An Employer of Record (EOR) in Pakistan owns a legal entity and enables foreign companies to hire employees on their payroll without setting up a company in Pakistan. The EOR acts as the legal employer, while the workers or contractors perform their services under the guidance and supervision of the client company.
Discover the key considerations and essential details you should be aware of before opting for an Employer of Record (EOR) in the Pakistan.
On this page: Employment Contracts | Employment Laws | Social Security | Personal Income Tax | Employee Benefits
| Overview | |
| Continent | Asia |
| Country | Pakistan |
| Capital | Islamabad |
| Time zone | UTC+05:00 (PKT) |
| Total Time zones | 1 |
| Working hours per week | 45 & 54 |
| Working week | Monday–Saturday |
| Typical hours worked | 9 |
| Personal Tax filing deadline | 30th Sept |
| Financial Year | 1 July – 30 June |
| Date format | dd/mm/yyyy |
| Currency | Pakistan Rupee (PKR) |
| VAT | the standard rate is 17% |
Employment Contracts in Pakistan
An employment contract in Pakistan serves as a pivotal legal instrument that articulates the terms governing the professional relationship between an employer and an employee. When considering an employment engagement that spans beyond a month, it's imperative for both parties to have a documented agreement in place within the initial two months of employment initiation. Typically, this contract aligns with the commencement of employment, ensuring mutual clarity and understanding. A comprehensive employment contract in Pakistan would encompass the following elements:
- Identification and Contact Details: The contract should explicitly identify both the employer and the employee, incorporating detailed contact information, including postal addresses.
- Commencement Date: Specifying the exact date of employment initiation is vital for various administrative purposes, such as reviews and benefits accrual.
- Work Location: Mention the present office address. In cases where relocation is anticipated, provisions addressing such a scenario should be incorporated.
- Position and Responsibilities: Clearly define the job title and elucidate the associated duties. Employers might consider allowing some latitude to accommodate role evolution over time.
- Compensation: Detail the salary structure, payment modalities, and ensure clarity that the stipulated salary is pre-tax and pre-deductions.
- Reimbursement Policy: If the position entails reimbursable expenses (e.g., transportation, relocation), delineate the specifics and mandate documentation retention.
- Work Hours: Specify the weekly work hours, any constraints regarding work timings, and adherence to legal limitations, notably not exceeding 48 hours weekly without employee consent.
- Leave Provisions: Address provisions for annual leave, sick leave, including prerequisites for medical documentation, and any remuneration during illness periods.
- Pension Provisions: Detail any pension schemes or contributions applicable to the employee.
- Probationary Period: Define a probationary phase, facilitating early termination with a truncated notice period if either party finds the arrangement unsatisfactory.
- Performance Evaluations: If periodic performance assessments are envisaged, embed this in the contract.
- Tenure Specification: Specify whether the role is temporal or perpetual, incorporating an anticipated conclusion date for the former.
- Salary Deductions: Enumerate permissible scenarios for salary deductions, ensuring adherence to legal frameworks.
- Confidentiality and Non-Compete Clauses: Safeguard organizational proprietary information through confidentiality clauses. Additionally, consider incorporating non-compete clauses to deter employees from joining rival entities or poaching colleagues, with provisions for legal repercussions in the event of breaches.
- Grievance Redressal: Detail the company's disciplinary mechanisms and procedures for addressing employee grievances.
- Termination Protocols: Clearly outline grounds for immediate contract termination, stipulate notice durations, and elucidate circumstances warranting severance packages, if any.
- Additional Clauses: Conclude with standard contract clauses, encompassing aspects like contract segment applicability, acknowledgment of the current contract as the definitive agreement, and specification of the governing jurisdiction.
In essence, an employment contract in Pakistan serves as a comprehensive guide, fostering a transparent, structured, and mutually beneficial professional association between employers and employees.
Employment Laws in Pakistan
Foreign companies aiming to expand business in Pakistan and hire employees without establishing a local entity should be well-versed with the country's employment laws. Here's a comprehensive overview:
Minimum Wages in Pakistan
Pakistan has set minimum wage standards to ensure fair compensation for its workforce. As of July 1st, 2023, the minimum wages for skilled workers across four major provinces are as follows:
- Sindh: 1,280 Rs per day or 33,280 Rs monthly.
- Khyber Pakhtunkhwa (KPK): 1,230.77 Rs per day or 33,280 Rs monthly.
- Punjab: 1,230.77 Rs per day or 32,000 Rs monthly.
- Balochistan: 1,231 Rs per day or 32,000 Rs monthly.
These rates reflect each province's commitment to ensuring just compensation for skilled labor, with slight variations based on local economic considerations.
Overtime Pay
Overtime extends beyond the standard 40-hour, 5-day workweek. Compensation for overtime is 125% for the first two hours and 150% thereafter, as per the Minimum Wages Ordinance of 1961. Exceptions exist for certain workers, like domestic and agricultural laborers. Workers should document overtime hours and consult with labor departments or unions for concerns.
