Gratuity Calculator Pakistan: Private Sector Gratuity and Tax
Work out your gratuity under the Standing Orders (one month's pay for each year of service, any part over six months counted) and the part that is tax-free.
On last pay of Rs 150,000 a month and 8 years of service counted, gratuity is Rs 1,200,000. The 7 extra months count as a full year because they are more than six. Rs 75,000 is tax-free and Rs 1,125,000 is taxed as salary.
- Tax-free 6.3%
- Taxable 93.8%
If you stay longer, at the same pay
| Years counted | Gratuity | Tax-free | Taxable |
|---|---|---|---|
| 8 years You are here | Rs 1,200,000 | Rs 75,000 | Rs 1,125,000 |
| 9 years (+1) | Rs 1,350,000 | Rs 75,000 | Rs 1,275,000 |
| 10 years (+2) | Rs 1,500,000 | Rs 75,000 | Rs 1,425,000 |
| 13 years (+5) | Rs 1,950,000 | Rs 75,000 | Rs 1,875,000 |
| 18 years (+10) | Rs 2,700,000 | Rs 75,000 | Rs 2,625,000 |
How gratuity is worked out in Pakistan
For workers in shops, offices and factories, gratuity comes from each province’s Standing Orders law. When you resign, or your employer ends your job for any reason other than misconduct, you are owed 30 days’ wages for every completed year of service. Any part of a year over six months counts as a full year. So 7 years and 7 months counts as 8 years, but 7 years and 6 months counts as 7.
The wages used are those of your last month of service. For a piece-rate worker, they are the highest pay drawn in the last 12 months. On Rs 150,000 a month and 8 years counted, gratuity is Rs 1,200,000. Your wages can never be below your province’s minimum wage.
| Province | Law | Who it covers |
|---|---|---|
| Punjab | Industrial and Commercial Employment (Standing Orders) Ordinance 1968, Standing Order 12(6) | Establishments with 20 or more workers |
| Sindh | Sindh Terms of Employment (Standing Orders) Act 2015, Standing Order 17(6): “one month’s wages” | Establishments with 10 or more workers |
| Khyber Pakhtunkhwa | KP Industrial and Commercial Employment (Standing Orders) Act 2013, clause 17(6) | Establishments with 10 or more workers |
| Balochistan | Standing Orders Ordinance 1968, Standing Order 12(6) | Establishments with 20 or more workers |
In factories, the gratuity rule does not apply in the first instance to smaller units: those with 49 or fewer people in Punjab and Balochistan, and 20 or fewer in Sindh and KP. An employer with a provident fund can pay that instead of gratuity, but only if it puts in at least as much as the worker and the payout is at least what gratuity would be.
Is gratuity on basic pay or gross pay?
On more than basic pay. The Standing Orders use “wages”, which the provincial Payment of Wages Acts define as all pay you receive in money. KP’s Act says it includes basic pay and all statutory and non-statutory allowances. What is left out: your employer’s contribution to a provident or pension fund, travel allowance, money to cover special expenses, and the value of free housing, utilities or medical care. Many employers’ contracts still pay gratuity on basic pay only. Check your appointment letter: for workers the Standing Orders cover, the law sets the minimum.
How much of my gratuity is tax-free?
Clause (13) of Part I of the Second Schedule to the Income Tax Ordinance sets the tax-free part. Whatever is above it is taxed as salary in the year you receive it.
| How the employer pays | Tax-free |
|---|---|
| From a gratuity fund approved by the tax commissioner | All of it |
| Under a scheme for all its employees, approved by FBR | Up to Rs 300,000 |
| Any other case | 50% of the gratuity or Rs 75,000, whichever is less |
| Government, local government or a statutory body | The amount under your service rules |
None of it is tax-free if you are not a resident, if you are a director who is not a regular employee, if it is paid outside Pakistan, or if you have already received a gratuity from this or any other employer. The Finance Act 2026 did not change these limits.
Punjab’s new Labour Code
The Punjab Labour Code 2026 was passed in February 2026 and will replace the 1968 Ordinance in Punjab from a date the government notifies. We found no notification yet. Under the Code, gratuity stays at 30 days’ pay for each year, but you need a year of continuous service first, and for higher earners laid off for redundancy it is capped. We will update this page when it takes effect.
Common questions
How is gratuity calculated in Pakistan?
Multiply your last monthly pay by your years of service, counting any part of a year over six months as a full year. On Rs 100,000 a month with 5 years and 8 months of service, that is 6 years, so Rs 600,000. This is the rule in the Standing Orders laws of Punjab, Sindh, Khyber Pakhtunkhwa and Balochistan.
Is gratuity paid on resignation?
Yes. The Standing Orders give gratuity to a worker who resigns as well as one whose job is ended, as long as it is not a dismissal for misconduct. Your employer can replace gratuity with a provident fund only if its contribution and the payout meet the conditions in the law.
Is gratuity taxable in Pakistan?
Partly. If your employer has no approved gratuity fund or scheme, the tax-free part is half the gratuity or Rs 75,000, whichever is less, and the rest is taxed as salary. With a scheme approved by FBR up to Rs 300,000 is tax-free, and from an approved gratuity fund all of it is. Our salary tax calculator shows the slab rates.
Sources
- Industrial and Commercial Employment (Standing Orders) Ordinance 1968 (Punjab Code).
- Sindh Terms of Employment (Standing Orders) Act 2015.
- KP Industrial and Commercial Employment (Standing Orders) Act 2013 and KP Payment of Wages Act 2013.
- Balochistan Code copy of the 1968 Ordinance.
- Punjab Labour Code 2026, sections 159 to 161.
- Income Tax Ordinance 2001, Second Schedule Part I clause (13).
Checked 22 October 2026.