Gratuity in Pakistan-Retirement Benefits-Gratuity Calculation

Wage Determination for Workers in Pakistan

In the realm of private sector employment in Pakistan, worker compensation operates on a foundation rooted in specific regulations and guidelines. The determinants for wages follow a 26-day month basis, as stipulated by the Minimum Wages for Unskilled Workers Ordinance of 1969. Furthermore, provincial governments issue notifications establishing minimum wage rates for unskilled, semi-skilled, and skilled workers, all adhering to this 26-day framework.

Gratuity Calculation Framework in Pakistan

Regarding gratuity, the calculation hinges on gross wages, encompassing permanent, regular, and non-contingent allowances and fringe benefits. Notably, irregular and non-contingent payments, such as bonuses, profits, and payment for annual leave, do not contribute to the gratuity calculation. For fixed-rated workers, gratuity is based on the last month’s wages, while piece-rated workers see their gratuity calculated based on the highest pay drawn over the past 12 months.

Understanding Gratuity, Provident Fund, and Pension Fund

Now, let’s delve into the distinctions between gratuity, provident fund, and pension fund. Under the Standing Orders Ordinance of 1968, these are distinct retirement benefits, and workers don’t have a legal right to both. The decision to implement either a provident fund or provide gratuity upon employment termination is at the employer’s discretion. It’s essential to recognize that the law cannot mandate an employer to offer either or both benefits simultaneously. However, it does set a minimum legal protection standard, not a maximum one.

The Introduction of Approved Pension Funds

Moreover, a significant amendment in 2007 introduced the concept of an Approved Pension Fund. When employers, through collective bargaining, establish and contribute to an “Approved Pension Fund” defined in the Income Tax Ordinance of 2001, with the employer’s share being at least 50% of the prescribed limit, gratuity is not payable during the period of these contributions. It’s noteworthy that this Pension Fund option is not present in the Khyber Pakhtunkhwa and Sindh Standing Orders Acts.

Gratuity and Provident Fund in Cases of Misconduct

In cases of misconduct, employers are not obligated to pay gratuity. However, if a Provident Fund is maintained, a workman is entitled to receive the amount in the provident fund, including the employer’s contributions, even if they resign or are dismissed from service.

Filing a Claim for Gratuity Disputes

Now, let’s address what action a worker (or their dependents) should take if an employer refuses to pay gratuity or offers an amount lower than what is due. The initial step is to request payment of the owed amount from the employer. If delays or underpayments persist, the aggrieved party, be it the worker or their dependents in case of the worker’s death, can file a claim with the Commissioner appointed under section 15 of the Payment of Wages Act of 1936. This complaint can be lodged within three years of the incident, and each district designates a Workmen Compensation Commissioner to handle labor-related matters.

Gratuity Allocation in the Event of a Worker’s Demise

Finally, in the unfortunate event of a worker’s demise, gratuity is disbursed to their legal dependents. This calculated gratuity sum is transferred to the Workmen Compensation Commissioner, appointed under the Workmen Compensation Act of 1923. The Commissioner then allocates the amount among the dependents, defined as the widow, minor son (under 18 years), unmarried daughter, or widowed mother, under section 8 of the Workmen’s Compensation Act, 1923, or its provincial variations.