How this is calculated
The formula, and why 26 days
Gratuity is 30 days' wages for every completed year of service, where the daily rate is your monthly gross wages ÷ 26 — not 30 or 31. That 26-day figure isn't just a convention here; it's defined in the Minimum Wages for Unskilled Workers Ordinance 1969 as a standard working month (48 hours/week).
The six-month rule
Any part of a final year exceeding six months counts as a full additional year. Exactly six months does not round up — the law's wording is "in excess of six months," so it has to be more than half a year.
When you might not get it
Gratuity isn't owed if your employer already contributes to an approved Provident Fund at least equal to your own contribution, or an Approved Pension Fund — these substitute for gratuity, they don't add to it. It's also not payable if you're terminated for proven misconduct. Coverage itself only applies to commercial establishments with 20+ workers and industrial establishments with 50+ (lower thresholds apply in KP, Sindh, and Balochistan).
Tax treatment
Gratuity paid through an approved gratuity fund is fully tax-exempt, with no cap. Gratuity paid directly by the employer (not through an approved fund) gets a smaller exemption — the lesser of 50% of the amount or Rs 75,000 — with the remainder taxed at your normal FBR slab rate. See the dedicated Gratuity Tax calculator for the exact numbers.
Assumptions & limits
Assumes a fixed-rate ("workman"-status) employee under the Standing Orders Ordinance — piece-rate workers use highest pay in the last 12 months instead. Figures are for guidance only, not legal advice.