Employer of Record in Pakistan

Hiring employees in Pakistan involves navigating a distinct set of labor laws, tax regulations, and administrative requirements. Companies looking to expand into the Pakistani market must ensure full compliance with local employment standards, which can be complex and time-consuming without local expertise. Understanding these nuances is crucial for any international business aiming to build a compliant and efficient team in the country.

When considering hiring options in Pakistan, companies typically have several pathways:

• Establishing a local entity: This involves setting up a subsidiary or branch office, which requires significant upfront investment in time, legal fees, and ongoing administrative resources to manage payroll, HR, and tax compliance.
• Utilizing an Employer of Record (EOR): Services like Rivermate allow companies to compliantly hire employees in Pakistan without needing to establish their own legal entity. The EOR acts as the legal employer, handling all local employment responsibilities while you manage your team's day-to-day work.
• Hiring independent contractors: While seemingly simpler, this option carries risks of misclassification if the working relationship resembles that of an employee, potentially leading to legal penalties and back-pay obligations.

How an EOR Works in Pakistan

An Employer of Record simplifies global expansion by managing the intricate details of local employment. In Pakistan, an EOR takes on the following responsibilities:

• Employee onboarding and HR compliance: Ensuring employment contracts adhere to Pakistani labor laws, managing new hire paperwork, and maintaining compliant employee records.
• Payroll processing and tax remittance: Calculating and distributing salaries, managing statutory deductions for social security (EOBI), income tax (withholding tax), and other local levies.
• Benefits administration: Registering employees for mandatory benefits such as the Employees' Old-Age Benefits Institution (EOBI), provident fund, and managing leave policies in line with local regulations.
• Termination management: Handling employee separations according to Pakistani labor laws, including notice periods, severance pay, and final settlement calculations.
• Risk and liability mitigation: Protecting the client company from non-compliance risks related to employment law, payroll, and taxation in Pakistan.

Benefits for Companies Looking to Hire in Pakistan Without Establishing a Local Entity

Engaging an EOR offers several strategic advantages for businesses aiming to tap into Pakistan's talent pool without the overhead of a local presence:

• Speed to market: Hire employees quickly, often within days, without the lengthy process of entity registration.
• Reduced administrative burden: Delegate all local payroll, tax, HR, and compliance tasks to experts, allowing your team to focus on core business operations.
• Minimized legal and compliance risks: Ensure full adherence to Pakistan's specific labor laws, social security contributions, and tax regulations, mitigating potential penalties.
• Cost-effectiveness: Avoid the significant financial outlay and ongoing costs associated with setting up and maintaining a legal entity in Pakistan.
• Access to top talent: Recruit the best professionals in Pakistan without geographical or legal limitations, expanding your talent acquisition reach.

Rivermate's transparent pricing model eliminates complexity with a single, competitive monthly fee per employee. Unlike traditional PEO providers, our pricing in Pakistan includes comprehensive HR support, benefits administration, compliance management, and access to our proprietary dashboard for real-time workforce analytics. No hidden costs, no setup fees—just straightforward pricing that scales with your business needs while ensuring full legal compliance in Pakistan.

Employers in Pakistan must contribute to social security and welfare funds, including the Employees' Old-Age Benefits Institution (EOBI), provincial social security, and the Workers' Welfare Fund (WWF). Typical contribution rates (example for 2025) are 6% (employer) and 1% (employee) for EOBI, 5% (employer) for provincial social security, and 2% (employer) for WWF.

Employers are responsible for withholding income tax from employee salaries based on progressive tax slabs, with monthly deposits due by the 15th of the following month and annual filings by September 30th. For 2025, tax brackets range from 0% for income up to PKR 600,000 to 20% for income above PKR 4.8 million. Employees can claim deductions such as Zakat, investments, and allowable expenses, reducing taxable income.

Foreign entities and workers face additional rules, including residency status, double taxation treaties, and withholding taxes on non-resident payments. Employers must maintain detailed payroll records and adhere to deadlines to ensure compliance. Key data points include:

Pakistan's salary landscape varies significantly by industry, role, and location, with annual salaries ranging from PKR 600,000 for retail managers to PKR 4 million for healthcare professionals like medical doctors. Key sectors such as IT and healthcare offer higher compensation, especially for senior or specialized roles. For example:

The statutory minimum wage as of 2025 is PKR 32,000/month (PKR 384,000/year), applicable across sectors with regional variations and some exemptions. Employers must comply with minimum wage laws and consider regional wage differences, especially in provinces setting higher rates.

Bonuses and allowances are common, including annual bonuses (often one month's salary), performance bonuses, COLA, HRA, medical, transportation, and other allowances, which vary by company and industry. Salaries are typically paid monthly via direct bank transfer, with deductions for taxes and social security. Salary trends forecast moderate growth in 2025, driven by inflation, increased demand for tech skills, remote work adaptations, and evolving benefit expectations. Employers should stay informed on labor regulations to develop competitive, compliant compensation strategies.

Pakistan's labor laws specify minimum leave entitlements for employees, including annual leave, public holidays, sick leave, and parental leave. Employees generally receive at least 14 days of paid annual leave after one year of service, with factory workers typically entitled to 14 days and clerical staff up to 16 days. Leave can often be accumulated and, in some cases, encashed based on employer policies. Public holidays are observed annually on dates such as Pakistan Day (March 23), Labour Day (May 1), Independence Day (August 14), and Christmas (December 25), with lunar-based holidays like Eid-ul-Fitr and Eid-ul-Azha varying each year.

