Payroll & Employment Guide Pakistan

Employment contracts in Pakistan must be in writing and should clearly state the terms of employment, including working hours, duties, salary, and benefits. Both fixed-term and permanent contracts are allowed.

Notice periods: Usually 1 month.

Termination of employment: Permissible through resignation, misconduct, redundancy, or mutual agreement

Employers in Pakistan are legally obligated to provide certain mandatory benefits. To stay competitive, many businesses offer additional perks.

Mandatory benefits: Life insurance, paid vacations, religious holidays, etc.
Common perks: Health insurance, transport allowance, meal allowance, bonuses, professional development, flexible working hours, and company events.

Leave policies: Annual leave, sick leave, casual leave, maternity leave, paternity leave, bereavement leave, marriage leave, pilgrimage leave.

In Pakistan, employers are responsible for deducting income tax and contributing to the national pension scheme (EOBI). Tax rates vary depending on income levels and regional laws.

• Income tax: Salaried individuals pay between 5% to 35%, with exemptions for those earning below PKR 600,000 annually. For annual taxable income up to PKR 600,000, no tax is levied. Income between PKR 600,001 and PKR 1,200,000 is taxed at 5%, while income from PKR 1,200,001 to PKR 2,400,000 is taxed at 10%. For incomes between PKR 2,400,001 and PKR 3,600,000, the rate is 15%; from PKR 3,600,001 to PKR 6,000,000, it’s 20%; between PKR 6,000,001 and PKR 12,000,000, the rate increases to 25%; and any amount above PKR 12,000,000 is taxed at 35%. These brackets apply specifically to salaried individuals.
• Corporate tax: Generally 29% for companies, with variations for specific sectors.
• Sales tax: Standard rate is 17% on goods and services.
• Withholding tax: Deducted at source on various payments like salaries, dividends, and contracts.
• Property tax: Levied on property ownership, rates vary by location.
• Customs duty: Imposed on imported goods, rates depend on the product type.

Payroll in Pakistan must follow local wage laws and tax deadlines. Salaries must be paid monthly, with payroll taxes withheld and reported accordingly.

Salary payment deadline: By the 10th of the following month (7th for small businesses)

Taxes and contributions payment deadline: Monthly, aligned with salary payment

Payroll declarations deadline: Monthly reporting of taxes and EOBI contributions

Payroll currency: PKR (Pakistani Rupee)

Pakistan’s labour regulations are defined by a mix of federal and provincial laws. These laws govern everything from contracts and wages to benefits and workplace safety.

Total employment cost:

• Employer’s social security contributions: 11%
• Employer’s health insurance costs: 0
• Employees’ social security contributions: 1%
• Employee’s health insurance costs: 0

Minimum wage: 37,000 PKR

Probation period: Up to 3 months

Using EOR services in Pakistan allows you to legally employ individuals in the country without opening legal entities there. The EOR takes over all the legal responsibilities as an official employer, including:

• Legal employment and contracts
• Payroll processing
• Tax withholding
• Benefits administration
• Onboarding/offboarding employees

Using PEO services in Pakistan provides HR and administrative support, while you remain the legal employer. PEO services are ideal for employers who already have legal entities in Pakistan but need support to manage their workforce operations, including:

• HR support and workforce administration
• Payroll and benefits management
• Compliance and local labour law guidance
• Employment contracts assistance

Native Teams provides a payroll calculator adjusted per Pakistan’s labour laws. Estimate gross-to-net salaries, tax withholdings, and employer costs in Pakistan with our localised calculator. Designed to meet all payroll and compliance requirements.