Retirement Benefits

Retirement: Retirement is a part of life where an employee or employer chooses to leave the workplace permanently The traditional retirement age is 60 for men and 55 for women for each retirement brings some benefits for the employee to avail that below.

Content:

Gratuity
Provident Fund
Pension
Related documents

Gratuity Law in Pakistan

Gratuity is one of the retirement benefits for long service. Before May 1972, the payment of gratuity by the employer was voluntary, after that, it was incorporated in Standing Orders and became a statutory obligation of employers. Since then payment of gratuity has been a legal benefit of the eligible worker.

There are three different retirement benefits defined in Standing Order 12(6) i.e. “Gratuity” “Provident Fund” or “Approved Pension Fund”. The commercial establishment employing 20 or more workmen OR any industrial establishment employing 49 or more workmen, directly or indirectly, during any days of the preceding 12 months, is legally liable to offer at least any one of these retirement benefits.

S.O 12(6) of W.P. Industrial & Commercial (Standing Orders) Ordinance, 1968 defines, “where a workman resigns from service or services are terminated by the employer, for any reason other than misconduct, shall be entitled to gratuity equivalent to thirty (30) days wages, calculated based on the (wages admissible to him in the last month of service if he is a fixed-rated workman or the highest pay drawn by him during the last twelve months if he is a piece-rated workman), for every completed year of service or any part thereof over six months: provided that, where the employer has established a provident fund to which the workman is a contributor and the contribution of the employer to which is not less than the contribution made by the workman, no such gratuity shall be payable for the period during which such provident fund has been in existence. Provided further that if through collective bargaining the employer offers and contributes to an “Approved Pension Fund” as defined in the Income Tax Ordinance, 2001, and where the contribution of the employer is not less than fifty percent of the limit prescribed in the aforesaid Ordinance, and to which the workman is also a contributor for the remaining fifty percent or less, no gratuity shall be payable for the period during which such contributions has been made.]”

Which Establishment is Liable to Pay Gratuity?

As per Section 1 of the Ordinance, the provision of gratuity becomes applicable to every commercial establishment employing or employing twenty or more workmen and every industrial establishment employing or employing fifty or more workmen, on any day during the preceding twelve months.

When Gratuity become payable?

Gratuity becomes payable at the time of separation from services which could be: (i) by resignation by the workman, (ii) termination of services by the employer due to any reason other than misconduct (in case of proven misconduct employer is not bound to pay gratuity), (iii) in case of death and (iv) retirement or superannuation of a worker.

Who is entitled to Gratuity?

There are the following conditions to check the entitlement of gratuity:

(i) provision of statutory gratuity applies to the establishment i.e. industrial or commercial, concerning the number of workmen employed, as explained above.

(ii) An employee is a “workman” as defined in Section 2(i) of this Ordinance as someone who is employed to do any skilled or unskilled, manual or clerical work. According to various court judgments, it is the nature of duties he is performing rather than his designation or wages that determine whether he is a “workman” or not.

(iii) length of service should be more than six months or more.

Rate of Gratuity

Earlier the rate of gratuity was 15 days of wages for each completed year of service and later on, it was revised to 20-day wages. Right now the present rate of gratuity is 30 days wages for every completed year of service or any period over six months in the same establishment.

How to calculate the amount of Gratuity payable?

Following is the procedure to calculate the payable gratuity of an eligible worker:

Yearly calculation: Calculate per day wage rate based on 26-days in a month, by dividing monthly wages by 26-days; The rate per day is multiplied by the rate of gratuity which is 30 days’ wages and Finally, calculate the payable amount of gratuity for the entire service period, the formula is per day wage x 30 (rate of gratuity) x No. of service years.

Six-month rules: Six-month rule is followed to decide whether to pay gratuity for the last year of service depending upon whether the service is more or less than six months. For service of more than six months, gratuity is payable otherwise not.

The 26-day month is defined in the Explanation of Section 3 of the Minimum Wages for Unskilled Workers Ordinance, 1969 i.e. “month” means a normal working period of twenty-six days calculated at the rate of forty-eight hours of work per week. Similarly, the minimum wage for skilled and semi-skilled workers is also based on 26 days in a month. The yearly provincial gazettes specify the same for these categories of workers.

Meaning of Wages for Calculation of Gratuity

All payments or allowances that are regular, permanent, and non-contingent, no matter by what name they are called, are included in wages for gratuity. Any payments that are irregular (unpredictable and/or depend on the goodwill of the employer) or contingent (payable upon the existence or disappearance of certain conditions (e.g., profit) which could not be predicted in advance) then those payments are not part of wages to calculate gratuity.

In the case of a fixed-rated worker, gratuity is to be calculated based on wages admissible to the worker in the last month of service.

In the case of a piece-rated worker, gratuity is to be calculated based on the highest pay drawn during the last twelve months, for every completed year of service or any part thereof over six months.

