Gratuity Law in Pakistan

6/29/22, 10:17 AM (1) Gratuity Law in Pakistan | LinkedIn
Home My Network Jobs
Gratuity Law in Pakistan

Published on February 8, 2021
Muhammad Aleem
Senior Executive HR | HR Operations| Talent Acquisition Specialist| Data Analyst|
HRMS Implementation| MS Dynamics | Payroll Practitioner| Enterprenure| Forex,…
4 articles Follow
Gratuity is one of the retirement benefits for long service. Before May
1972, the payment of gratuity by the employer was on a voluntary
basis, after that it was incorporated in Standing Orders and becomes a
statutory obligation of employers. Since then payment of gratuity is a
legal benefit of the eligible worker.
There are three different retirement benefits defined in Standing Order

12(6) i.e. “Gratuity” or “Provident Fund” or “Approved Pension Fund”.
The commercial establishment employed 20 or more workmen OR any
https://www.linkedin.com/pulse/gratuity-law-pakistan-muhammad-aleem/ 1/9
industrial establishment employed 49 or more workmen, directly or

indirectly, during any days of preceding 12-months, are legally liable to
offer at least any one of these retirement benefit.
S.O 12(6) of W.P. Industrial & Commercial (Standing Orders)

Ordinance, 1968 defines, “where a workman resigns from service or
services are terminated by the employer, for any reason other than
misconduct, shall be entitled for gratuity equivalent to thirty (30) days
wages, calculated on the basis of the (wages admissible to him in the
last month of service if he is a fixed-rated workman or the highest pay
drawn by him during the last twelve months if he is a piece-rated
workman), for every completed year of service or any part thereof in
excess of six months: provided that, where the employer has
established a provident fund to which the workman is a contributor and
the contribution of the employer to which is not less than the
contribution made by the workman, no such gratuity shall be payable
for the period during which such provident fund has been in existence.
Provided further that if through collective bargaining the employer
offers and contributes to an “Approved Pension Fund” as defined in the
Income Tax Ordinance, 2001, and where the contribution of the
employer is not less than fifty per cent of the limit prescribed in the
aforesaid Ordinance, and to which the workman is also a contributor
for the remaining fifty per cent or less, no gratuity shall be payable for
the period during which such contributions has been made.]”
Which Establishment is Liable to Pay Gratuity?
As per Section 1 of the Ordinance, the provision of gratuity becomes

applicable to: every commercial establishment employing or employed
twenty or more workmen and every industrial establishment employing
or employed fifty or more workmen, on any day during the preceding

twelve months.
When Gratuity becomes payable?
Gratuity becomes payable at the time of separation from services which

could be: (i) by resignation by the workman, (ii) termination of services
by the employer due to any reason other than misconduct (in case of
proved misconduct employer is not bound to pay gratuity), (iii) in case
of death and (iv) retirement or superannuation of a worker.
Who is entitled to Gratuity?
There are the following conditions to check the entitlement of gratuity:
(i) provision of statutory gratuity is applicable to the establishment i.e.

industrial or commercial, in respect to the number of workmen
employed, as explained above.
(ii) an employee is a "workman" as defined in Section 2(i) of this

Ordinance as someone who is employed to do any skilled or unskilled,
manual or clerical work. According to various Courts judgments, it is
the nature of duties he is performing rather than his designation or
wages which determine whether he is a "workman" or not.
(iii) length of service should be excess to six months or more.
Rate of Gratuity
Earlier the rate of gratuity was 15-days of wages for each completed
year of service and later on, it was revised as 20-days wages. Right now
the present rate of gratuity is 30-days wages for every completed year
of service or for any period in excess of six months in the same
establishment.
How to calculate the amount of Gratuity payable?
Following is the procedure to calculate the payable gratuity of an

eligible worker:
1. Calculate per day wage rate based on 26-days in a month, by

dividing monthly wages by 26-days;
2. Rate per day is multiplied by the rate of gratuity which is 30 days

wages (i.e. per day wage x 30); and
3. Finally, calculate the payable amount of gratuity for the entire

service period, the formula is per day wage x 30 (rate of gratuity) x
No. of service years
Six-month rule is followed to decide whether to pay gratuity for the last
year of service depending upon whether the service is more or less than
six months. For service of more than six months, gratuity is payable
otherwise not.
The 26-days month is defined in the Explanation of Section 3 of the

