Gratuity in Pakistan: How It Is Calculated and Claimed in Sindh

Gratuity is often the largest single payment a worker receives when a job ends, and it is also one of the most common reasons workers and employers end up in front of the Labour Court. This guide explains what gratuity is, where the right comes from in Sindh, how the statutory amount is usually worked out, and how an unpaid claim can be pursued in Karachi.

What gratuity is

Gratuity is a lump sum paid at the end of employment in recognition of length of service. Unlike salary, it is not earned month by month. It becomes payable when the employment ends, by resignation, retirement, termination or death, subject to the rules of the scheme that applies.

The first step in any gratuity question is to identify which scheme applies, because the rules differ. The second is to fix the facts that drive the amount: the joining date, the last day of service and the wages last drawn.

Where the right to gratuity comes from

In Sindh, a right to gratuity usually comes from one of four sources:

• Statute. For workers in industrial and commercial establishments covered by it, the Sindh Terms of Employment (Standing Orders) Act, 2015 provides for gratuity. It replaced the earlier West Pakistan Industrial and Commercial Employment (Standing Orders) Ordinance, 1968 for Sindh, and continues the same broad approach.
• Contract or company policy. Many employers run their own gratuity fund or scheme. Its terms are set out in the trust deed, the policy or the appointment letter.
• Collective agreement. A registered trade union and the employer may agree enhanced terms.
• Government service. Civil servants and many public sector employees receive gratuity and pension under the pension rules that apply to their service. Those claims follow the service law route, not the Labour Court. See our page on service law in Karachi.

A worker may be covered by more than one source. Where a contractual scheme is less favourable than the statute, the statutory right generally cannot be reduced by contract.

How statutory gratuity is calculated

Standing orders law has long used a simple formula. A worker who has completed the minimum qualifying service is entitled to:

• thirty days' wages,
• for every completed year of service, or any part of a year in excess of six months,
• calculated on the wages last drawn.

The law also deals with workers who are members of a provident fund to which the employer contributes. Depending on the scheme and the contributions, the gratuity entitlement may be reduced or replaced. Read the current text of the Sindh Act, and the fund rules, before you rely on the formula.

Two questions cause most of the arguments. First, what counts as "wages": basic pay only, or basic pay plus certain allowances. Second, what counts as continuous service, particularly where a worker was shown on fixed-term contracts or through a contractor.

A worked example

This example is for illustration only and assumes the statutory formula applies without any provident fund adjustment.

If the same worker had 7 years and 4 months of service, only 7 years would usually be counted. Small differences in dates can therefore change the amount, so check the joining date in your records carefully.

Common gratuity disputes

• Denial of employment. The employer says the person was never its employee, or was employed by a contractor or by an individual. Appointment letters, salary slips, bank credits, attendance records and registration with EOBI or the Sindh Employees' Social Security Institution help prove the relationship.
• Break in service. Repeated short contracts used to argue that service was not continuous.
• Wages. Disagreement over which allowances form part of wages.
• Deductions. Deductions for alleged losses or outstanding loans.
• Dismissal for misconduct. Whether, and to what extent, gratuity is affected depends on the facts and the wording of the statute or scheme.

The importance of documents is illustrated by Talib Hussain v. Star General Hospital, where the Sindh Labour Court found that employment with the hospital had not been proved.

How to claim unpaid gratuity in Sindh

1. Collect your records: appointment letter, salary slips or bank statements, service certificate, resignation or termination letter, and any correspondence about final dues.
2. Send a written demand to the employer for final settlement, including gratuity, and keep proof of delivery.
3. Choose the correct forum. For workers, the Sindh labour laws provide remedies before the Labour Court, including through the grievance procedure under Section 34 of the Sindh Industrial Relations Act, 2013. Where termination itself is challenged, the grievance notice must say so; see our guide on wrongful termination and the Labour Court.
4. Act within time. The labour statutes set short deadlines, and a late or defective notice can end a claim before it is heard.

Employees who are not "workers", such as many managerial staff, may need to pursue a contractual claim before the civil court instead.

Points for employers

• Keep complete payroll and attendance records, paid through traceable channels.
• Put the gratuity scheme in writing and make sure it is not less favourable than the statute.
• Issue a written final settlement showing how gratuity was calculated.
• Resolve disputed items quickly rather than withholding the whole settlement.

The firm advises workers and employers on final dues and gratuity disputes as part of its employment and labour practice.

Disclaimer: This article is general information about the law in Pakistan as at the date shown. It is not legal advice and does not create a lawyer-client relationship. Laws, fees and procedures change; please take advice on your own facts before acting.