On this page 10 sections
- Gratuity at a Glance
- 1. Government Gratuity in Pakistan: 5 to 10 Years of Service
- 2. The Commutation Lump Sum: Often Called Gratuity
- 3. Private-Sector Gratuity in Pakistan: One Month per Year
- Provincial Differences in Private-Sector Gratuity
- Worked Examples: Private Sector
- When Gratuity Is Not Payable
- Gratuity on Death in Service
- Mistakes to Avoid
- Frequently Asked Questions
Gratuity in Pakistan is a lump sum paid at the end of service, but the word means three different things. For a government servant with 5 to 10 years of service, it is a lump sum instead of a pension. For a pensioner, the commutation lump sum is often called gratuity. For a private-sector worker, it is a statutory payment of one month’s wages for every year of service.
This guide separates the three, gives each formula with worked examples, and explains when gratuity is not payable. Government employees and private-sector workers fall under different laws, so the first step is knowing which one covers you.
Gratuity at a Glance#
| Type | Who gets it | Formula |
|---|---|---|
| Government gratuity | Civil servant with 5 to 10 years of service | Up to one month’s emoluments per year of service |
| Commutation lump sum | Government pensioner (10+ years) | Commuted pension x 12 x age factor |
| Private-sector gratuity | Worker in a covered establishment | One month’s last wages per year of service |
1. Government Gratuity in Pakistan: 5 to 10 Years of Service#
A government servant needs 10 years of qualifying service for a pension. With 5 years or more but less than 10 years, there is no monthly pension. Instead, the servant is granted a gratuity.
The gratuity is up to one month’s emoluments for each completed year of qualifying service. That is the rule in the Manual of Pension Procedures, confirmed by the Sindh High Court (CP No. D-1343 of 2016). A deficiency in qualifying service of up to 6 months is automatically condoned.
Example: emoluments Rs 60,000, 8 years of service. Gratuity up to 8 x Rs 60,000 = Rs 480,000. No monthly pension is payable.
Example: emoluments Rs 100,000, 6 years of service. Gratuity up to 6 x Rs 100,000 = Rs 600,000. No monthly pension is payable.
With 10 years or more, you get a pension instead. The pension formula is: gross pension = (average emoluments of the last 24 months x 7 x service years) / 300, up to 70% after 30 years.
2. The Commutation Lump Sum: Often Called Gratuity#
When a pensioner retires, up to 35% of the gross pension can be commuted into a lump sum. This lump sum is often called gratuity in everyday use, but it is not the 5-to-10-year gratuity above. It is a part of the pension itself.
Lump sum = commuted monthly amount x 12 x the commutation factor for your age next birthday. At age 60 the factor is 12.3719, from the official commutation table (Annex-II to Finance Division O.M. of 4 September 2001).
Example: gross pension Rs 105,000. Commuting 35% gives Rs 36,750 a month. The lump sum at age 60 is 36,750 x 12 x 12.3719 = Rs 5,456,008. The remaining 65%, Rs 68,250 a month, is paid as the net pension for life.
Your GP Fund is separate from both. The GP Fund is a lump sum of your own savings plus mark-up, paid at retirement. Our GP Fund guide explains the deduction rates and the 12.05% mark-up rate.
3. Private-Sector Gratuity in Pakistan: One Month per Year#
Private-sector gratuity is 30 days’ wages for every completed year of service. That is Standing Order 12(6) of the Industrial and Commercial Employment (Standing Orders) Ordinance, 1968, and the provincial equivalents. Any part-year over six months counts as a full year. The wages used are the wages of the last month of service. Private-sector workers also build an EOBI pension through their employer’s monthly contributions. Our EOBI pension guide explains registration, eligibility and how to check your contributions online.
In everyday terms, that is one month’s last-drawn salary for every year of service. Gratuity = last monthly wage x qualifying years of service.
Who is entitled? A worker who resigns or whose services end for any reason other than misconduct, or the dependants of a worker who dies in service.
Which workplaces are covered? Industrial and commercial establishments with 20 or more workers in Islamabad and Punjab, and 10 or more workers in Sindh, Khyber Pakhtunkhwa and Balochistan. Government departments with their own service rules are excluded.
Provincial Differences in Private-Sector Gratuity#
| Province | Gratuity per year | Minimum service |
|---|---|---|
| Islamabad | 30 days’ wages | No separate minimum stated |
| Punjab | 30 days’ remuneration | One year of continuous service |
| Sindh | One month’s wages | No separate minimum stated |
| Khyber Pakhtunkhwa | 30 days’ wages | No separate minimum stated |
| Balochistan | Two months’ wages | No separate minimum stated |
Balochistan pays double. Two months’ wages for every year of service, against one month everywhere else.
Punjab has a one-year minimum. Under the Punjab Labour Code 2026 (sections 159-161), gratuity starts only after one year of continuous service. The Code was passed in February 2026 and takes effect on a date the government notifies in the Gazette. Until that notification, the Standing Orders Ordinance as it applies in Punjab governs.