Payment of Gratuity in Case of Death of Worker

In case of the death of a workman, gratuity is payable to the legal dependents of a workman. As mentioned above, death may not necessarily occur on duty but the worker should be in continuous service at that time. The amount of gratuity, in this case, is transferred to the “Workmen Compensation Commissioner” who will then allocate this amount to the dependents of a worker. The dependents of a deceased worker include “his widowed mother, his widow, minor son, and unmarried daughter”. The Commissioner shall proceed with the allocation of the deposit amount to the dependents of the deceased by the provisions of Section 8 of the Workmen’s Compensation Act, 1923. If the employer fails to deposit the gratuity amount then the dependents of the deceased may apply to the Commissioner for the recovery.

Important points to be remembered regarding payment of gratuity:

Gratuity has no connection with loss or profit or the financial position of an employer; it has to be paid to the eligible worker.
A completed year of service means 12 months of service counted from the date of the first appointment in the same establishment. It does mean calendar year, financial year, or any other period.
The period of service which is 6 months or less, will not be considered for payment of gratuity.
Retirement on attaining the age of superannuation is treated as a termination of service by the employer and voluntary retirement is considered resignation by the worker.
Legally employer is bound to offer only one retirement benefit out of three. However, the employer at its sole discretion may also offer provident funds, or worker unions have to right to negotiate and get more benefits simultaneously.

Gratuity applicability

An employee is entitled to the gratuity when:

When he resigned from the service
When he retired from the service
When he retrenched from the service
when he performed early retirement.
when he was terminated from services.
When his contract ended.
when he reaches superannuation.
when the employee died.

Gratuity can be held:

However, if any employee’s services were terminated on account of misconduct (like harassment/ theft case ) the gratuity will be not admissible to him.

Labor workmen compensation

In case of death, the employee benefits will be paid to his legal dependent through the labor workmen compensation depart. the dependent of the deceased can collect the same amount from the labor commissioner’s office after submitting of required legal documents to the labor depart (Like Hardship certificate, Nadra dependent certificate) and if the deceased was unmarried, then the liability will be paid to his parents

Illustration of the gratuity.

Employee last drawn gross salary
Joining date
Service end date
No of years
Gratuity formula (Gross salary*No of years)

Note: By the provision of labor law, the rate of gratuity is “thirty (30) days wage for every completed of service or any period excess than 6 months “any

S.no	Employee name	CNIC no	Employee Gross salary	Date Joining	Sevice end date	Total years	Total Months	Today days	Total accumulated years	Gratuity amount	Payable salary (if/any)	GST	Net amount
1	abc	123	25000	123	123	1	2	5	1	25000*1		0	25000
1	abc	123	25000	123	123	1	6	5	2	50000	2000	0	52000

Gratuity Withdrawl.

The gratuity is not funded a funded amount it is calculated with the last drawn gross salary* years worked = gratuity amount at employee separation time so it is not possible to a sum of portion for the employee in the form of a loan or permanent withdrawal but in the benefits of the employee and motivations some company considering working years as his fund and release a less portion of the amount for the employee needs and a specific portion is deducted from the employee salary as advance adjustment.

Provident Fund

A Provident Fund is also a retirement benefit of the employee that has been paid to the employee once he retires from his services for resigned | termination of the employee contract. These monthly savings get accumulated every month, easily accessible as a lump sum amount at retirement or the end of employment. according to Pakistan labor law, the gratuity or Provident is mandatory as an employee benefit, the employer has the option to pay a gratuity or provident fund to the employee as a retirement benefit and pay to the employee at employment separation time, some employers pay gratuity and provident fund to the employees as motivational acknowledgment. some employers consider this fund as a registered fund on a monthly or yearly base profit ratio, and the same profit amount monthly or yearly is adding to the employee fund on record.

Contribution formula.

A provident fund is an investment fund that is voluntarily established by Employers and employees to serve as long-term savings to support an employee’s retirement. a provident fund has two parts: the employer‘s contribution and the employee’s contribution. The employer gratuity part is the amount of one gross salary that has been paid to the employee as part of the gratuity. In the provident fund procedure, the employee pays this amount to the employee on a monthly portioned basis, whereas the employee portion is contributing in two ways on the basic salary portion and the gross salary portion. this amount has been deducted from the employee’s salary on a monthly basis and added in the employee provident fund:

Employer gratuity portion: Same applicable as below.
Employee PF procedure: Employee gross salary*8.333% = provident fund portion
employee PF procedure: employee basic salary *12% =Provident fund portion

Usage of the Fund.

