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Starting a business in Pakistan

Pakistan’s Labor Law And Employment Rules: In-Depth

Pakistan enjoys a strategic advantage in Asia to become a premier trade, energy, and transport marketplace. Coupled with its liberalization & privatization policies, Pakistan has enabled a conducive business environment to attract foreign investments. 

International companies looking to expand in Pakistan can utilize a low-income yet skilled workforce. Global employers can decide their compliance strategy for hiring based on the following elaboration of Pakistan’s employment rules. 

Pakistan’s labor law enforces 30 International Labor Organization (ILO) conventions ensuring employer obligations to extend basic employee rights, such as:

  • Minimum legal wage (approx. $114 as on July 1, 2022)
  • Up to 14 calendar days of annual vacation leave 
  • Maternity leave in Pakistan varies between 180 days – 90 days
  • Working hours per Pakistan labor laws is capped at six hours a day during the month of Ramadan 

This page on employment law in Pakistan guides entrepreneurs and global companies through all the essential labor act rules, including working hours, holidays, leaves, minimum wages, statutory employer contribution, payroll tax obligations, dismissal rules, and employee data privacy.  

Applicability of the Act

Pakistan’s employment laws majorly govern the employment terms and work conditions of blue-collar employees. The labor laws in Pakistan can influence the terms and conditions of negotiated employment contracts while hiring white-collar employees. 

Any organizations, commercial establishments, industrial establishments, and factories operating in Pakistan must comply with the following labor laws: 

  • Employee’s Old Age Benefits Act, 1976
  • Provincial Employees Social Security Ordinance (PESS), 1965
  • The Industrial And Commercial Employment Ordinance (Standing Orders), 1968
  • Punjab Shops And Establishments Ordinance (The Ordinance), 1969
  • Workers Children (Education) Ordinance, 1972
  • Minimum Wages Ordinance, 1961
  • Payment Of Wages Act, 1936
  • Companies Profits (Workers Participation) Act, 1968
  • The Factories Act of 1934
  • Workmen’s Compensation Act, 1923
  • West Pakistan Maternity Benefit Ordinance, 1962
  • Apprenticeship Ordinance, 1962
  • Disabled Persons (Employment And Rehabilitation) Ordinance, 1981
  • Workers’ Welfare Fund Ordinance (WWF Ordinance), 1971
  • Punjab Industrial Relations Act, 2010
  • Industrial Relations Act, 2012

Eventually, the enforcement of Pakistan’s labor code depends on the provincial labor departments.  

Employment Contract

Pakistan’s labor law prescribes employers enter into any of the following six categories of employment contracts: 

  • Permanent: the most common form of employment contract drafted after the probationary period
  • Probationers: provides space for trial and experimentation for both employer and employee
  • Badlis (Alternate): for appointing employees in the post of a permanent or probationary employee who is temporarily absent
  • Temporary: usually drafted if the work duration is less than nine months  
  • Apprentices: drafted for training employees
  • Contract worker: mostly applied in the case of remote workers and gig workers or instances where overtime compensation is not applicable

Pakistan’s employment rules require employers to mention the following information in any employment contract:

  • A complete description of job roles & responsibilities
  • Working hours, probationary period, leave schemes, and other benefits
  • Termination/dismissal clause or transferability of services
  • Salary details, payment schedule, and other relevant details
  • Describing the confidentiality agreement

Pakistan’s labor laws allow employers to extend probationary periods for three months. Employers may terminate the employment contract without advanced notice during this period. However, the employer must issue a written termination order to the employee stating the reason for termination. 

Any dispute related to the employment of blue-collar employees is settled in the labor courts and that of white-collar employees in the civil court of appropriate pecuniary jurisdiction.

Key Provisions of the Act

The employee-employer rights and duties in an employment relationship in Pakistan are based on the following sources 

  • The Constitution of the Islamic Republic of Pakistan, 1973
  • The federal and provincial employment laws
  • Judicial and administrative decisions

Various statutes (as mentioned in the earlier section) have emerged from the above source and form the labor act rules in Pakistan and Pakistan’s employment rules. 

Here we have discussed the significant provisions of labor regulations in Pakistan. 