Sick leave usually ranges from 8 to 10 days annually, with full pay during absence and medical certification often required for extended leave. Maternity leave provides 12 weeks (84 days) with full pay, while paternity leave, where offered, typically lasts 7-10 days with full pay. Adoption leave policies are less standardized and depend on individual employer policies. Additional leave types include bereavement (3-5 days), study, sabbatical, and religious leave, subject to employer discretion. Employers should stay compliant with these minimum standards to ensure legal adherence and foster a supportive work environment.

Employee benefits in Pakistan are vital for talent attraction, retention, and legal compliance. Mandatory benefits include contributions to EOBI (employer: 5%, employee: 1%), social security schemes (varies by province), provident fund contributions (around 8.33-10% each from employer and employee), gratuity (one month’s salary per year of service), maternity leave (12 weeks), minimum wage adherence, and leave entitlements (annual, sick, public holidays).

Supplementary benefits such as health insurance, life insurance, transportation, housing allowances, performance bonuses, and professional development are common, especially in larger firms and multinationals. Health insurance, highly valued, often covers hospitalization, outpatient care, and family members, with costs borne mainly by employers. Retirement plans extend beyond EOBI, including provident funds, gratuity, and voluntary pension schemes, with actuarial assessments for pension plans.

Benefit packages vary by industry and company size: MNCs and large firms typically offer comprehensive benefits, while SMEs focus on mandatory benefits and basic perks. The tech industry emphasizes stock options and professional growth, whereas manufacturing prioritizes health and safety benefits. This tailored approach helps companies remain competitive and compliant in Pakistan’s evolving labor landscape.

Employment agreements in Pakistan are vital for defining clear, legally compliant working relationships, protecting both employer and employee rights. They must include key clauses such as parties, job description, start date, compensation, working hours, leave policy, termination procedures, confidentiality, and governing law. These contracts can be fixed-term, indefinite, or task-specific, with each suited to different employment scenarios.

Probation periods typically last 1-3 months, allowing employers to assess suitability, with employment confirmed upon successful completion. Confidentiality clauses are generally enforceable, whereas non-compete clauses face limitations regarding reasonableness in duration and scope. Contract modifications require mutual agreement and written documentation, while termination must follow legal notice periods—usually one month—and adhere to lawful grounds.

Remote work in Pakistan is expanding rapidly, driven by increased internet access and a young, tech-savvy workforce. While there is no dedicated remote work law, existing labor regulations apply, emphasizing clear employment contracts, compliance with working hours, health and safety, social security, and taxation. Employers must ensure legal adherence and fair contractual agreements for remote employees.

Flexible arrangements such as full remote, hybrid, telecommuting, compressed workweeks, and flextime are common. Best practices include pilot programs, clear communication, performance-based management, regular check-ins, and employee training. Data security is critical, requiring policies on secure access (VPNs, multi-factor authentication), encryption, device security, and breach response plans. Equipment and expense policies should specify provision and reimbursement processes, covering internet, phone, office supplies, and ergonomic gear.

A reliable technology infrastructure is vital, with high-speed internet, collaboration tools, IT support, and cybersecurity measures. Despite infrastructure improvements, connectivity issues persist in some areas, so backup options like mobile hotspots are recommended.

Terminating employees in Pakistan requires strict compliance with the Employment Act 2016 and provincial regulations, focusing on notice periods, severance pay, and lawful procedures. Employers must adhere to minimum notice periods based on employee category and length of service, with permanent employees generally entitled to a one-month notice after one year of service, and fixed-term contracts governed by contractual terms. Severance pay, calculated at 30 days' wages per year of service, is mandatory for employees with at least one year of continuous employment and must be paid promptly.

Termination can be without cause, such as redundancy, requiring notice and severance, or for cause, based on misconduct, which demands proper investigation, warnings, and documentation. Procedural steps include investigation, show cause notice, inquiry, and formal termination letter, with all payments settled timely. Employees are protected against wrongful dismissal, with rights to challenge unfair terminations, seek reinstatement, or claim compensation. Employers must avoid procedural lapses, discrimination, and unpaid dues to ensure lawful termination and mitigate legal risks.

Pakistan is witnessing a significant shift towards freelancing and independent contracting, driven by global trends in flexible work and digital connectivity. This transition is fueled by professionals seeking autonomy and businesses needing specialized skills for project-based work. For employers, understanding the legal distinctions between employees and independent contractors is crucial to avoid misclassification risks. Key factors include control over work, integration into business operations, provision of tools, financial risk, duration of engagement, payment methods, and benefits.

Contracts are vital in defining the scope of work, payment terms, confidentiality, and intellectual property (IP) rights. IP ownership must be clearly assigned to ensure the engaging entity retains rights to work products. Tax obligations for contractors include income tax registration and filing, potential withholding tax, and sales tax registration for certain services. Insurance, while not mandatory, is recommended for risk management.

Independent contractors are prevalent in sectors like IT, creative services, consulting, education, healthcare, media, and professional services. Businesses benefit from the flexibility and expertise these contractors offer, aligning with project-based work models and the availability of skilled freelance talent.

Foreign nationals wishing to work in Pakistan must obtain appropriate visas and work permits, with employers playing a key role in the application process. The system involves multiple government agencies and specific documentation, making compliance essential to avoid legal issues. Employers sponsoring foreign workers are responsible for initiating and ensuring all criteria are met.

The most common visa types for foreign workers include:

Securing the correct visa and work permit is crucial for legal employment, with the process being complex but essential for compliance.