Enter an amount to see the result.
Short answer: Under Pakistan’s Standing Orders law, a private sector worker who resigns, or is let go for any reason other than misconduct, gets gratuity equal to 30 days’ wages (one month’s wages in Sindh) for every completed year of service, and any extra part of a year over six months counts as a full year. Wages means the wages of the last month of service. So 5 years on a last monthly wage of Rs 80,000 gives Rs 400,000. No statutory gratuity is due for any period in which the employer runs a provident fund with at least a matching contribution.
Key takeaways
- Gratuity formula in Pakistan: last month’s wages x completed years of service.
- More than six months in your last year counts as a full year; six months or less is dropped.
- It is paid on resignation or termination for any reason other than misconduct, and to dependants if a worker dies in service.
- A matching provident fund replaces gratuity for the years it existed.
- The Standing Orders law covers establishments with 20 or more workers (federal text) or 10 or more (Sindh and Khyber Pakhtunkhwa), but the federal and KP gratuity clause does not apply, in the first instance, to smaller industrial units: 49 or fewer persons (federal) or 20 or fewer (KP).
- On retirement, only part of the gratuity is tax free: in the general case, half or Rs 75,000, whichever is less.
How to use this gratuity calculator
Enter your last month’s wages, your joining date, your last working day and your province. Pick whether you are leaving on retirement or resigning, and how your employer pays gratuity. The calculator shows your service in years, months and days, the years that count, the gratuity amount, and how much of it is exempt from income tax.
I made it after reading the actual Acts, so every step below points to the clause it comes from.
Which law gives gratuity in Pakistan?
For private sector workers, gratuity comes from the Standing Orders law. The original is the West Pakistan Standing Orders Ordinance 1968, Standing Order 12(6). After labour became a provincial subject, Sindh and Khyber Pakhtunkhwa passed their own Acts with almost the same gratuity clause.
| Area | Law and clause | Gratuity per year | Who is covered |
|---|---|---|---|
| Islamabad (federal text) | Industrial and Commercial Employment (Standing Orders) Ordinance 1968, SO 12(6) | 30 days’ wages | Industrial or commercial establishments with 20 or more workmen |
| Sindh | Sindh Terms of Employment (Standing Orders) Act 2015, SO 16(6) | One month’s wages | Establishments with 10 or more workers |
| Khyber Pakhtunkhwa | KP Industrial and Commercial Employment (Standing Orders) Act 2013, SO 17(6) | 30 days’ wages | Establishments with 10 or more workers |
| Punjab and Balochistan | Provincial versions of the Standing Orders law | Not verified for this page | Not verified for this page |
The federal text and the KP Act also say that, in the first instance, the gratuity clause does not apply to smaller industrial establishments (49 or fewer persons in the federal text, 20 or fewer in KP) unless the government extends it by notification. Commercial establishments are not part of that carve out. The Sindh Act covers permanent, probationer, badli, temporary, apprentice and contract workers.
Punjab and Balochistan: I could not open the official Punjab Code or a Balochistan text when I prepared this page. The calculator uses the 1968 formula for these provinces and shows a warning. Check your provincial law or ask your labour department before you rely on the figure.
Gratuity formula in Pakistan
All three texts I read use the same structure. The KP Act wording is typical: gratuity “equivalent to thirty days wages, calculated on the basis of the wages admissible to him in the last month of service if he is a fixed-rated worker or the highest pay drawn by him during the last twelve months if he is a piece-rated worker, for every completed year of service or any part thereof, in excess of six months”.
In plain terms:
Gratuity = last month’s wages x counted years of service
- Monthly paid (fixed rated) workers: use the wages for the last month of service.
- Piece rated workers: use the highest pay drawn in the last twelve months.
- Daily wage workers: 30 days’ wages is 30 x your daily wage.
How is gratuity calculated, step by step
- Count your service from the joining date to the last working day, including that day.
- Take the completed years.