Working hours 

  • Working hours per Pakistan labor law are capped at 48 hours a week. 
  • The daily working hours could be up to nine hours, including one hour of lunch and a prayer break. 
  • During Ramadan, Pakistan’s working hours law mandates employers to reduce working up to six hours a day. 
  • Pakistan’s labor law obliges employers to provide rest hours for
    1. Every six hours of work, one hour of rest
    2. More than five hours of work, 30 minutes of rest
    3. More than eight and half hours, and 30 minutes rest in two intervals each.

Holiday entitlements

  • Pakistan’s labor regulations depend on the Ministry of Interior, Islamabad, and various provincial governments for public holidays at the start of every calendar year. 
  • Employers in Pakistan shall observe nearly 14 public holidays categorized into
    1. Memorial days: Kashmir Day (February 5), Pakistan Day (March 23), Labour Day (May 01), Independence Day (August 14), Iqbal Day (November 09), Quaid-e-Azam Day/Christmas (December 25)
    2. Religious festivals: subject to the appearance of the moon and change every year

Leave schemes

Maternity leaves

  • Pakistan’s paid maternity leave for all categories of employees is 80 days for the first, 120 days for the second, and 90 days for the third child.
  • All entitlements under the maternity leave period in Pakistan are eligible to female employees who have been employed for at least four months preceding the delivery date.

Paternity leaves

  • Pakistan’s labor law mandates employers to grant a maximum of 30 days of paid paternity leave. 
  • Employers may grant such leave for not more than three times in the entire service. 
  • Shared paternity leaves in Pakistan do not apply to any employee category. 

Annual leave (vacation)

  • Employers may grant a minimum of 14 days of paid annual leave to employees who have worked for at least one year for them. 
  • Pakistan’s labor regulations allow employers to include weekly or public holidays that coincide with paid annual leave. 
  • Employers must allow accumulation of paid annual leave and labor act rules in Pakistan limits it up to 14 days. Therefore, employers may have to grant up to 28 days of paid annual leave to eligible employees. 

Other leaves

Sick leave

  • Pakistan’s labor regulations prescribe employers grant ten days of paid sick leave and an additional 30 days of sick leave in case of hospitalization. 
  • Additionally, employers in Pakistan must offer ten days of casual leave with full pay and 16 days of sick leave with half pay. 
  • The labor act rules in Pakistan recognize long-term illness due to mental issues or diseases like tuberculosis, cancer, leukemia, poliomyelitis, leprosy, cerebral thrombosis, etc., and thus, mandate employers to follow the below sick leave scheme:
    1. full pay sick leave up to a maximum of three consecutive months 
    2. another three successive months with half pay
    3. another three consecutive months of sick leave without pay

Pilgrimage leave

  • Pakistan’s labor law mandates employers to grant an unpaid leave of 30 days to every Muslim employee for pilgrimage. 
  • Employers may grant it only once during employment and not combine it with other leave entitlements. 

Minimum wage

  • The employment law in Pakistan guides respective provincial governments to set up minimum wages payable to blue-collar employees. 
  • The current minimum wage in Pakistan is around $114 per month

Overtime compensation

  • Overtime working hours per Pakistan labor law are capped at three hours a day. 
  • Compensation is double the pay rate for eligible employees whose daily spread is 12 hours. 

Payroll tax & other obligations

  • Concerning payroll, employers in Pakistan must
    1. Obtain a national tax numbe­r
    2. Register with the Employees Old-Age Benefits Institution (EOBI)
    3. Open a local bank account
  • Pakistan’s employment rules oblige employers to calculate the net salary of employers on [Gross Salary – Income Tax – Social Security Premium Employee’s Share = Net Salary]
  • Tax withholding and reporting:
    1. Employers must withhold income tax from their employees’ salaries monthly and file an annual tax return electronically no later than September 30. 
    2. The income tax in Pakistan is progressive, with the highest tax rate of 35%. There is no income tax on the first PKR 600,000. 
  • Social security contributions
    1. Pakistan’s labor law mandates statutory deductions like Employees Old-Age Benefits Institution (EOBI) as part of a standard payroll. 
    2. Employers must contribute at a rate of 5% and deduct 1% of the employee’s gross salary towards EOBI. 
    3. Employers may have to make additional contributions towards specific provincial social security funds. 

