Employee Benefits and Compensation in Pakistan: 2026 guide
What are Employee Benefits?
Employee benefits are the additional perks that employees receive from the employer, decided by compensation and internal policy, and falling into monetary or non-monetary categories. Employers provide them to cover additional expenses, reward work, and attract and retain talent.
The primary law governing employee benefits, compensation for injuries or accidents, sickness leave, and other leave is the Workmen’s Compensation Act, 1923. Employees in Pakistan receive benefits including paid leave, sick leave, public holidays, death grants, maternity and parental leave, and medical care for themselves and their dependents. Employers should research the market before finalizing a benefits package. The following guide simplifies setting up a compliant compensation and benefits policy in Pakistan.
Statutory Minimum vs. Market Practice vs. Multiplier-Administered
| Benefit type | Statutory minimum | Typical market practice | Multiplier-administered option |
|---|---|---|---|
| Minimum wage | PKR 37,000-40,000/month by province (2025-26) | Matches the floor entry-level; higher for skilled/tech | Compliant payroll at the correct provincial rate |
| Annual leave | 14 days after 12 months’ service, 28-day cap for workmen | Above the minimum in tech and multinationals | Leave-policy administration |
| Sick leave | 10 casual days full pay, plus 8-16 sick days, commonly part pay | Full-pay sick leave at larger employers | Sick-leave and social-security coordination |
| Severance | 30 days’ wages per year for workmen dismissed without cause | Contract-governed for managerial staff | Termination processing by employee class |
| Social security | EOBI at employer 5% / employee 1%, plus provincial social-security institution | Meets the minimum; private insurance sometimes added | EOBI and provincial contribution processing |
Compensation Laws in Pakistan
Various compensation laws in Pakistan govern employee benefits. These include:
- The Workmen’s Compensation Act 1923, which governs compensation for personal injury, disablement, accidental death, and specified occupational diseases suffered during employment.
- The Industrial Relations Act, which permits collective bargaining agreements.
- The minimum wage is set at the provincial level, not by a single national figure. For the 2025-26 wage year it is PKR 40,000 per month for unskilled workers in Punjab, Sindh, and Khyber Pakhtunkhwa, and PKR 37,000 in Balochistan and the Islamabad Capital Territory, with higher floors for skilled categories. Each province notifies its binding rate through its Minimum Wage Board under the applicable provincial minimum-wage law, following the federal budget’s signal from the Ministry of Overseas Pakistanis and Human Resource Development.
- Under the Factories Act 1934, standard working hours are 8 to 9 hours a day and 48 hours a week.
Types of Guaranteed Benefits in Pakistan
Employers provide various employee benefits in Pakistan. Many are mandatory and are discussed below.
Minimum wage
The minimum wage is set provincially and ranges from PKR 37,000 to PKR 40,000 per month for unskilled workers in 2025-26, with higher rates for skilled work, calculated on a 26-day month.
Working hours and overtime
The working hours in Pakistan are 8-9 hours a day and 48 hours a week. The maximum weekly overtime is 12 hours, and employees may work 2-3 hours of overtime per day, with total annual overtime capped at 624 hours. Rest intervals and lunch breaks are unpaid. Overtime is compensated at 200% of regular pay on standard days and 300% on holidays.
Paid leaves
An employee is entitled to 14 calendar days of paid annual leave after completing 12 months of continuous service, under the Factories Act, with unused days carrying forward up to a 28-day accumulation cap for workmen.
Public holidays
Pakistan observes around 13 to 16 public holidays a year, applicable to all employees regardless of sector. Fixed-date holidays include Pakistan Day (23 March), Labour Day (1 May), Independence Day (14 August), Defence Day (6 September), and Quaid-e-Azam and Christmas Day (25 December). Eid holidays, Ashura, and Eid Milad-un-Nabi follow the lunar calendar and shift each year, so the calendar is confirmed annually.
Sick leaves
Employees are entitled to 10 days of casual leave at full pay, plus sick or medical leave that varies by governing law: 8 days at full pay under the Shops and Establishments framework, or up to 16 days under the Factories framework, commonly paid at 50% of wages and at full pay in provinces such as Sindh and Balochistan. A medical certificate is normally required.
A secured person (paid for at least 90 days in the last six months) is entitled to sickness benefit throughout the sickness period. For diseases like cancer and tuberculosis, a secured person is compensated 100% of wages (50% in Balochistan and Khyber Pakhtunkhwa) for 365 days; for other diseases, 75% of wages (50% in Balochistan and Khyber Pakhtunkhwa) for 121 days.
