance and the employer’s provident fund contribution are left out.
- Count the years: each completed year from joining to your last day counts. If more than six months are left over, one more year counts; six months or less is dropped.
- Formula: gratuity = last monthly wage ÷ 30 × days per year × years counted. For a monthly-paid worker, 30 days’ wages is one month’s wages.
Punjab differs in two ways. You must first complete a year, and only after that does a part year over six months count as a full year. And section 160 of the Labour Code caps gratuity for higher earners, but only on redundancy or retrenchment: those earning 5 to 10 times the minimum wage get at most 12 months’ remuneration, and those above 10 times at most 6 months’. The cap does not apply when you resign or are terminated for other reasons.
Worked examples
8 years in Islamabad, Sindh or KP
Last wage Rs 120,000 a month, service from 1 February 2019 to 15 October 2026, which is 7 years, 8 months and 14 days. The 8 months are more than six, so 8 years count: 120,000 ÷ 30 × 30 × 8 = Rs 960,000. Punjab gives the same. In Balochistan, at two months a year, the same service gives Rs 1,920,000.
10 months of service
From 1 December 2025 to 15 October 2026, which is 10 months and 14 days. Read literally, the Islamabad Standing Orders count this as one year, so the gratuity is Rs 120,000. Under the Punjab Labour Code the first year is not complete, so the gratuity is Rs 0.
One year and seven months in Punjab
From 1 March 2025 to 15 October 2026, which is 1 year and 7 months. The first year is complete, so the 7 months count as another year: 2 years and a gratuity of Rs 240,000.
Work out your own figure with the gratuity calculator. If your company scheme pays more days a year, enter that number, because the law is only the minimum.
Provident fund and gratuity
- Islamabad: if the employer runs a provident fund that you contribute to and its own contribution is not less than yours, no gratuity is due for the period the fund existed. A similar rule applies to an approved pension fund set up through collective bargaining.
- Punjab, Sindh, KP: the same rule, with the condition that the provident fund paid (in Punjab, the employer’s contribution) is not less than the gratuity would have been. Under the Punjab Labour Code the employer and employee each pay one month’s remuneration a year into the fund.
- Balochistan: the whole provident fund balance, with profit, is paid in addition to gratuity.
Everywhere, you are entitled to your own and your employer’s contributions in the provident fund even if you resign or are dismissed.
Tax on gratuity
Section 12(2)(e) of the Income Tax Ordinance treats gratuity as salary. Clause (13) of Part I of the Second Schedule exempts:
| Type of gratuity | Tax-free |
|---|---|
| Employee of the government, a local government, or a statutory body or corporation | The full amount under the service rules |
| From a gratuity fund approved by the Commissioner | The full amount |
| Under a scheme approved by FBR that covers all employees | Up to Rs 300,000 |
| Any other gratuity (for example paid directly under the labour law) | Half the amount or Rs 75,000, whichever is less |
The exemption does not apply to a payment received outside Pakistan, to a company director who is not a regular employee, to a non-resident employee, or to an employee who has already received gratuity from the same or any other employer.
Example: if the Rs 960,000 gratuity above is not from an approved fund or scheme, Rs 75,000 is exempt and Rs 885,000 is taxable. If your other taxable salary that year is Rs 1,440,000, your tax for the year rises from Rs 32,400 to Rs 141,000, so about Rs 108,600 goes in tax on the gratuity. From an approved fund the same amount would be tax-free. The slabs are in income tax slabs 2026-27.
How to claim your gratuity
- Keep your resignation or termination letter, appointment letter, last payslip and provident fund statement.
- Work out your gratuity with the calculator and ask your employer in writing for its calculation and a payment date. Keep a copy.
- If a worker dies in service, the employer does not pay the family directly. It must deposit the gratuity with the Workmen’s (in Punjab, Employees’) Compensation Commissioner, who divides it among the dependants. If the employer does not deposit it, the dependants can apply to the Commissioner to recover it.
If your employer refuses to pay
- Punjab: under section 338 of the Labour Code you can apply to the Payment of Wages Authority when gratuity or provident fund dues are delayed, normally within three years of the date they fell due. You, a lawyer, a union official or a labour inspector can file it. The Authority can order payment plus compensation of up to three times the delayed amount, recoverable as arrears of land revenue. The other route is section 335: give your employer a written grievance within three months; if it does not reply within 15 days or you disagree with the reply, go to the Labour Court within 60 days.
