Effortless Hiring in Pakistan

Employment Laws

• Pakistan’s employment framework is governed by a mix of federal and provincial laws, including the Industrial Relations Act and labor legislation specific to each province.
• Employers must adhere to laws regulating wages, working hours, overtime pay, and employee benefits.
• Anti-discrimination laws prohibit unfair treatment based on gender, religion, ethnicity, or caste.

Onboarding Process

• Employers are encouraged to issue written employment contracts detailing terms of employment.
• Employees must provide:
• National Identity Card (CNIC)
• Taxpayer Registration Number (if applicable)
• Educational certificates and professional credentials
• Bank account details for salary disbursement.
• Employers must register employees with:
• The Social Security Institution (EOBI or provincial social security boards).
• The Workers' Welfare Fund for mandatory employee contributions.

Types of Employment Contracts

1. Full-Time Contracts: For long-term employment with fixed hours and benefits.
2. Part-Time Contracts: For fewer working hours with limited benefits.
3. Fixed-Term Contracts: For specific projects or durations.
4. Probationary Contracts: Typically lasting 3 to 6 months, allowing either party to terminate with minimal notice.
5. Casual/Temporary Contracts: For short-term work arrangements without long-term obligations.

How Cadana Simplifies Hiring in Pakistan:

Cadana makes hiring seamless and compliant by: • Drafting employment contracts tailored to Pakistan’s labor laws. • Streamlining employee onboarding, including document collection and social security registration. • Managing payroll, benefits, and statutory contributions to ensure compliance. • Providing real-time updates on evolving regulations to help businesses stay ahead.

Payroll Frequency

Employers in Pakistan have the flexibility to choose payroll cycles that best suit their operational needs. Common options include daily, weekly, bi-monthly, or monthly payments. However, it is mandatory to pay employees at least once a month.

Minimum Wage

• Effective Date: July 1, 2024
• Previous Minimum Wage: PKR 32,000 per month
• New Minimum Wage: PKR 37,000 per month
• This adjustment aims to improve the financial well-being of workers amid economic challenges.

Payroll Deductions

Employers are required to make several statutory deductions from employees' salaries, including:

1. Income Tax:

• Withheld at source based on progressive tax rates defined by the Federal Board of Revenue (FBR). The income tax brackets are as follows:
• 0%: Up to PKR 600,000
• 2.5%: PKR 600,001 to PKR 1,200,000
• 15%: PKR 1,200,001 to PKR 2,400,000
• 20%: PKR 2,400,001 to PKR 3,600,000
• 25%: PKR 3,600,001 to PKR 6,000,000
• 30%: Over PKR 6,000,000 Effective Date for Current Rates: July 1, 2023

2. Social Security Contributions:

• Employers contribute to the Employees' Old-Age Benefits Institution (EOBI) and provincial social security institutions. For instance:
• Contributions for the Sindh Employees' Social Security Institution (SESSI) are typically 6% of wages applicable to salaries below PKR 30,000.

3. Provident Fund:

• If applicable, contributions are made to a provident fund as per company policy or statutory requirements.

As a trusted Employer of Record (EOR), Cadana eliminates the complexity of payroll administration, saving businesses time and resources while ensuring compliance with Pakistan’s labor laws.

Employee Income Tax in Pakistan

As of the tax year 2024-2025, the Federal Board of Revenue (FBR) has outlined the following progressive income tax rates for salaried individuals:

• Up to PKR 600,000: 0%
• PKR 600,001 – PKR 1,200,000: 5% on the amount exceeding PKR 600,000
• PKR 1,200,001 – PKR 2,200,000: PKR 30,000 plus 15% on the amount exceeding PKR 1,200,000
• PKR 2,200,001 – PKR 3,200,000: PKR 180,000 plus 25% on the amount exceeding PKR 2,200,000
• PKR 3,200,001 – PKR 4,100,000: PKR 430,000 plus 30% on the amount exceeding PKR 3,200,000
• Above PKR 4,100,000: PKR 700,000 plus 35% on the amount exceeding PKR 4,100,000

These rates are effective from July 1, 2024. Employers are responsible for withholding the applicable income tax from employees' salaries and remitting it to the FBR.