Minimum Wages for Unskilled Workers Ordinance, 1969 i.e. "month"
means a normal working period of twenty-six days calculated at the
rate of forty-eight hours of work per week. Similarly, the minimum
wages for skilled and semi-skilled workers is also based on 26 days in a
month. The yearly provincial gazettes specify the same for these
categories of workers.
Meaning of Wages for Calculation of Gratuity
All payments or allowances which are regular, permanent and non-

contingent in nature, no matter by what name they are called, are
included in wages for the purpose of gratuity. Any payments which
are irregular (unpredictable and/or depend on the goodwill of
employer) or contingent in nature (payable upon existence or
disappearance of certain conditions (e.g., profit) which could not be
predicted in advance) then those payments are not part of wages for the
purpose of calculating gratuity.
In the case of a fixed-rated worker, gratuity is to be calculated on the

basis of wages admissible to the worker in the last month of service.
In the case of a piece-rated worker, gratuity is to be calculated on the

basis of highest pay drawn during the last twelve months, for every
completed year of service or any part thereof in excess of six months.
Payment of Gratuity in case of Death of Worker
In case of death of a workman, gratuity is payable to the legal

dependents of a workman. As mentioned above, death may not
necessarily occur on duty but the worker should be in continuous
service at that time. The amount of gratuity, in this case, is transferred
to "Workmen Compensation Commissioner" who will then allocate this
amount to the dependents of a worker. The dependents of a deceased
worker include "his widowed mother, his own widow, minor son and
unmarried daughter". The Commissioner shall proceed with the

allocation of the deposit amount to the dependents of the deceased in
accordance with the provisions of Section 8 of the Workmen’s
Compensation Act, 1923. If the employer fails to deposit the gratuity
amount then the dependents of the deceased may submit an application
to Commissioner for the recovery.
Important points to be remembered regarding payment of

gratuity:
Gratuity has no connection with loss or profit or the financial

position of an employer; it has to be paid to the eligible worker.
Completed year of service means a period of 12-months service

counted from the date of the first appointment in the same
establishment. It does mean calendar year, financial year or any
other period.
The period of service which is 6-months or less, will not be

considered for payment of gratuity.
Retirement on attaining the age of superannuation is treated as a

termination of service by the employer and voluntary retirement is
considered resignation by the worker.
Legally employer is bound to offer only one retirement benefit out

of three. However, the employer at its sole discretion may also offer
provident fund or worker unions have to right to negotiate and get
more benefits simultaneously.
Report this
Published by
Muhammad Aleem 4Home My Network
Follow Jobs
Senior Executive HR | HR Operations| Talent Acquisition Specialist| Data
articles
Analyst| HRMS Implementation| MS Dynamics | Payroll Practitioner|
Enterprenure| Forex, Crypto, Stock & CFD Technical Analyst| You Tuber
Published • 1y
#gratuity #pakistanlabour #retirementplanning #law
Like Comment Share
Faraz Fareed, ACA, FCCA and 9 others

10 3 comments
Reactions
3 Comments
Most relevant
Add a comment…
Faraz Shaukat • 3rd+ 3w

CEO at Al Quraish Group
Hello, I have a question regarding gratuity.
What is definition of a worker?
Does gratuity apply to a senior managerial employee? …see more
Like Reply · 1 Reply
Muhammad Aleem • 2nd 1w

