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Pakistan – Employer of Record

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Country Introduction

Capital – Islamabad
Currency – Pakistani Rupee
GDP – 348.3 billion USD (2021)
People/Nationality – Pakistani
Language – Urdu and English
Major Religion – Islam
Population – 242,959,484 (January 2024)

With a population of more than 210 million, Islamic Republic of Pakistan is the fifth most populous country in the world and is, therefore, a major player on the world stage, especially in terms of goods and materials. It’s a world leader in textiles and also enjoys strong trade in sugar, cement, tobacco and food processing, which has driven constant growth in the Pakistani economy over the last few decades.

Rating agen­­cy Moody’s in its latest report (May 2021) said the credit profile of Pakistan reflects the country’s economic strength, which is underpinned by the robust long-term GDP growth potential and large scale of the economy, balanced against low per capita incomes and global competitiveness.

Contract of Employment

Even though a written contract is not mandatory, certain terms and conditions of employment are governed by labor laws in Pakistan. Employers are required to comply with these laws, which cover aspects such as working hours, wages, leave entitlements, and termination procedures. It is important for employers to be aware of and adhere to these legal requirements, whether a written contract is in place.

In Pakistan, employment contracts can take various forms depending on the nature of the employment relationship, the duration of employment, and other specific factors.

Probation Period

The duration of the probation period is three months.

Termination

In Pakistan, the notice period for termination of employment is determined by the terms agreed upon in the employment contract. Key points regarding notice periods include:

– The notice period is specified in the employment contract, and its duration varies based on negotiations between the employer and employee.

– Certain labour laws may set minimum notice periods, with longer periods required for employees with more extended service.

– Payment in lieu of notice is an option, allowing the employer or employee to make a payment equivalent to the salary for the notice period.

– Termination without notice is permitted in specific circumstances, such as serious misconduct, but reasons must be valid and comply with labour laws.

– Arbitrary dismissal may entitle the employee to claim compensation.

– Compliance with current labour laws is essential for both employers and employees.

– The termination process involves providing a written notice that clearly states the reasons for termination, aligning with the terms in the employment contract.

Working Hours

8 hours per day and 48 hours per week.

Overtime

The rate of overtime pay is higher than the regular hourly wage. The specific rate is often determined by labor laws and may be specified in employment contracts or collective agreements. The rate is usually a multiple of the regular hourly wage, such as 1.5 or 2 times the regular rate. Labor laws may stipulate a maximum limit on the number of overtime hours that an employee can work within a specific period. Exceeding this limit may be subject to additional regulations or penalties. Overtime pay may also apply when employees are required to work on rest days or public holidays. The rate of overtime pay for work on these days is often higher than regular overtime rates.

13^th Month Pay

There is no legal requirement for employers in Pakistan to provide a specific “13th month pay” to employees. However, some companies may voluntarily choose to provide year-end bonuses or additional payments to employees as a form of recognition or reward for their service during the year.

Annual Leave

The annual leave entitlement may increase with the employee’s length of continuous service. For example:

– 1 to 5 years of service: 14 working days
– 6 to 10 years of service: 18 working days
– More than 10 years of service: 21 working days

Sick leave

The minimum statutory requirement for medical leaves is eight days. Unused leaves expire at the end of the year, except for sick leaves, which can be carried forward. However, the total accumulation of sick leaves cannot exceed sixteen days simultaneously. Employees do not have the option or right to request payment for unused sick leave.

Maternity and Paternity Leave

Women employees will be entitled to avail maternity leave with full pay three times during service – 180 days for the first time, 120 days for the second time, and 90 days for the third time. According to the new law, male workers will be entitled to apply for paternity leaves for 30 days three times throughout their employment period.

VAT / GST

The standard rate is typically 17%, applied to the value of goods and services. Provinces, including Islamabad Capital Territory and Azad Jammu and Kashmir, have the authority to levy sales tax on services with rates ranging from 13% to 16%. Reduced rates may apply to specific goods or services, and businesses can generally claim input tax credits to offset taxes paid on inputs against collected taxes on outputs.

Sales tax on imports is set at the standard rate, with additional taxes applicable in specific circumstances. Certain sectors or persons may be subject to special tax regimes or reduced rates. It’s essential to stay updated with the latest tax regulations, as these may evolve over time.