- Look at the part year left over. If it is more than six months, add one year. If it is six months or less, drop it.
- Multiply the counted years by your last month’s wages.
- Remove any years in which a matching provident fund existed.
Worked examples
| Last monthly wage | Joined | Last day | Service | Years counted | Gratuity |
|---|---|---|---|---|---|
| Rs 80,000 | 1 Mar 2021 | 28 Feb 2026 | 5 years | 5 | Rs 400,000 |
| Rs 120,000 | 10 Jan 2019 | 9 Jul 2026 | 7 years, 6 months | 7 | Rs 840,000 |
| Rs 120,000 | 10 Jan 2019 | 9 Aug 2026 | 7 years, 7 months | 8 | Rs 960,000 |
| Rs 250,000 | 1 Jul 2006 | 30 Jun 2026 | 20 years | 20 | Rs 5,000,000 |
Look at rows two and three. One extra month of service, which takes the part year from exactly six months to seven, adds a full year’s gratuity of Rs 120,000. If you are close to that line, check your dates before you resign.
In Pakistan, gratuity is your last month’s wages times your years of service, and a final part year counts only if it is more than six months.
Gratuity after 5 years, and before one year
Five years of service gives five months’ wages. On Rs 100,000 a month that is Rs 500,000. Five years and seven months gives six months’ wages, Rs 600,000.
Pakistani law does not need five years: no five year condition appears in the Standing Orders texts I read. The clause has no separate minimum: read literally, “any part thereof in excess of six months” means that seven months of service gives one month’s wages. I have not found a court decision on short service while preparing this page, so treat a gratuity claim under one year as something to confirm with your employer or a labour lawyer.
| Counted years | Gratuity on Rs 50,000 wage | Gratuity on Rs 100,000 wage | Gratuity on Rs 200,000 wage |
|---|---|---|---|
| 1 | Rs 50,000 | Rs 100,000 | Rs 200,000 |
| 3 | Rs 150,000 | Rs 300,000 | Rs 600,000 |
| 5 | Rs 250,000 | Rs 500,000 | Rs 1,000,000 |
| 10 | Rs 500,000 | Rs 1,000,000 | Rs 2,000,000 |
Basic salary or gross salary?
Short version: the law says “wages”, not “basic pay”. The Sindh and KP Acts define wage by pointing to their own Payment of Wages Acts. The federal Wages Act of 1936 defines wages as all remuneration payable under the contract of employment, but leaves out the value of housing and amenities, the employer’s pension or provident fund contribution, travelling allowance, special expense reimbursements, and gratuity itself.
Many companies calculate gratuity on basic salary because their own scheme says so. The Standing Orders say gratuity is paid in addition to other benefits under your terms of employment. Enter the figure you want to test, then compare it with your payslip and your appointment letter.
My view: if your company pays gratuity on basic pay and your basic is less than half your salary, run both figures in the calculator. If the gap is large, ask HR in writing which rule they follow before you sign a final settlement.
Provident fund instead of gratuity
The gratuity clause has a proviso: if the employer has set up a provident fund, the worker contributes to it, and the employer’s share is not less than the worker’s, then no gratuity is payable for the period in which that fund existed. Sindh and KP add that the amount paid from the provident fund must not be less than the gratuity the Act would give. You are entitled to your full provident fund balance, including the employer’s share, even if you resign or are dismissed.
The federal text has one more case, added by the Finance Act 2007: if, through collective bargaining, the employer contributes to an approved pension fund at least 15% of the prescribed limit and the worker also contributes, no gratuity is due for that period.
Who does not get gratuity under this law
- A worker dismissed for misconduct under the Standing Orders procedure.
- Government employees under statutory service rules. Their pension and gratuity follow their own service rules, which this calculator does not cover.
- Workers in establishments below the size thresholds, unless their contract gives gratuity.
If a worker dies in service, the dependants get the same gratuity, but the employer must deposit it with the Commissioner under the workmen’s compensation law, not pay it directly.
