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Hiring in Pakistan
Pakistan is located in South Asia. Over 200 million people live in Pakistan, making it the 5th most populous country in the world. More than 60 languages are spoken in Pakistan; the national language is Urdu, but it is the primary language of only 8% of the population.
When negotiating terms of an employment contract and offer letter with an employee in Pakistan, it may be useful to keep the following in mind.
Employment contracts in Pakistan
Employees in Pakistan are generally divided into workmen and managers. The employment laws in Pakistan mostly apply to workmen, where managers are governed by the terms of their contract.
All businesses with 20 or more employees are required to issue formal employment contracts at the time of hiring an employee. Strong employment contracts should be put in place in Pakistan, and they should spell out the terms of the employee’s compensation, benefits, and termination requirements. An offer letter and employment contract should always state the salary and any compensation amounts in rupee rather than another currency.
Working hours in Pakistan
For workmen and non-managers, the typical workweek in Pakistan is 48 hours for a full-time employee, 6 days a week for 8 hours per day. No employee can be required or permitted to work more than 9 hours per day or 48 hours per week without payment for overtime. Overtime pay is double the ordinary rate of pay.
Obligatory breaks are required for at least 60 minutes within 8 hours of work.
Holidays in Pakistan
Pakistan celebrates both national and religious holidays for which employees are given the day off. Holidays are as follows:
- Kashmir Day
- Pakistan Day
- Labor Day
- Eid ul Fitr
- Independence Day
- Eid ul Azha
- Allama Iqbal Day
- Ashura
- Eid Milad-un-Nabi
- Quaid-e-Azam Day
- Day after Christmas (for Christians only)
Vacation days in Pakistan
Employees who have completed 12 months of employment are entitled to 14 days of annual leave in Pakistan. If all 14 days are not taken, those days are added to the annual leave allotted to the employee in the succeeding 12-month period. For workmen, the total leave accumulation limit is 28 days.
Pakistan sick leave
Every employee is entitled to 10 days’ casual leave with full pay and a further 16 days of sickness or medical leave at 50% pay.
Maternity/paternity leave in Pakistan
Under the Maternity and Paternity Act 2023, birthing employees are entitled to a maximum full paid maternity leave of 180 days for the 1st birth, 120 days for the 2nd birth, and 90 days for the 3rd birth. Non-birthing employees are entitled to paid paternity leave of 30 days for a maximum of 3 births.
Health insurance in Pakistan
Health insurance is not mandatory in Pakistan, but it may be offered to employees as a discretionary benefit.
Pakistan supplementary benefits
Based on some Collective Bargaining Agreements (CBAs), employees who take pilgrimage i.e., Hajj, Umra, Ziarat, are granted special leave of up to 60 days.
Some companies offer medical insurance, life insurance, and tuition fee reimbursement.
Bonuses
In accordance with sections 1(4) and 10-C of the West Pakistan Industrial and Commercial Employment (Standing Orders) Ordinance, 1968, every industrial and commercial establishment in Pakistan, employing 20 or more employees, is required to pay profit bonus to their employees provided that they have been in employment in that year for a continuous period of at least 90 days and the company has declared profit in that year.
- The bonus is paid to the employees in recognition of the good services rendered by them while serving the organization.
- It must be paid within a period of 3 months from the closing of the financial year and cannot be delayed due to any reason including lack of available funds or incomplete financial accounts.
- The bonus is calculated as follows:
- If profit is less than the total of 1-month wages of all employees, 15% of the profit is distributed among the eligible employees.
- If profit is equal to the total of 1-month wages of all employees, 30% of the profit is distributed among the eligible employees.
- If profit is greater than the total of 1-month wages of all employees, a maximum of 30% of the profit is distributed among the eligible employees.
Termination/severance in Pakistan
The maximum probationary period for workmen is 3 months. For managers, there is generally no limit on the probationary period. However, after 9 months, the employee is considered a permanent employee.
An employer may terminate an employee with or without cause, but the process required varies based on the reason for termination and whether the employee is a workman or manager. When terminating without cause, an employer must provide 1 month’s notice or pay in lieu of notice. One month’s wages are calculated on the basis of the average wage earned during their last 3 months of service. When terminating for cause, no notice is required.
Workmen are entitled to severance pay when terminated for any reason other than for cause in the amount of 30 days’ wages for every completed year of service or any portion more than 6 months.
Paying taxes in Pakistan
Employees’ income tax ranges from 0% to 32.5% based on estimated annual taxable income.
Income tax in Pakistan is payable on the basis of different slab rates. Rates for salaried employees are in the range of 2% to 30%. If an employee’s income is less than the exemption threshold of PKR 600,000 (whether a salaried or non-salaried individual), the employee is not required to pay any income tax. To see how this works, below is an income tax rate table for salaried employees as of 2021:
| TAXABLE INCOME | TAX RATE (%) |
|---|---|
| LESS THAN RS 600,000 | 0.0% |
| RS 600,000 – RS 1,200,000 | 5% |
| RS 1,200,000 – RS 1,800,000 | RS 30,000 + 10% OF THE AMOUNT EXCEEDING RS 1,200,000 |
| RS 1,800,000 – RS 2,500,000 | RS 90,000 + 15% OF AMOUNT EXCEEDING RS 1,800,000 |
| RS 2,500,000 – RS 3,500,000 | RS 195,000 + 17.5% OF AMOUNT EXCEEDING RS 2,500,000 |
| RS 3,500,000 – RS 5,000,000 | RS 370,000 + 20% OF AMOUNT EXCEEDING RS 3,500,000 |
| RS 5,000,000 – RS 8,000,000 | RS 670,000 + 22.5% OF AMOUNT EXCEEDING RS 5,000,000 |
| RS 8,000,000 – RS 12,000,000 | RS 1,345,000 + 25% OF AMOUNT EXCEEDING RS 8,000,000 |
| RS 12,000,000 – RS 30,000,000 | RS 2,345,000 + 27.5% OF AMOUNT EXCEEDING RS 12,000,000 |
| RS 30,000,000 – RS 50,000,000 | RS 7,295,000 + 30% OF AMOUNT EXCEEDING RS 30,000,000 |
| RS 50,000,000 – RS 75,000,000 | RS 13,295,000 + 32.5% OF AMOUNT EXCEEDING RS 50,000,000 |
| RS 75,000,000 – ANYTHING ABOVE | RS 21,420,000 + 35% OF AMOUNT EXCEEDING RS 75,000,000 |
Employers must contribute to social security on behalf of employees for up to 7% of the employee’s wages and 5% of minimum wage for Employees Old Age Benefit. No contributions are due on wages in excess of PKR 400 per day or PKR 10,000 per month. Social security provides for 4 types of benefits:
- Old-Age Pension
- Survivor’s Pension
- Invalidity Pension
- Old-Age Grant (if an employee is not eligible for pension)
Employers are required to submit both employer and employee contributions to a bank designated by the Employees’ Old-Age Benefits Institution (EOBI) before the 15th of every month. Employers pay a contribution equal to 5% of the minimum wage while employees pay 1% of minimum wage.
Value Added Tax (VAT) is levied at a 17% rate on most goods and services in Pakistan.
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