Senior Executive HR | HR Operations| Talent Acquisition Specialist| Data Analyst|
HRMS Implementation| MS Dynamics | Payroll Practitioner| Enterprenure| Forex,
Crypto, Stock & CFD Technical Analyst| You Tuber
“worker” means any person employed in any industrial

establishment or commercial establishment or a mine to do any
skilled or unskilled, manual or clerical work for hire or reward
and includes permanent, probationer, badli, temporary,
apprentices and contract workers, but does not include occupier …see more
Like Reply
Akber L. • 2nd 4mo
Internal Audit & Finance Specialist - FCCA, Masters of Commerce (M.com)

Can you please share something over registration of Gratuity fund,
Home
i guess it is
My Network Jobs
now mandatory and not to maintain Unapproved gratuity fund. I just need
confirmation to it
Like Reply
Muhammad Aleem
Senior Executive HR | HR Operations| Talent Acquisition Specialist| Data Analyst| HRMS
Implementation| MS Dynamics | Payroll Practitioner| Enterprenure| Forex, Crypto, Stock &
CFD Technical Analyst| You Tuber
Follow
More from Muhammad Aleem
EOBI
Muhammad Aleem on LinkedIn
Coronavirus: 14 laboratories listed

for screening tests in Pakistan
Potential Job Seekers


Gratuity Law in Pakistan - LinkedIn

Uploaded by

Copyright:

Available Formats

You might also like

Gratuity Law in Pakistan - LinkedIn

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Gratuity Law in Pakistan - LinkedIn

Uploaded by

Copyright:

Available Formats

6/29/22, 10:17 AM (1) Gratuity Law in Pakistan | LinkedIn

Home My Network Jobs

There are three different retirement benefits defined in Standing Order

industrial establishment employed 49 or more workmen, directly or

S.O 12(6) of W.P. Industrial & Commercial (Standing Orders)

Which Establishment is Liable to Pay Gratuity?

As per Section 1 of the Ordinance, the provision of gratuity becomes

or employed fifty or more workmen, on any day during the preceding

When Gratuity becomes payable?

Gratuity becomes payable at the time of separation from services which

Who is entitled to Gratuity?

There are the following conditions to check the entitlement of gratuity:

(i) provision of statutory gratuity is applicable to the establishment i.e.

(ii) an employee is a "workman" as defined in Section 2(i) of this

(iii) length of service should be excess to six months or more.

How to calculate the amount of Gratuity payable?

Following is the procedure to calculate the payable gratuity of an

1. Calculate per day wage rate based on 26-days in a month, by

2. Rate per day is multiplied by the rate of gratuity which is 30 days

3. Finally, calculate the payable amount of gratuity for the entire

The 26-days month is defined in the Explanation of Section 3 of the

Meaning of Wages for Calculation of Gratuity

All payments or allowances which are regular, permanent and non-

In the case of a fixed-rated worker, gratuity is to be calculated on the

In the case of a piece-rated worker, gratuity is to be calculated on the

Payment of Gratuity in case of Death of Worker

In case of death of a workman, gratuity is payable to the legal

unmarried daughter". The Commissioner shall proceed with the

Important points to be remembered regarding payment of

Gratuity has no connection with loss or profit or the financial

Completed year of service means a period of 12-months service

The period of service which is 6-months or less, will not be

Retirement on attaining the age of superannuation is treated as a

Legally employer is bound to offer only one retirement benefit out

#gratuity #pakistanlabour #retirementplanning #law

Like Comment Share

Faraz Fareed, ACA, FCCA and 9 others

Faraz Shaukat • 3rd+ 3w

Hello, I have a question regarding gratuity.

What is definition of a worker?

Does gratuity apply to a senior managerial employee? …see more

Like Reply · 1 Reply

Muhammad Aleem • 2nd 1w

“worker” means any person employed in any industrial

Akber L. • 2nd 4mo

Internal Audit & Finance Specialist - FCCA, Masters of Commerce (M.com)

More from Muhammad Aleem

Coronavirus: 14 laboratories listed

Home My Network Jobs

Potential Job Seekers

You might also like