Payslip

  • Employers must provide a payslip at the end of every pay cycle, which can be weekly, bi-monthly or monthly. 
  • Pakistan’s labor law prescribes salary payments to employees via bank transfer. 
  • The employment rules in Pakistan mandate employee payslips to include net salary, withheld taxes, bonuses, and deductions, along with the employer’s national tax number.  

Dismissal rules

  • Employment law in Pakistan on termination or dismissal of employees mandates employers to give written orders.  
  • Employers must give at least one month of notice before dismissing a permanent employee. 
  • Pakistan’s employment law on termination makes it easier for employers to avoid reporting dismissal to government authorities or work councils unless it is redundant. 
  • However, the labor code in Pakistan prohibits employers from terminating employment contracts for female employees on maternity leave.

Data protection and employee privacy

The current data protection and employee privacy in Pakistan is unknown. As of 16 February 2022, the federal government has approved the draft Personal Data Protection Bill, 2022 (PDP Bill), which is likely to be enacted soon.  

However, as hybrid workplaces and remote work is gaining popularity, employers may ensure data protection and employee privacy in Pakistan by following the recommendations below: 

  • Employers must seek written consent from prospects and their employees whenever they access or process their data for background checks, cross-border data transfers, and otherwise. 
  • Upgrade to better technologies to mitigate the associated risks, including cybersecurity, confidentiality breaches, and data privacy.
  • Ensure a conducive environment at the workplace for female inclusion in economic activity.

Penalties

While Pakistan’s labor law imposes no statutory penalties on employers, the administrative and labor courts decide the penalty amounts for violation of Pakistan labor regulations brought to their notice. 

The violations may include failure to meet the Health & Occupational safety requirements, violating employee holiday entitlements, unfair dismissal, and likewise. 

Compliance Strategies for Employers

Entrepreneurs and global companies may comply with the Pakistan labor act rules for hiring and managing employees using the following strategies:

Template-based hiring & managing of employees

  • You may comply with the Pakistan labor code for hiring white-collar employees based on employment templates.  
  • You can draft basic employment documents, such as an offer letter, employment contract, or notice of termination, readily using available templates.  

Hiring an in-house HR manager

  • A dedicated Human Resources (HR) manager specializing in Pakistan labor law is recommended for mass hiring blue-collared and white-collared employees. 
  • HR managers supervise employee recruitment, training, appraisals, leave schemes, and much more.  
  • An in-house HR expert is capable of dealing with organizational changes and foreseeing potential liability to the company. 

Manage employee payroll using a SaaS-based solution

  • Entrepreneurs and global companies are switching to cloud-based payroll solutions for hiring and managing employees per Pakistan’s employment rules. 
  • Contemporary SaaS-based payroll, like Multiplier can help you set up a legal entity, draft employment documents, calculate employee salaries after statutory deductions, and much more at a click of a button. 

How Can Multiplier Help?

Contemporary solutions like Multiplier cater to those looking to hire their first employee in Pakistan with/without a local legal entity registration. 

Multiplier is leading PEO solutions and EOR solutions for global employers. Working with Multiplier ensures 100% compliance for businesses and international firms while hiring or during payroll management – taxes & social contributions deductions & reporting, per Pakistan employment law.  

Pakistan’s labor act rules require any employment document drafted in a foreign language to be translated into English and in some cases, Urdu. We can help businesses automate employment contracts and draft multilingual contracts for better understanding and compliant expansion. 

Multiplier provides compliant payroll products and services in over 150+ countries worldwide.  

Frequently Asked Questions

The labor code in Pakistan allows employees and employers to join trade unions and associations to push their best interests forward. Employers are assured that strikes or lockouts are declared only for industrial disputes, not individual grievances.

In the absence of personal data law, employers are not restricted to monitoring, accessing, and reviewing employees’ electronic communication at the workplace or company devices. However, employers are recommended to draft specific internal working rules for the same purpose.

Pakistan labor laws mandate employers to extend severance pay to blue-collar employees terminated without a cause. Severance pay is calculated as equivalent to 30 days of pay for every completed year of service.

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