Learn about the legal processes for employee termination and severance in Pakistan
In Pakistan, the Industrial Relations Ordinance (IRO) 2002 is the key labor legislation that outlines the legal requirements for notice periods during employment termination.
According to the IRO, a minimum notice period of one month is required for either the employer or the employee to terminate an indefinite or permanent employment contract. This implies that if proper notice is not provided, the party initiating the termination must compensate the other party with one month's wages in lieu of notice.
Key takeaway: One month's notice (or one month's pay in lieu of notice) is the legal minimum for terminating permanent employment contracts in Pakistan.
The IRO allows for some flexibility in notice periods:
Important Note: The employer must provide a written termination notice specifying the reason for termination, even if the minimum notice period is not applicable (e.g., during probation).
In Pakistan, labor laws mandate financial compensation, known as "severance pay" or "gratuity," to eligible employees upon termination of their employment. This is regulated under the Industrial Relations Ordinance (IRO) 2002.
Employees who are not dismissed due to misconduct are entitled to severance pay. This applies to termination initiated by the employer or due to reasons beyond the employee's control, such as company closure.
If termination is due to the employee's proven misconduct, including but not limited to negligence, breach of discipline, or immoral behavior, they forfeit their severance pay entitlement.
The IRO specifies a minimum severance pay amount of 30 days' wages for every completed year of service, with a pro-rata calculation for any period exceeding six months.
An employee who completes four years and three months of service is entitled to severance pay calculated as follows:
The "wages" used for calculating severance pay consider the employee's average earnings during the last three months of their employment.
Employers have the option to contribute to a provident fund scheme instead of providing severance pay. This fund accumulates throughout the employee's tenure and is typically disbursed upon retirement or termination.
In some instances, employees may be given the option to choose between receiving severance pay or having the employer contribute the equivalent amount to their provident fund.
Terminating an employee's contract in Pakistan requires adherence to specific legal procedures to ensure compliance and minimize the risk of labor disputes. The Industrial Relations Ordinance (IRO) 2002 is the primary governing legislation for employment termination in the country.
Employment termination in Pakistan can occur in several ways:
The general termination procedure includes:
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