Is gratuity taxable in Pakistan?
Gratuity is part of salary under section 12(2)(a) of the Income Tax Ordinance. Clause (13) of Part I of the Second Schedule, as amended up to 30 June 2026, exempts part of it when it is received on retirement, or by the heirs on death:
| How it is paid | Tax free part |
|---|---|
| From a gratuity fund approved by the Commissioner | Full amount |
| Under a scheme for all employees approved by FBR for this clause | Up to Rs 300,000 |
| Any other private employer (the usual case) | 50% of the amount or Rs 75,000, whichever is less |
| Government, statutory body or corporation employee | As per service rules (not in this calculator) |
The general case gives no exemption if the payment is not received in Pakistan, if you are not a resident, if you are a director who is not a regular employee, or if you already received gratuity from this or any other employer. The rest of the gratuity is added to your salary for the year and taxed at the salary slabs. My salary tax calculator for 2026-27 shows the tax on that total.
Example: Rs 400,000 received on retirement from an employer with no approved fund. Half is Rs 200,000, so the exemption is capped at Rs 75,000 and Rs 325,000 is taxable. If you resign instead of retiring, the clause is not written for your case, and the calculator shows the whole amount as taxable.
When must gratuity be paid?
The same Standing Order says that when services are terminated, wages earned and other dues, including pay for unavailed leave, must be paid before the second working day after termination ends. Gratuity is not named in that sentence, so ask for a written settlement date. If your employer does not pay, you can approach the labour court in your province. Keep your appointment letter, payslips and resignation acceptance. For more free tools, see the ismailblogger tools page.
Frequently asked questions
What is the gratuity formula in Pakistan?
Last month’s wages x counted years of service, where a final part year over six months counts as one year. In Sindh the law says one month’s wages, elsewhere 30 days’ wages.
How much gratuity will I get after 5 years?
Five times your last month’s wages. On Rs 80,000 a month that is Rs 400,000.
Do I get gratuity if I resign?
Yes. The clause covers resignation and termination for any reason other than misconduct, unless a matching provident fund replaced gratuity for your period of service.
Is gratuity calculated on basic salary?
The law says wages for the last month, not basic pay. Many employers use basic pay under their own scheme. Compare both figures and check your contract.
How much gratuity is tax free?
On retirement from an ordinary private employer, the smaller of half the gratuity or Rs 75,000. It is fully exempt from a Commissioner approved gratuity fund, and up to Rs 300,000 under an FBR approved scheme.
Does the gratuity calculator work for government employees?
No. Federal and provincial government employees get pension and gratuity under their service rules, which use a different method.
Can a company give a provident fund instead of gratuity?
Yes, if the employer’s contribution is at least equal to yours. No statutory gratuity is then due for the years the fund existed.
Do contract workers get gratuity in Pakistan?
In Sindh, yes: the Sindh Act covers permanent, probationer, badli, temporary, apprentice and contract workers. For other provinces, check your provincial law and your contract.
Can I use this gratuity calculator for Punjab?
Yes, with care. I could not read the official Punjab text, so the calculator uses the 1968 formula (30 days’ wages per counted year) and shows a warning. Confirm with the Punjab labour department or your contract.
This calculator gives an estimate based on Standing Order 12(6) of the Industrial and Commercial Employment (Standing Orders) Ordinance 1968, Standing Order 16(6) of the Sindh Terms of Employment (Standing Orders) Act 2015 and Standing Order 17(6) of the KP Act 2013, and on clause (13), Part I, Second Schedule of the Income Tax Ordinance 2001 amended up to 30 June 2026, all last checked 10 November 2026. It follows the statutory formula for the wage you enter, but it does not check establishment size, provident fund periods, piece rate pay, your contract or tax on the taxable part, and Punjab and Balochistan texts were not verified. Your actual gratuity is what your employer pays or a labour court decides. For advice on your own case, ask a labour lawyer or a tax practitioner.