Commentary on Labour Laws Issues


Interpretation of Gratuity Law and Whether Applicable to Contractual Employee?

Question # 1:

First of all thank you very much for your precious time and the way you explained me. I really appreciate it. The question is when gratuity would be payable, and whether an employee is entitled to it only after six month of service without even completing the first year of service?

The Gratuity law: rate of gratuity is "thirty (30) days wages for every completed year of service or any period in excess of six months". Could you please state your interpretation.

Is gratuity law applicable to the contractual employee? Are those contract employees eligible who work more than 12 months? What about daily wagers?

Saba Khan, Islamabad

Answer # 1:

You really have four questions and I'll try to answer each one to the best of my knowledge.

  1. Gratuity is payable only to a permanent worker upon retirement or termination by employer any time before retirement (for any reason other than misconduct) or resignation by employee (or death). No encashment is allowed on yearly basis during the course of employment.

  2. Gratuity rate criteria is given by the expression, as you have stated, "every completed year of service or any part thereof in excess of six months" in section 12(6) in Industrial and Commercial Employment (Standing Orders) Ordinance, 1968.

    The expression of gratuity rate has two parts separated by a word "or". Both parts are independent and not controlled by each other. Due to word "or" both parts are not sequential in application rather out of the two whichever part is applicable will be applied. Depending upon the length of service if the first part "every completed year of service" can be fulfilled and operationalized then it must be. If that is not applicable then we'll fall back on the second or alternate phrase "or any part thereof in excess of six months" which is usually applied in the last year of service.

    If the length of service spread over number of years then definitely the first part will be applicable. For the last year, service is generally for part of the year or for few months and to determine whether gratuity is payable for the last year of service, a guideline of six month is provided in the second part. If last year of service is more than six months, full 30-day gratuity is payable for that year, and if it is less than six months, no gratuity is payable for that partial year of service. Hence six-month rule is followed to decide...

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