- Islamabad, Sindh, KP, Balochistan: the Standing Orders send individual grievances to the Labour Court through the procedure of the relevant Industrial Relations law. Labour inspectors appointed under these laws enforce the Standing Orders, and breaches are tried by the Labour Court. Those laws set time limits for grievances, so ask your provincial labour department or a lawyer early.
Common mistakes
- Taking the company scheme for the law. If your scheme pays on basic pay only, check the result is not below the legal minimum.
- Ignoring a final part year of more than six months, or forgetting Punjab’s first-year rule.
- Assuming the whole gratuity is tax-free. For gratuity not from an approved fund or scheme, at most Rs 75,000 is exempt.
- Claiming both provident fund and gratuity where the law gives only one, or taking only one in Balochistan where both are due.
- Waiting too long. In Punjab the window for a written grievance to the employer is only three months.
Frequently asked questions
Is gratuity paid if I resign?
Yes. All five laws pay gratuity when the worker resigns or the employer ends the job for any reason other than misconduct (in Punjab, gross misconduct). It is also paid to the dependants of a worker who dies in service.
Is gratuity calculated on basic pay or gross salary?
The laws use the wages (in Punjab, remuneration) of your last month of service, or for piece-rated workers the highest pay in the last 12 months. That is wider than basic pay. Many company schemes use basic pay instead; the law is the minimum, so check your scheme gives at least as much.
Do I get gratuity after 6 months or less than a year?
In Punjab, no: the Labour Code pays gratuity only after a year of continuous service. The Standing Orders laws of Islamabad, Sindh, KP and Balochistan count any part of a year above six months and state no separate one-year minimum, but employers and courts may read this differently.
How much of my gratuity is tax-free?
Government gratuity and payments from an approved gratuity fund are fully exempt. Under a scheme approved by FBR for all employees, up to Rs 300,000 is exempt. Any other gratuity is exempt only up to half the amount or Rs 75,000, whichever is less; the rest is taxed as salary.
My employer has a provident fund. Do I still get gratuity?
In Islamabad, Punjab, Sindh and KP, no statutory gratuity is due for the years in which the employer ran a provident fund and paid in at least as much as you. In Balochistan the provident fund is paid in addition to gratuity.
Where do I complain if my employer does not pay?
In Punjab, you can apply to the Payment of Wages Authority within three years, or raise a written grievance and then go to the Labour Court. In the other provinces and Islamabad, the Standing Orders send individual grievances to the Labour Court under the Industrial Relations law, and labour inspectors enforce the Standing Orders.
Calculators for this guide
- Gratuity calculatorCalculate the gratuity due at the end of your job in Pakistan from your last salary and years of service.
- Pension calculatorEstimate a federal government employee’s monthly pension and commutation lump sum from last pay, length of service and age.
- Salary tax calculatorCalculate your monthly income tax and take-home salary under the 2026-27 budget, and see how much you save compared with 2025-26.
Sources
- Industrial and Commercial Employment (Standing Orders) Ordinance 1968, sections 6-7 and Standing Order 12(3), (6)-(9) (Pakistan Code)
- Punjab Labour Code 2026 (Act IX of 2026): sections 1(3), 159-161 (gratuity, cap, provident fund), 293 and 338 (Payment of Wages Authority), 335 (grievance)
- Sindh Terms of Employment (Standing Orders) Act 2015 (Sindh Act XI of 2016), Standing Order 16(3), (6)-(9)
- Khyber Pakhtunkhwa Industrial and Commercial Employment (Standing Orders) Act 2013, Schedule clause 17
- Balochistan Industrial and Commercial Employment (Standing Orders) Act 2021, Standing Orders 16(3) and 17
- Income Tax Ordinance 2001 as amended up to 30 June 2026 (FBR): section 12(2)(e), Second Schedule Part I clause (13)
This guide explains the rules for general information. It is not official, legal or tax advice. Rules change, so check the official source or a qualified professional before acting. See how we check our information.