The provident fund is a fund for the employee, and the employee can use it through the company policy and procedure, so normally an employee can use this fund after 6th month of continuous work through a refundable loan @ 80% of the total fund or a permanent withdrawal in some recommended case

the following form can be used for the PF withdrawal rules

S.No	Withdrawal categories	Rule	Repayment	Limits	Second withdrawal	Documentation	Installments

Provident Fund law in Pakistan

A Provident fund is a contributory retirement plan to benefit the employees. The establishment settles the Provident Fund in the form of Trust which is required to be registered with the concerned sub-registrar for getting the status of an independent statutory body. The provident fund is established in the following three forms.

Statutory Provident Funds;
Recognized Provident Funds;
Unrecognized Provident Funds;

The Statutory Provident Fund: is set under the Provident Fund Act, of 1925. It is maintained by the Government, semi-government, local authorities, and other many business institutions. This form is exempted from Income Tax and payments from such funds do not need recognition from the Commissioner of Inland Revenue.

The recognized Provident Fund: is recognized by the Commissioner of Inland Revenue under the Sixth Schedule of Income Tax Ordinance, 2001. This type of Provident Fund is maintained by private sector organizations. Payments from such Provident funds are also exempted from Income Tax.

Unrecognized Provident Fund: This form of the provident fund has no exemptions from tax. The tax is charged on the employer’s contributions and interest thereon only once at the time of payments made to the employee.

The Provident Fund Trust: The provident fund is governed by the provident fund trust of each establishment. The trustees of such Trust are liable for the collection of contributions from employers and employees monthly and to invest the same in various permissible schemes and securities.

Trust Deed: The Trust Deed for the Provident Fund Trust is written on the Stamp Paper. The Trust Deed and the Rules therein specify the terms and conditions, roles and responsibilities, rights and duties of the company, employees, trustees, auditors, bankers, and actuaries. This trust is registered with the registrar.

Trustees of The Provident Fund Trust: The Provident fund is created by the employer in the form of an irrevocable trust reflecting the name of the Company and containing the term Employees’ Contributory Provident Fund. At least three to five trustees are appointed for the management of the Trust who are named in the Trust Deed.

The Provident Fund Trust Rules: are separately drafted. The Trust Deed and the Rules specify the terms and conditions of the company, employees, trustees, auditors, bankers, etc.

Employee Old Age Benefit Institution.

Introduction

Prior to this law, in Pakistan, there were so many labour laws like Work’s Compensation Act, 1923 Factories Act, 1934, Payment of Wages Act,1936, West Pakistan Social Security Ordinance, 1965 (Ordinance No: X of 1965), West Pakistan Industrial and Commercial (Standing Orders) Ordinance, 1968, Companies Profit (workers’ Participation)Act,1968, West Pakistan Shops and Establishment Ordinance,1969, Industrial Relation Ordinance,1969, Workers Welfare Fund Ordinance, 1971, Workers Children (Education) Ordinance, 1972, etc. In many labour laws remedial, beneficial and welfare clauses and sections were provided but none from these laws or others provide such coverage of the old-age risk thus it was necessary to make a law that can provide security in the eve of old age when a man becomes handicap to work hard, condition of invalidity and in the case of death of a worker / employee the pension to the widows and orphans. In the European countries such laws were in operation.

In view of this need, first time in Pakistan , in 1972, an Ordinance with the title of the Employees’ Old‑Age Pension Ordinance (Ordinance X of 1972) was promulgated. Under this legislation first time, in Pakistan , the Government indicates its desire to introduce such a social security scheme for the betterment of the employees of private sectors. This Ordinance was issued on 23rd April, 1972 where under Old Age Pension scheme was introduced and a pension @ Rs; 60/= was suggested on completion of 20 years of service. For this purpose retirement age was fixed at 55 years (50 years for female). This was a provincial legislation that was intended to apply only to those establishments which employed 100 or more workers, and wages for coverage under this scheme were proposed to be fixed at Rs. 500/= per month, while the rate of the contribution was fixed 5%, to be paid by the employer. Before the implementation of the Employees’ Old‑Age Pension Ordinance, 1972, it was realized that the provincial pension scheme would not bear fruit thus the scheme was reshaped and after much work thereon the government introduced a better scheme for the betterment, welfare and benefits of the people of Pakistan.

This better scheme was promulgated on 23rd December, 1975 , whereby the Federal Government in the place of the Employees’ Old‑Age Pension Ordinance, 1972, notified the Employees Old‑Age Benefits Ordinance (Ordinance XXVI of 1975). This law relates to Old‑Age Benefits for persons employed in industrial, commercial and other organizations, employing at least ten persons

Later on the Employees’ Old‑Age Benefits Ordinance, 1975, was substituted by the better enactment, the Employees’ Old‑Age Benefits Act, 1976, (Act No XIV of 1976) which was passed by the National Assembly on 5th April, 1976 . The President of the Islamic Republic of Pakistan gave his assent on 15th April, 1976 , and then the Act was published in the Official Gazette of Pakistan on 19th April, 1976 . Although it came into force at once, but as per section 9 thereof the contribution was payable from 1st day of July, 1976. This Act was implemented from 1st day of July, 1976.

