Gratuity Calculation Form (Pakistan)

A Gratuity Calculation Form in Pakistan records the details required for the process it supports, providing a clear written account that can be relied on.

Gratuity in Pakistan is governed by multiple statutes depending on the nature of the employer, the industry, and the province in which the employee is employed. The Payment of Wages Act 1936 is the foundational statute governing wage payments in Pakistan, applicable to workers in factories, railways, and other specified establishments whose monthly wages do not exceed the prescribed threshold. The Factories Act 1934 (administered provincially) regulates working conditions in factories and imposes obligations on factory owners regarding workers' terminal benefits including gratuity. The Industrial and Commercial Employment (Standing Orders) Ordinance 1968 (Standing Orders Ordinance) is the primary instrument imposing gratuity obligations on industrial and commercial establishments with twenty or more workers — it prescribes a minimum gratuity of thirty days' wages for each year of completed service, payable on retirement, termination (other than for misconduct), or death.

The Standing Orders Ordinance 1968 defines 'workman' and 'wages' for gratuity calculation purposes, and the formula it prescribes has become the de facto minimum standard for gratuity across Pakistan's formal private sector. The formula is: Gratuity = (Last Drawn Monthly Basic Wage ÷ 26 working days) × 30 days × Number of Completed Years of Service. This formula yields approximately one month's basic wage per completed year of service, subject to the ceiling of thirty days' wages per year as the minimum standard. Many employers in Pakistan's corporate sector — particularly multinationals, large banking groups, and blue-chip Pakistani companies — provide more generous gratuity of forty-five or sixty days' wages per year of service under their employment policies or collective bargaining agreements with trade unions.

Banks and financial institutions regulated by the State Bank of Pakistan (SBP) are subject to specific gratuity regulations under the Banking Companies Ordinance 1962. Civil servants employed by the Federal Government of Pakistan and provincial governments are covered by the Civil Servants Act 1973 and the Civil Servants (Appointment, Promotion and Transfer) Rules 1973, which provide for gratuity and pension (defined benefit) schemes administered by the Finance Division and the Accountant General's office. Employees of state-owned enterprises (SOEs) incorporated under the Companies Act 2017 are typically covered by their organisation's HR policies, which may provide gratuity above the statutory minimum.

For income tax purposes, gratuity received by employees is exempt from income tax under Section 12(6) of the Income Tax Ordinance 2001 up to the amount approved under the Employees' Gratuity Fund Rules by the Federal Board of Revenue (FBR), or up to the statutory entitlement where no approved gratuity fund exists. Gratuity amounts above the exempt threshold are taxable as salary income. Many large employers in Pakistan maintain an approved Gratuity Fund under the Income Tax Ordinance 2001 to secure gratuity entitlements and confirm tax-efficient payment to retiring employees.

A Gratuity Calculation Form in Pakistan is required in all employment separation scenarios where a long-service employee is entitled to statutory end-of-service gratuity.

A Gratuity Calculation Form is needed when an employee retires from service — on reaching the normal retirement age specified in the employment contract or the employer's HR policy (typically 60 years for private sector employees, 60 years for federal civil servants under the Civil Servants Act 1973). The HR department prepares the Gratuity Calculation Form to determine the final gratuity payable and obtains the accounts department's verification before processing the payment.

A Gratuity Calculation Form is required when an employee resigns voluntarily after completing the minimum qualifying period for gratuity — under the Standing Orders Ordinance 1968, the qualifying period is typically two years of continuous service, though some employers require three years before gratuity vests on voluntary resignation. The form documents the service period and calculates the entitlement to avoid disputes.

A Gratuity Calculation Form is needed when an employer terminates an employee's service for reasons other than misconduct — redundancy, restructuring, retrenchment, or closure of the business. Under the Standing Orders Ordinance 1968, terminated workers (other than those dismissed for proven misconduct) are entitled to full gratuity, and the form documents the lawful calculation for the employee's records and for FBR payroll tax compliance.

A Gratuity Calculation Form is required when an employee dies in service and their legal heirs are entitled to receive the deceased employee's gratuity as part of the estate. The form calculates the entitlement and the HR department coordinates with the legal heirs (identified through a legal heir certificate from the court or the Union Council) to process the payment.