Income Tax

Employer / Employee Contributions

In Pakistan, both employers and employees contribute to various social security and employee benefit programs. The primary contributions are made to the Employees’ Old-Age Benefits Institution (EOBI) and the Employees’ Provident Fund (EPF).

For EOBI, employees contribute a fixed percentage of their wages, and employers are also required to make contributions. In the case of EPF, both employees and employers contribute a percentage of the basic salary.

Social security contributions cover benefits like medical, maternity, old-age, and disability coverage. Employers typically contribute a higher percentage than employees to the Social Security system. Additionally, employers may make contributions to other employee benefits, including health insurance, gratuity, and bonus schemes, based on company policies.

Public Holidays

January 1 – New Year’s Day
February 5 – Kashmir Solidarity Day
March 23 – Pakistan Day
May 1 – Labor Day
August 14 – Independence Day
Eid ul Fitr (date varies based on the sighting of the moon)
Eid ul Adha (date varies based on the sighting of the moon)
Ashura (date varies based on the sighting of the moon)
November 9 – Allama Iqbal Day
November 9 – Birthday of Muhammad Iqbal
Eid Milad-un-Nabi (date varies based on the sighting of the moon)
December 25 – Quaid-e-Azam Day
December 25 – Christmas Day

Islamic holidays, such as Eid ul Fitr, Eid ul Adha, Ashura, and Eid Milad-un-Nabi, are determined by the lunar calendar and may vary each year. The dates are confirmed based on the sighting of the moon, and public holidays are declared accordingly.

Severance Pay

In Pakistan, severance pay is generally not mandated by labor laws for all employees. Instead, certain provisions related to end-of-service benefits are outlined in the labor laws and social security laws. The specific benefits and conditions may vary depending on the nature of employment, such as whether it’s covered under labor laws, social security schemes, or other relevant regulations. Below are key points related to end-of-service benefits in Pakistan:

Social Security Institutions: Employees covered by social security institutions, such as the Employees’ Old-Age Benefits Institution (EOBI) and the Provincial Employees Social Security Institutions, may be entitled to end-of-service benefits.

Gratuity and Provident Fund: Some employers may provide gratuity or contribute to a provident fund as part of the employment contract or company policies. These mechanisms are designed to provide financial benefits to employees upon separation from employment.

Length of Service: The entitlement to end-of-service benefits often depends on the length of service. Longer service periods may result in higher benefits.

Employment Contracts: The terms and conditions related to severance pay, gratuity, or other end-of-service benefits are typically outlined in the employment contract or company policies. Employers and employees are expected to adhere to the agreed-upon terms.

Applicability to Specific Sectors: Certain industries or sectors may have specific regulations or agreements regarding end-of-service benefits. For example, the EOBI covers employees in certain industries for old-age benefits.

Work and Residence Permits (Expatriates)

Expatriates working in Pakistan typically require both a work permit and a residence permit to legally live and work in the country. The process for obtaining these permits involves several steps and is subject to the rules and regulations of the Government of Pakistan. Please note that the specific requirements and procedures may be subject to change.

Work Permit

Sponsorship: Expatriates usually need a job offer from a Pakistani employer who acts as their sponsor.
Employer’s Application: The employer applies for a work permit on behalf of the expatriate employee.
Approval from Authorities: The application is reviewed by the relevant authorities, and if approved, a work permit is issued.

Residence Permit:

Sponsorship: Like the work permit, a sponsor, often the employer, is required for the expatriate’s residence permit.
Application Submission: The sponsor applies for a residence permit on behalf of the expatriate.
Documentation: Documents such as a valid passport, visa, proof of employment, and health records may be required.
Security Clearance: In some cases, security clearance from the relevant authorities may be necessary.
Approval and Issuance: Once the application is approved, a residence permit is issued, allowing the expatriate to legally reside in Pakistan.

Visa Category:

Expatriates may need to apply for a specific visa category based on the purpose of their stay, such as employment or investment.

Reporting to Local Authorities:

Expatriates are often required to register with local authorities after arrival in Pakistan.

Renewal and Extensions:

Work and residence permit usually have a validity period, and expatriates may need to renew or extend their permits before expiration.

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