Employer Contributions

Employers in Pakistan are obligated to make several statutory contributions on behalf of their employees:

1. Employees' Old-Age Benefits Institution (EOBI): Employers contribute 5% of the minimum wage per employee to the EOBI.

2. Provincial Social Security Institutions: Contributions vary by province. For example, in Sindh, employers contribute 6% of wages to the Sindh Employees' Social Security Institution (SESSI), applicable to salaries below PKR 30,000.

3. Workers' Welfare Fund (WWF): Applicable to industrial establishments; employers contribute 2% of their taxable income to the WWF.

Types of Leave in Pakistan

1. Annual Leave

• Employees are entitled to 14 days of paid annual leave after completing 12 months of continuous service.
• Leave must be availed within 12 months; otherwise, it may be forfeited unless otherwise agreed upon.

2. Parental Leave

• Maternity Leave:

• Female employees are entitled to 12 weeks of paid maternity leave.

• Employers cannot terminate female employees during their maternity leave.

• Paternity Leave:

• Male employees in the public sector are entitled to 10 days of paid paternity leave.

• Paternity leave in the private sector is at the employer's discretion.

3. Sick Leave

• Employees are entitled to 10 days of paid sick leave per year, subject to the provision of a medical certificate.

4. Public Holidays

• Pakistan recognizes 13 public holidays, which include:
• Pakistan Day (March 23)
• Eid-ul-Fitr (3 days, dates vary)
• Independence Day (August 14)
• Eid-ul-Adha (3 days, dates vary)
• Iqbal Day (November 9)
• Quaid-e-Azam Day (December 25)

Federal Benefits

Employers in Pakistan are required to provide statutory benefits as mandated by law, which include:

• Pension Contributions:

• Under the Employees' Old-Age Benefits Institution (EOBI) Act, employers contribute 5% of the minimum wage to provide retirement pensions and old-age benefits.

• Social Security Contributions:

• Employers contribute to provincial social security schemes, such as the Sindh Employees' Social Security Institution (SESSI), at a rate of 6% of wages for employees earning below PKR 30,000. These contributions cover health insurance, injury compensation, and maternity benefits.

• Workers' Welfare Fund (WWF):

• Employers contribute 2% of taxable income to the WWF, which supports housing, education, and welfare initiatives for workers.

Supplemental Benefits

Many employers in Pakistan offer additional benefits to enhance employee well-being and retention, including:

• Health Insurance:

• Private medical insurance plans providing comprehensive coverage for employees and their dependents.

• Transportation Allowance:

• Support for commuting expenses.

• Life Insurance:

• Group life insurance plans covering death and disability benefits.

• Provident Fund:

• Voluntary retirement savings plans where employers match employee contributions.

Additional Incentives

Employers may also provide various incentives to motivate employees:

• Bonuses: Many organizations provide performance-based bonuses as part of their compensation package.

• Professional Development: Support for further education and training programs is often offered to encourage skill enhancement and career growth.

Process

• Termination must be based on valid reasons, such as misconduct, redundancy, or unsatisfactory performance.
• Employers are required to issue a written termination notice that states the reason for dismissal.
• Employees dismissed for misconduct must receive prior written warnings, and a hearing may be conducted to allow the employee to present their case.
• In cases of redundancy, employees may be eligible for additional severance or redundancy benefits as per employment contracts or company policies.

Notice Period

• The notice period is determined by the employment contract or applicable labor laws:
• A standard notice period is typically 30 days or payment in lieu of notice for most employment contracts.
• No notice is required for dismissals due to gross misconduct.

Severance Pay

• There is no statutory requirement for severance pay unless it is agreed upon in the employment contract or collective agreements.
• In redundancy cases, severance may include one month’s salary for each completed year of service, depending on company policy or labor agreements.