After promulgation of this statute many amendments are made therein and the last amendment has been mad in June 2005 through Finance Act, 2005. Since the process of amendment is a non-stop process hence this journey of amendment is in way of further amendments in view of the need of the nation and ILO conventions and recommendations on Social Security laws/ schemes. Till June 2005 this law has been amended through amendments as below:-

Employees’ Old-Age Benefits (Amendment) Ordinance, 1983. (Ordinance No. XVII of 1983),
Finance Act, 1986. (Act 1 of 1986),
Labour Laws (Amendments) Ordinance, 1993 (Ordinance XXIII of 1993),
Employees Old-Age Benefits (Amendment) Ordinance, 2000. (Ordinance IX of 2000),
Labour Laws (Amendment) Ordinance, 2001. (Ordinance LIII of 2001),
Employees’ Old-Age Benefits (Amendment) Ordinance, 2002. (Ordinance I of 2002),
Employees’ Old-age Benefits (Amendment) Ordinance, 2002. (Ordinance XLVI of 2002), and
Finance Act, 2005.

This scheme is operated under the Employees’ Old-Age Benefits Act, 1976 and covers employees
working in industrial, commercial and other organizations. The Employees Old-Age benefits institution
(EOBI) facilitates the provision of this benefit by performing the following functions:-

Identification & Registration of Establishments and Industries
Identification & Registration of Insured persons
Collection of Contributions
EOB Fund Management
Provision of Benefits as per Laws

Benefits by Employees’ Old-Age Benefits Institution

Old Age Pension: It is a monthly pension from EOBI calculated through the standard formula defined by Law, subject to a minimum monthly limit of Rs. 10000/- (The limit is revised by the Government from time to time). An employee becomes eligible for retirement, subject to other conditions such as 15-year contributions.
Invalidity Pension: If an employee sustains invalidity/ disability, he can claim this pension subject to other conditions.
Survivor’s Pension: In case of the death of an employee his spouse, children (or parents under specified circumstances) can claim a survivor’s pension subject to a specified condition if a not less than 3-year contribution has been paid the spouse till death, child till the age of 18 and the daughter till the marrage will be liable for the pension. whereas less than 3 years’ contribution a sum of the grant will be allowed to the insured dependent @ Minimum contribution capping* years= Total grant
Old Age Grant: If an insured person, not otherwise entitled to old‑age pension, retires from insurable employment after attaining the age of sixty years, or fifty‑five years in case of woman and a mine worker, and contributions in respect of him were payable for less than fifteen years, but not less 4[than two] years, he shall be entitled to an old‑age grant payable in a lump sum equal to his one month’s average monthly wages for every completed year of insurable employment or part thereof in excess of six months. That may be calculated @ Minimum contribution capping *Contribution years= Total Grant.

Employer Responsibility

The employer is bound to pay 5% of the minimum time scale salary declared by the government for each employee either permanent or contractual.
Responsible for deducting 1% contribution of minimum time scale salary from employees’ salaries and depositing in a timely manner.
To facilitate EOBI and employees for issuance of EOBI Card.
Maintain the contribution statements, monthly and annually, and provide the details to the EOBI department.
Responsible for maintaining the record and showing it to EOBI officials on demand.

Employee Responsibility

The employee is bound to pay 1% of the minimum time scale salary to EOBI as his own share of contribution.
To retain the EOBI Card in safe custody
File the EOBI Claim when applicable

Claim process

Under the EOBI scheme, the insured person is entitled to avail of the pension benefits after reaching the of age 60 years for men and 55 years for women with a 15-year contributions base @ Rs.10000/- p/m, less than 15 years contributions will be granted a sum of the amount @ minimum contribution capping * contribution years =Total grant

The employee should visit the EOBI portal at www.eobi.gov.pk.
Click “Individual Information” and check your EOBI Registration number using your CNIC.
Download the required form from the site, or visit the EOBI nearest office and receive your pension filled with the required data.
Contact your last employer and attest your pension document with a detailed pension request letter with last year’s contribution statement on the company letterhead and submit it to the EOBI office for the pensioning process.
Once the document proceeds with the pension process a verification letter is received from your last employer by the EOBI department through the insured person to confirm the provided data and service status.
After completion of the documentation process, the EOBI authority proceeds with the pension process and a pension card with confirmed bank details has been received for the pensioner with the applicable date.

Entitle personnel

The insured person, spouse, children, and parents are entitled to the

Delaying tactics in the pension card

The insured person has to provide the required documents as requested in the pension claim form and the EOBI institution is liable to provide the pension card within a month, delaying Tackicts challenge in the Wifaqi Muhtasib through online Complaint or through application submission directly.