A statutory lump-sum benefit paid to employees on termination after minimum qualifying service in Pakistan.
Gratuity is a statutory end-of-service benefit in Pakistan governed by the Industrial and Commercial Employment (Standing Orders) Ordinance 1968, West Pakistan Shops and Establishments Ordinance 1969, and provincial labour laws. Employees with 12 or more months of continuous service are entitled to gratuity at the rate of one month's wages (last drawn basic salary) per completed year of service.
Gratuity is payable on resignation, retirement, termination (other than for misconduct), death, or disablement. The formula is: Gratuity = (Last Basic Salary / 1) x Completed Years of Service. Some employers round partial years to the nearest half-year, and many provident-fund-registered companies substitute provident fund in lieu of gratuity.
Gratuity is tax-exempt up to PKR 300,000 under Clause (13)(iii) of Part I of the Second Schedule to the Income Tax Ordinance 2001, with amounts above taxed as salary. Payment is due within the final settlement (F&F), typically within 30 days of separation. Modern HR platforms calculate gratuity automatically and include it in full-and-final settlements.
On resigning after 7 years, Ayesha received gratuity of PKR 700,000 (PKR 100,000 basic x 7 years) in her final settlement.
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