Maternity leaves
For most private-sector employees, maternity leave is set by provincial law, typically 16 weeks in Sindh and 12 weeks in Punjab, Khyber Pakhtunkhwa, Balochistan, and Islamabad, fully paid after about four months of qualifying service. For establishments under federal-government control, the Maternity and Paternity Leave Act, 2023 grants 180 days of maternity leave for the first birth, 120 days for the second, and 90 days for the third.
Parental leaves
Male employees are eligible for up to 30 days of paid paternity leave under the Maternity and Paternity Leave Act, 2023, applicable for the first three separate births. Unpaid leave may be granted for additional children.
Death Grant
If an insured employee dies while receiving injury, sickness, or medical benefits, their survivors are entitled to a death grant equal to the daily rate of sickness benefit multiplied by 30, and at least PKR 1,500. An insured female employee is entitled to iddat benefit if her husband passes away, paid during the iddat period at the rate of her wages.
Medical Care for Self and Dependents
Under the Workmen’s Compensation Act 1923, employees receive medical care compensation during sickness and maternity, covering medical care, medicine, specialists, maternity, and hospitalization. The law also provides medical care to dependents for one year after the death of a secured person with at least one continuous year of employment before death. After a death from an employment injury, survivors’ pensions are paid to each dependent under section 42: a widow or needy widower receives 60% of the deceased’s total disablement pension, each orphan below 21 receives 20% (no age bound for unmarried daughters), and each orphan above 21 receives 40%.
How are Employee Benefits Taxed in Pakistan?
Employee compensation is subject to income tax, and it is important to calculate the tax on benefits correctly since a large share are incorporated into the compensation package. The range of Pakistan’s salaried income tax rate is 0 to 35%, with income up to PKR 600,000 a year tax-free and the top marginal rate of 35% applying above PKR 4,100,000, under the Finance Act administered by the Federal Board of Revenue.
Health insurance is not a statutory employer obligation in Pakistan. Insured employees receive medical care through their provincial social security institution, and many employers provide private cover on a discretionary basis.
Apart from income tax, employees also contribute to social security, deducted by the employer from salary.
Restrictions for Pakistan Benefits and Compensation
As in other economies, most benefits in Pakistan are taxable, so employers must know their monetary value to calculate the tax due and ensure all payments are released to the authorities on time. Before preparing a benefits plan, ensure your business is incorporated and can legally operate in Pakistan, pay at least the applicable provincial minimum wage, and comply with all labor laws.
Severance is where the workman-versus-manager distinction matters. A workman (a non-managerial employee) terminated for reasons other than misconduct is generally entitled to gratuity of 30 days’ wages for every completed year of service, with any part-year beyond six months counted as a full year, under the Standing Orders Ordinance 1968. A managerial employee’s severance is usually governed by their individual employment contract rather than this statutory formula. Termination generally requires one month’s written notice or one month’s wages in lieu. Employees on maternity, sickness, or injury leave cannot be dismissed during those periods.
How to Design an Employee Benefits Program for Employees in Pakistan?
Step 1: Set the budget and the goals
Before drafting the policy, set the objectives you expect from the compensation structure, review employment contracts and collective agreements, and account for your organization’s commercial climate. Set the maximum budget to cover all benefits, and use goals such as encouraging the existing workforce and attracting talent, complying with labor laws, and sticking to budget. Consider company size and the economic sector.
Step 2: Understand employee requirements and industry standards
Integrate the benefits your employees value most within a fixed budget. Research industry standards and competitor benefits, and run an internal survey to decode employee expectations, so you can add valuable benefits and remove unused ones to reduce cost.
Step 3: Prepare a flexible compensation structure
Once you evaluate the survey and research, prepare a framework for compensation. Consider each employee’s needs and build a flexible structure that lets employees select appropriate benefits, and clarify how to make the most of them.
Step 4: Communicate the benefits and get feedback
Communicate the plan to stakeholders and employees, share the draft, and ask for feedback. Implement valuable feedback, and if a benefit will remain unused, adjust or remove it.
Step 5: Plan analysis
Business conditions change, so evaluate the entire compensation structure regularly for feasibility and competence. Check for errors before implementation, assess all elements using precise metrics, and take the necessary actions.
Supplemental Benefits for Employees in Pakistan
Here are some additional benefits employees in Pakistan receive during their employment:
13th-month pay
In Pakistan, 13th-month pay is not mandatory. However, businesses with 20 or more employees that declare a profit are generally required to pay a profit-linked bonus to eligible employees with at least 90 days of continuous service under the applicable labour ordinances.
