Understanding Pakistan’s Labor Laws: How an Employer of Record Helps Ensure Compliance

Expanding your business into Pakistan opens up access to a large, cost-effective, and skilled workforce. However, navigating Pakistan’s complex labor laws, payroll requirements, and tax regulations can be challenging for foreign companies looking to hire locally. An Employer of Record (EOR) provides a turnkey solution to ensure your hiring practices, payroll, and employee management fully comply with local laws, so you can focus on growing your business without legal headaches.

Key Aspects of Pakistan’s Labor Laws

Employment Contracts and Working Conditions

• Written Contracts: Although not always mandatory, written employment agreements are best practice in Pakistan. These contracts are essential when you hire new staff and should clearly outline job roles, compensation, working hours, leave entitlements, and termination terms.
• Working Hours & Overtime: Pakistan’s labor laws stipulate standard working hours (typically 48 hours per week) and require overtime to be paid at a higher rate. This is critical when you plan to hire employees for projects with extended hours.
• Employee Protections: Laws such as the Industrial Relations Act and Minimum Wages Ordinance help protect worker rights, ensuring fair treatment in the workplace—vital considerations for any company looking to hire responsibly.

Statutory Contributions and Benefits

• Social Security & EOBI: When you hire locally, you must ensure that your employees receive long-term security through contributions to the Employees’ Old-Age Benefits Institution (EOBI).
• Workers’ Welfare Fund (WWF): Additional contributions support employee welfare programs, making it an important element of a compliant hiring strategy.
• Leave and Termination: Statutory leave entitlements (annual, sick, and maternity leave) and regulated termination procedures protect employee rights and ensure fair severance if applicable.

Tax Compliance

• Income Tax (PAYE): Pakistan employs a progressive tax system where employers must withhold income tax from salaries and remit it to the Federal Board of Revenue (FBR). This is a crucial aspect to consider when you hire staff.
• Other Deductions: Payroll includes deductions for social security, EOBI, and, in some cases, contributions to additional employee funds—ensuring that every hire is processed with accuracy.

How an Employer of Record (EOR) Ensures Compliance When Hiring in Pakistan

An Employer of Record (EOR) acts as the legal employer for your workforce in Pakistan. By doing so, the EOR assumes responsibility for all local HR, payroll, and compliance functions, ensuring your business meets all regulatory requirements without the need to establish a local entity. Here’s how an EOR helps you hire and manage employees effectively:

1. Legally Compliant Employment Contracts

• Contract Drafting: An EOR drafts employment contracts that align with Pakistan’s labor laws, ensuring all essential details—such as job roles, salaries, benefits, working hours, and termination clauses—are clearly defined for every employee you hire.
• Consistency & Clarity: By standardizing contracts, the EOR minimizes risks of misinterpretation or disputes that could arise from non-compliant agreements, ensuring that every hire is onboarded with a legally sound agreement.

2. Efficient Payroll Management and Tax Compliance

• Accurate Salary Processing: The EOR manages monthly payroll, calculating gross and net salaries while ensuring the correct application of Pakistan’s progressive tax rates, so every hire gets paid accurately.
• Tax Withholding & Remittance: They handle the deduction of income tax (PAYE) and other statutory contributions, ensuring timely remittance to the FBR and other relevant bodies—crucial when you hire new employees.
• Ongoing Compliance: Regular updates and audits are performed to ensure that any changes in tax laws or statutory requirements are incorporated into payroll processing, making it easier for your business to continuously hire with confidence.

3. Management of Statutory Contributions and Employee Benefits

• Social Security and EOBI Contributions: The EOR registers employees with relevant local bodies and ensures that the necessary contributions are made each month, providing peace of mind for every hire.
• Leave and Benefit Administration: It also manages statutory leave entitlements (annual, sick, and maternity leave) and any other benefits required by law, ensuring that every employee you hire receives what they are legally entitled to.
• Risk Mitigation: By handling these aspects, the EOR minimizes the risk of non-compliance, potential fines, or legal disputes that could arise with every hiring decision.

4. Expert Guidance and Local HR Support

• Local Expertise: The EOR’s in-country HR team is well-versed in Pakistan’s labor regulations and best practices, offering expert advice and support that can guide you through the complexities of hiring.
• Regulatory Updates: They proactively monitor changes in local labor and tax laws, ensuring that your employment practices remain compliant and that every new hire is managed according to the latest requirements.
• Employee Relations: In cases of disputes or termination, the EOR manages the process in accordance with legal requirements, safeguarding your business and ensuring fair treatment for every hire.

Conclusion

Understanding and complying with Pakistan’s labor laws is critical for any business looking to expand its operations in the country. An Employer of Record (EOR), such as Cadana, acts as your local HR partner by handling employment contracts, payroll processing, statutory deductions, and employee benefits—all while ensuring that your hiring practices meet the strict standards set by Pakistani law.

By partnering with an EOR, you eliminate the need to set up a local legal entity, reduce administrative burdens, and mitigate the risks of non-compliance. This allows you to focus on growing your business while ensuring that every employee you hire in Pakistan is managed legally, efficiently, and effectively.

Ready to expand your business in Pakistan? Partner with Cadana’s EOR services today and start hiring with confidence!