Payroll Cycle
In Pakistan, the payroll cycle can vary depending on the employer and industry. However, here's a breakdown of the common practices:
- Frequency of Payments:
- Monthly: Most prevalent, salaries are typically disbursed in the initial days of the subsequent month.
- Bi-monthly: Some public sector employers pay on both the 15th and at month-end.
- Weekly: Used less frequently, mainly for specific industries or temporary roles.
- Daily: Occasional and mainly for casual laborers.
- Key Timing Components:
- Pay Period: The designated duration for salary calculations, which can align with a month, week, or employer-defined timeframe.
- Cutoff Date: The last date for submitting time records or leave requests for payroll processing.
- Pay Date: The day employees receive their salaries.
- Other Considerations:
- Government Holidays: Holidays during the pay period might alter the payout schedule.
- Payment Methods: Salaries are disbursed via bank transfers, cash, or cheques.
Probation and Notice Periods
Probation Periods
- Objective: The probation phase allows both employers and employees to assess mutual suitability for the role and the organization's culture.
- Duration: Legally, a probation period can span up to 6 months, with a potential 3-month extension, though the typical industry practice ranges between 3-6 months depending on the nature of the job, industry standards, and specific employer considerations.
- Termination Protocols: During probation, either party can terminate the employment without prior notice, except in cases specified under the Industrial and Commercial Employment Standing Orders (ICESOs). It's imperative for employers to issue a written termination notice when mandated by ICESOs.
Notice Periods
- Objective: The notice period offers both employers and employees a buffer to manage the transition associated with the cessation of employment.
- Duration: Employers should be aware that, legally, permanent employees are entitled to a one-month notice period. However, employers might specify longer durations in the employment contract.
- Termination Procedures: Any decision to terminate employment requires written communication. If an employer fails to provide the requisite notice, they are obligated to compensate the employee with a month's salary. Notably, immediate termination without notice is permissible in cases of severe employee misconduct or due to business closure/redundancy.
Working Hours in Pakistan
Standard Working Hours:
- Daily Hours: Employees are typically scheduled for 8 hours a day. This comprises a core 8-hour work shift, inclusive of a one-hour break dedicated for lunch and prayer. Consequently, the total on-site presence extends to a maximum of 9 hours daily.
- Weekly Limits: In a standard workweek, employees are expected to work up to 48 hours. However, for specific seasonal or exigent circumstances, this can be extended to a maximum of 56 hours per week.
13th Month Salary
Legality: While Pakistan doesn't mandate a 13th month salary, businesses with over 20 employees sharing profits must allocate 15%-30% of annual profits based on wages. Additionally, minimum wage regulations vary by province and skill level.
Custom and Practice: Some employers offer a 13th-month salary, especially around major holidays like Eid or Christmas. The amount and frequency vary by company, with no fixed standard. It's typically a bonus based on company policy and financial health.
Key Insight: Though not obligatory, some Pakistani companies provide a 13th-month salary. Employees should consult their contracts or HR for clarity on their company's stance.
Severance Pay in Pakistan: An Insight
Legality: Pakistan doesn't universally mandate severance pay for all employees. Instead, it's contingent upon specific scenarios:
- Industrial and Commercial Employment Standing Orders (ICESOs): Employees in establishments governed by ICESOs, with a tenure of at least 24 months, are eligible for severance pay if unjustly terminated without notice or valid reason.
- West Pakistan Shops and Establishments Ordinance, 1969: This ordinance, akin to ICESOs, covers certain commercial entities and mandates severance pay in cases of unwarranted termination without proper notice or justification.
- Contractual Agreements: Severance pay terms can be outlined in individual employment contracts, ensuring clarity and mutual agreement on compensation during terminations.
Personal Income Tax in Pakistan
In Pakistan, the personal income tax system is structured on a progressive basis, embodying the principle that as one's income rises, the corresponding tax rate increases. This progressive approach is designed to foster a more equitable distribution of the tax burden across the populace. While residents are obligated to pay taxes on their global income, non-residents are solely taxed on the income they generate within Pakistan's borders. The tax framework comprises five distinct brackets, commencing with a 0% rate for those on the lower end of the income spectrum and ascending to a 35% rate for individuals in the highest income bracket.