Insurance and social security
Two social-security schemes cover employees:
- The provincial Employees’ Social Security Institution (such as PSSSI in Punjab or SESSI in Sindh) provides coverage for injury, maternity, sickness, and death.
- The Employees’ Old-Age Benefits Institution (EOBI) provides four benefits to insured employees or survivors: Old-Age Pension (or Reduced Pension), Old-Age Grant, Survivors’ Pension, and Invalidity Pension. Employers contribute 5% and employees 1% of the minimum wage.
Multiplier’s Localized Benefits can help administer supplemental benefits for your Pakistan-based team.
How Can Multiplier Help with Benefits Management in Pakistan?
Setting up abroad and hiring qualified employees takes work, and employers must follow local law when writing contracts and offering benefits. Multiplier’s Employer of Record helps you comply with Pakistan’s labor rules and access skilled talent without establishing a subsidiary, handling payroll, EOBI and social-security contributions, gratuity, and tax withholding. You can also review typical salary and cost of employment in Pakistan.
Explore Pakistan Employer of Record services
Hire and manage benefits in Pakistan with Multiplier
Multiplier’s EOR handles social security contributions, tax filings, and statutory benefits compliance in Pakistan, with no local entity required.
Talk to our team or Explore Pakistan EOR
FAQs
What are the mandatory employee benefits in Pakistan?
Mandatory benefits include the provincial minimum wage, paid annual, casual, and sick leave, public holidays, maternity and paternity rights, and end-of-service gratuity. Employees are also covered by social security through the EOBI and their provincial social security institution, which provide old-age pensions and medical care. Private health insurance and bonuses are common but not required.
What is the minimum wage in Pakistan in 2026?
Pakistan sets the minimum wage by province. For 2025-26, the unskilled-worker minimum is PKR 40,000 per month in Punjab, Sindh, and Khyber Pakhtunkhwa, and PKR 37,000 in Balochistan and the Islamabad Capital Territory, with higher floors for skilled categories. Rates are updated through provincial notifications following the federal budget, so confirm the current rate for the employee's province.
Is health insurance mandatory in Pakistan?
No. Health insurance is not a mandatory employer-provided benefit. Insured employees receive medical care through their provincial Employees' Social Security Institution, and many employers add private or group cover on a discretionary basis, particularly for higher-earning roles outside social-security coverage.
Is severance pay mandatory in Pakistan?
For workmen dismissed for reasons other than misconduct, yes. A workman is generally entitled to gratuity of 30 days' wages per completed year of service under the Standing Orders Ordinance 1968, with any part-year beyond six months counted as a full year. Managerial employees' terms are typically governed by their individual contracts.
How much sick leave are employees entitled to in Pakistan?
Employees receive 10 days of casual leave a year on full pay, separate from sick leave. Sick or medical leave is 8 days on full pay under the Shops and Establishments framework, or up to 16 days under the Factories framework, commonly at 50% of wages and full pay in provinces such as Sindh and Balochistan. Insured employees may also receive a social-security sickness benefit.
How much annual leave are employees entitled to in Pakistan?
Employees are entitled to 14 calendar days of paid annual leave after completing 12 months of continuous service. Unused days carry forward up to a 28-day accumulation cap for workmen and are paid out on termination. Many employers offer more than the statutory minimum.
How much maternity and paternity leave is available in Pakistan?
For private-sector employees, provincial law provides 16 weeks in Sindh and 12 weeks in Punjab, Khyber Pakhtunkhwa, Balochistan, and Islamabad. Employees of federal-government-controlled establishments are covered by the Maternity and Paternity Leave Act, 2023, which grants 180, 120, and 90 days across the first three births, plus 30 days of paternity leave up to three times.
What social security schemes cover employees in Pakistan?
Employees are covered through the Employees' Old-Age Benefits Institution (EOBI), which provides old-age, invalidity, and survivors' pensions, and the provincial Employees' Social Security Institution, which provides medical care and cash benefits for insured employees earning below a set wage threshold.
Is a 13th-month bonus required in Pakistan?
A 13th-month salary is not generally mandatory. However, businesses with 20 or more employees that declare a profit are typically required to pay a profit-linked bonus to eligible employees with the required minimum service under the applicable labour ordinances.
How can an Employer of Record help manage employee benefits in Pakistan?
Multiplier's EOR administers social security contributions, tax filings, leave processing, gratuity, and statutory benefits compliance, with no Pakistani entity required.