A Gratuity Calculation Form is needed when an employment dispute is referred to a Labour Court under the Industrial Relations Act 2012 or to the Claims Commissioner under the Payment of Wages Act 1936, and the employee disputes the employer's calculation of the gratuity entitlement. The form serves as the employer's formal calculation record subject to court scrutiny.

A Gratuity Calculation Form is required by the EOBI (Employees' Old Age Benefits Institution) and other social protection bodies when they need to verify the employer's terminal benefits calculations as part of their own benefit determinations for the departing employee.

A valid Gratuity Calculation Form in Pakistan under the Payment of Wages Act 1936 and the Industrial and Commercial Employment (Standing Orders) Ordinance 1968 must contain the following essential elements.

Employee Identification: Full legal name of the employee exactly as on the NADRA Computerised National Identity Card (CNIC), CNIC number (13-digit format XXXXX-XXXXXXX-X), employee ID number (employer's internal reference), designation, department, and grade or pay scale.

Employment Period: Date of joining (commencement of continuous service), date of separation (effective date of retirement, resignation, or termination), and the total period of continuous service calculated in years and months (rounded to completed years for the statutory formula). Breaks in service — unpaid leaves, suspension periods under Standing Orders, or periods of unauthorised absence — and their treatment for gratuity calculation purposes (deductible or non-deductible) must be documented.

Reason for Separation: The basis for the gratuity claim — retirement (normal or voluntary early retirement), resignation (voluntary), retrenchment or redundancy, mutual separation, termination for reasons other than misconduct, or death in service. This determines whether the employee is entitled to full gratuity, reduced gratuity, or no gratuity (in cases of dismissal for misconduct under Standing Order 14 of the Standing Orders Ordinance 1968).

Last Drawn Wages: The employee's last drawn basic monthly wage (excluding allowances — house rent, conveyance, medical, utilities) as of the date of separation. The Standing Orders Ordinance 1968 uses 'basic wage' as the gratuity calculation base in most formulas. Some employer policies compute gratuity on gross salary (including all allowances); the form must clearly state which definition applies and reference the employment contract or HR policy provision.

Gratuity Calculation: The step-by-step calculation applying the applicable formula: - Step 1: Daily wage rate = Last drawn monthly basic wage ÷ 26 working days - Step 2: Monthly gratuity rate = Daily wage rate × 30 days - Step 3: Total gratuity = Monthly gratuity rate × Completed years of service Where the employer provides a higher rate (45 or 60 days per year), this should be stated with reference to the applicable HR policy or collective bargaining agreement. The calculation should show intermediate figures for transparency and to support verification by the employee and any reviewing authority.

Deductions and Adjustments: Any amounts deductible from the calculated gratuity — advances drawn from the gratuity fund, outstanding loans from the employer (where the employment contract or Standing Orders permit recovery from gratuity), and income tax on the excess gratuity above the FBR-approved exempt threshold under Section 12(6) of the Income Tax Ordinance 2001. Net gratuity payable after all deductions must be clearly stated.

Authorisation: Signatures of the HR manager (preparer), the departmental head (verifier), and the CFO or Finance Director (approving authority), with dates, and countersignature of the employee acknowledging receipt of the calculation (or the employee's legal heirs in cases of death in service).

Payment Details: Mode of payment (bank transfer — specifying account details and IBAN; crossed cheque; or pay order), date of payment, and confirmation that the payment has been processed through the employer's payroll system and reflected in the employee's final payslip and Form-16 (income tax withholding certificate) issued under the Income Tax Ordinance 2001.

Forms-legal.com provides this Gratuity Calculation Form (Pakistan) as a structured template for HR departments and payroll teams to compute and document statutory gratuity entitlements accurately. Employers with complex gratuity situations — long service, multiple pay revisions, approved gratuity funds, or collective bargaining agreements — should consult a qualified HR lawyer or chartered accountant to confirm the calculation complies with the Standing Orders Ordinance 1968 and applicable tax exemption rules.