Outside Punjab, a part-year over six months counts as a full year. The Standing Orders laws do not state a separate one-year minimum, so 7 to 11 months of service can count as a year there. Employers and courts may read this differently.
Worked Examples: Private Sector#
Example: last salary Rs 80,000, 12 years of service. Gratuity is 12 x Rs 80,000 = Rs 960,000 in Islamabad, Punjab, Sindh or Khyber Pakhtunkhwa. In Balochistan the same service gives 24 x Rs 80,000 = Rs 1,920,000.
Example: last salary Rs 80,000, 5 years and 7 months. The part-year of 7 months is over six months, so it counts as a full year. Service counted is 6 years. Gratuity is 6 x Rs 80,000 = Rs 480,000.
Example: less than one year of service. Under the Punjab Labour Code, no gratuity is payable. Under the other provinces’ Standing Orders laws, a part-year over six months can count, so 7 to 11 months may qualify. Check the law that covers your workplace.
When Gratuity Is Not Payable#
No gratuity where the employer runs an approved provident fund. If the employer maintains an approved provident fund with an employer contribution at least equal to the employee’s, or an approved pension fund meeting the statutory split, no statutory gratuity is payable for the period that fund existed. The worker draws from that fund instead.
No gratuity on dismissal for misconduct. The Standing Orders entitlement covers resignation and termination for any reason other than misconduct. A worker dismissed for misconduct loses the gratuity.
No government gratuity below 5 years. A civil servant with less than 5 years of qualifying service gets neither a pension nor a gratuity. The 5-year minimum is the floor.
No pension and gratuity together for the same service. The 5-to-10-year government gratuity is paid instead of a pension, not as well as one.
Dismissed civil servants get no pension, but may get a compassionate allowance. A civil servant dismissed or removed for discipline gets no pension, but the government may sanction a compassionate allowance not exceeding two-thirds of the pension or gratuity that would have been admissible.
Gratuity on Death in Service#
Government: the family gets a family pension plus a gratuity. Under the federal pension rules, on death in service the family pension is 50% of the gross pension, and a gratuity of one-fourth of the gross pension is also paid, on the basis of the age of the deceased under the commutation table. Khyber Pakhtunkhwa’s published practice is different: 25% of the gross pension as gratuity plus 75% of the gross pension monthly.
Private sector: the dependants get the gratuity. The dependants of a worker who dies in service are entitled to the gratuity the worker had earned.
Mistakes to Avoid#
Using Indian gratuity law. India’s Payment of Gratuity Act, 1972, has a 5-year minimum and two months’ salary per year. It does not apply in Pakistan.
Do not confuse the three kinds of gratuity. The 5-to-10-year government gratuity, the commutation lump sum, and the private-sector gratuity are three different payments under three different rules. Work out which one covers you before you calculate anything.
Using the old commutation rules. The commutation limit is 35%, not 25%, and the pension formula uses the average of the last 24 months, not the last pay. Both changed years ago, and stale sites still show the old rules.
Do not assume Balochistan pays the same as Punjab. Balochistan pays two months’ wages per year of service. Everywhere else it is one month.
Do not forget the provident fund exception. If your employer runs an approved provident fund with a matching contribution, statutory gratuity is not payable for that period. Check your appointment letter and the fund rules first.
Frequently Asked Questions#
Who is entitled to gratuity?
It depends on which system covers you. A government servant with 5 to 10 years of qualifying service gets a gratuity instead of a pension. A government pensioner can commute up to 35% of the pension into a lump sum. A private-sector worker in a covered establishment gets gratuity on resignation or termination for any reason other than misconduct, and the dependants get it if the worker dies in service.
How many years of service for gratuity?
For a government servant, the minimum is 5 years of qualifying service, and the gratuity applies up to 10 years; at 10 years a pension is payable instead. For a private-sector worker in Punjab, gratuity starts after one year of continuous service under the Punjab Labour Code 2026. In the other provinces, the Standing Orders laws count any part-year over six months as a full year, with no separate one-year minimum stated.
How is gratuity calculated in Pakistan?
Government gratuity (5-10 years): up to one month’s emoluments for each completed year of service. Private-sector gratuity: one month’s last-drawn wages for each completed year of service, with any part-year over six months counting as a full year. In Balochistan it is two months’ wages per year. The commutation lump sum is different: commuted pension x 12 x the age factor.
Is gratuity paid on resignation?
Yes. A private-sector worker who resigns is entitled to gratuity, provided the establishment is covered and the worker was not dismissed for misconduct. A government servant who resigns with 5 to 10 years of service gets the government gratuity. Resignation forfeits past service unless it is to take up another government appointment with proper permission, so check the rules before resigning.
Do I get gratuity if my employer has a provident fund?
No, not for the period the fund existed. If your employer maintains an approved provident fund with an employer contribution at least equal to yours, or an approved pension fund meeting the statutory split, no statutory gratuity is payable for that period. You draw from the fund instead.