| Personal Income Tax (PIT) | |
| Income Range | Tax Rate |
| 0 - 600,000 PKR | 0% |
| 600,000 - 1,200,000 PKR | 5% |
| 1,200,000 - 1,800,000 PKR | 30,000 PKR (+10% on income exceeding 1,200,000) |
| 1,800,000 - 2,500,000 PKR | 90,000 PKR (+15% on income exceeding 1,800,000) |
| 2,500,000 - 3,500,000 PKR | 195,000 PKR (+17.5% on income exceeding 2,500,000) |
| 3,500,000 - 5,000,000 PKR | 370,000 PKR (+20% on income exceeding 3,500,000) |
| 5,000,000 - 8,000,000 PKR | 670,000 PKR (+22.5% on income exceeding 5,000,000) |
| 8,000,000 - 12,000,000 PKR | 1,345,000 PKR (+25% on income exceeding 8,000,000) |
| 12,000,000 - 30,000,000 PKR | 2,345,000 PKR (+27.5% on income exceeding 12,000,000) |
| 30,000,000 - 50,000,000 PKR | 7,295,000 PKR (+30% on income exceeding 30,000,000) |
| 50,000,000 - 75,000,000 PKR | 13,295,000 PKR (+32.5% on income exceeding 50,000,000) |
| Over 75,000,000 PKR | 21,420,000 PKR (+35% on income exceeding 75,000,000) |
Employee Benefits in Pakistan
Pakistan, a diverse and dynamic country, offers a range of employee benefits that reflect its cultural, economic, and legislative landscape. From maternity and paternity leaves to specific entitlements for various sectors, understanding these benefits is crucial for both employers and employees. This overview delves into the comprehensive suite of employee benefits available in Pakistan, shedding light on the rights and entitlements of its workforce.
Paternity Leave
- There isn't a standardized provision for paternity leave in the private sector.
- In Punjab, under the Revised Leave Rules of 1981, new fathers can avail up to 7 days of paternity leave around their child's birth, which can be taken twice during their tenure.
- As per the National Commission on Women Employees' Rules (2018), male employees have a right to 10 days of fully compensated paternity leave, separate from their regular leave, starting from their spouse's confinement date.
- The Sindh Police has also endorsed a 10-day paternity leave policy for its officers and staff post-childbirth.
Parental Leave
- There are no stipulated laws for paid or unpaid parental leave.
Maternity Leave
- Female workers are granted up to 12 weeks (3 months) of maternity leave with complete compensation. The six weeks immediately following childbirth are obligatory (Refer to Section 4 of the West Pakistan Maternity Benefit Ordinance, 1958).
- The public sector also follows a 90-day (3 months) maternity leave policy with full wage coverage.
- To qualify, the woman must have worked in the organization for a minimum of four months prior to her expected delivery date (Refer to Section 4 of the West Pakistan Maternity Benefit Ordinance, 1958).
Medical Benefits
- As outlined in Section 38 of The Provincial Employees Social Security Ordinance (1965), eligible women are provided with medical care during both prenatal and postnatal periods if they qualify for maternity benefits under Section 36.
Paid Vacation / Annual Leave:
- Employees with 12 months of continuous service are entitled to 14 consecutive days of paid annual leave (as per section 49-B of the Factories Act).
- Factory workers receive half of their pay before the annual leave commences.
- If unused, up to 14 days of annual leave can be carried forward to the next year, but no more.
- Upon ending employment, unused leave days must be compensated by the employer.
Public Holidays:
- Workers have paid Festival holidays, totaling around 14 per year, as announced by the Ministry of Interior and Provincial Government.
- These holidays include religious and memorial events, such as Eid festivals and national days like Pakistan Day.
Factors Affecting Leave Eligibility:
Extended sickness, unauthorized absence, participation in illegal strikes, premature job departure, and prolonged involuntary unemployment can affect annual leave eligibility.
Holiday Leave Duration Under Different Laws:
- Factories Act and Shops and Establishments Ordinance: 14 consecutive days.
- Mines Act: Duration varies based on work conditions.
- Newspaper Employees Act: At least 1/11th of time spent on duty.
- Road Transport Workers Ordinance: At least 14 days after a year of service.
Temporary/Contract Workers:
Contract workers lack leave entitlements, while temporary workers, employed for 9 months, receive pro-rated casual, sick, and other holidays. Part-time workers' leave rights are determined by employer policy.
Holiday Pay Entitlement:
Employees are compensated at their average daily wage from the past three months during annual leave. The Factories Act mandates half the pay before leave begins.
Working on Weekends and Holidays:
Employers can mandate weekend work but must compensate with a compensatory holiday. Working on public holidays warrants a compensatory holiday with full pay, typically at 300 times the regular rate.
Sick and Casual Leave Entitlement:
- Sick Leave: 8 days (Shops and Establishments) and variable days (Factories) per province.
- Casual Leave: 10 days (Shops and Establishments) and variable days (Factories) per province.
In Pakistan, an Employer of Record (EOR) plays a crucial role for businesses seeking to establish a foothold in the Pakistani employment landscape. By managing local compliance, overseeing payroll intricacies, and handling administrative complexities, the EOR enables companies to concentrate on their primary goals without being entangled in the nuances of regulatory obligations. This collaborative approach ensures that employees are onboarded with contracts that adhere to Pakistani labor laws and practices. As the Pakistani business environment continues to advance, the significance of an EOR becomes even more pronounced, providing enterprises with a streamlined avenue to enter and flourish in Pakistan while upholding compliance and nurturing a conducive work atmosphere.
Social Security in Pakistan
How much is contributed?
Employer Payroll Contributions in Pakistan
Employee Payroll Contributions in Pakistan