Employer of Record (EOR) Pakistan
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An Employer of Record Pakistan serves as the official employer of a worker in the country. Commonly known as a Global Professional Employer Organization (Global PEO), this role encompasses overseeing various employment aspects, ensuring strict adherence to local labor laws and regulations. The responsibilities involve managing key functions such as payroll, taxes, legally mandated benefits, and the creation of employment contracts.
The Employer of Record (EOR) Pakistan is tasked with:
- Ensuring strict compliance with the country’s labor laws for the worker’s employment.
- Overseeing the local payroll processes.
- Managing the filing of employment-related taxes and essential documentation.
- Providing the worker with detailed payslips.
- Ensuring the timely distribution of the worker’s salary payments.
Simplify your global expansion through our Global PEO services, offering a hassle-free solution without the need for entity setup. As your Employer of Record Pakistan, Mercans guarantees legal presence, compliance, and Intellectual Property protection, allowing your business to concentrate on its core functions. Enable a smooth global mobility experience, including work visas, while building a diverse and effective global workforce. Choose Mercans as your Employer of Record Pakistan for a compliant and efficient employment journey for your global workforce.
Employment Contracts in Pakistan
When reviewing your appointment letter, it’s essential to take into account the following aspects.
Job Description/ Responsibilities
Ensure that the job responsibilities align with what was advertised and discussed during the interviews. Check if there are any additional responsibilities not initially mentioned.
Salary
Examine your basic and gross salary. Confirm that your consolidated or gross salary meets or exceeds the stipulated amount, such as Rs. 15,000 per month (in Punjab, KPK, and Balochistan) or Rs. 14,000 (in Sindh province). Consider allowances like house rent and conveyance/utility.
Probationary Period
Understand the required probation period before your service is confirmed. In the private sector, this period is typically three to six months, while in the public sector, it may extend to one to two years. Check if the probationary period is extendable.
Termination of Service
After the confirmation of your service, your employer can terminate your services at any time with a 30-day notice or by providing 30-day pay in lieu of notice. You also have the right to resign by giving a 30-day notice or surrendering 30-day pay.
Transferability of Services
Determine whether your services can be transferred to other sections/departments of the organization. This can provide diversified experience but may limit specialization in your desired field.
Confidentiality Agreement
Check if there is a confidentiality agreement, preventing you from associating with a similar business during your employment and prohibiting the disclosure of organization-related information to competitors, even after termination.
In addition to the mentioned factors, your employment contract/appointment letter should explicitly state whether it will be governed by general labor laws or specific ones like the mining labor code, newspaper employees act, or road transport employees act. If the contract terms differ from labor laws, the contract takes precedence, so it’s crucial to assess the alignment with labor law provisions.
Probation Period
In the private sector, this period typically spans three to six months, while in the public sector, it extends to one to two years. Another aspect to consider is whether the probationary period is subject to extension. It’s important to note that services can be terminated during this period without prior notice or providing a reason. The probationary period, as per the mentioned laws, is limited to three months.
Notice Period
Both employees and employers are obliged to provide a one-month notice period when terminating an employment contract. Notably, temporary workers are exempt from this notice requirement. In cases where advanced notice is not given, the employer is required to offer compensation equal to one month’s salary.
Working Hours and Overtime Compensation
As per legal regulations, standard daily working hours amount to 9 hours, inclusive of a one-hour break for lunch and prayer. However, with overtime, daily working hours can be extended up to 12 hours. The weekly limit for regular working hours is set at 48 hours, and with overtime, it extends to 56 hours per week.
Employees vs Independent Contractors
| Factor | Employee | Independent Contractor |
|---|---|---|
| Employment Laws | Governed by specific laws like West Pakistan Industrial and Commercial Employment (Standing Orders) Ordinance 1968, Shops and Establishments Ordinance 1969, and others which vary by province. | No specific laws that regulate the hiring of independent contractors in Pakistan. |
| Hiring Practice | Undergo a pre-employment medical check-up, present a clear criminal record, and adhere to the employment contract terms. | Hired directly or through intermediaries like staffing agencies or online platforms. |
| Tax Filing Documents | Subject to income tax deducted at source, and required to submit tax returns if salary exceeds PKR 400,000. | Contractors file their own taxes online or via the Regional Tax Office. Corporate taxes must be filed by 31 December for the previous year. |
| Payer Tax Withholding and Reporting Requirements | Employers withhold employees' income tax and contribute to social security for employees with over five employees. | No specific additional requirements levied upon companies that hire contractors. |
| Other Tax Filing Requirements | Not applicable for employees. | Not applicable for independent contractors. |
| Remuneration | Paid according to the terms specified in their contract. | Payment terms defined in the contract. |
| Workers’ Rights | Governed by labor laws, including working hours, minimum wage, overtime, and leaves. | No statutory benefits for independent contractors. |
| Benefits | Entitled to statutory benefits like overtime pay and public holiday pay. | Benefits, if any, are defined in the contract. |
| When Paid | Paid on an hourly, weekly, monthly, or yearly basis. | Contractors typically submit invoices and require payment within the agreed timeframe. |
| Who classifies as Independent Contractor in Pakistan | Legal framework under-developed; individuals considered contractors if they have less control, provide their own equipment, and work on specific projects. | Self-employment is common, but no clear legal distinction between contractor and employee. |
| Contracting Models | Self-employed freelancer, LLC (Limited Liability Company), Non-LLC business. | Independent contractors operate under various models like sole proprietorship, partnerships, or limited companies. |
| Engagement Models | Direct engagement with contractors or through staffing agencies/umbrella companies. | Engage contractors directly or through third-party agencies or umbrella companies. |
| Contractor Payments | Preferably avoid paying through payroll system; payment method determined by contract. | No specific legal requirements regarding contractor payments in Pakistan. |
| Tax and Social Security | Employees taxed at source and required to submit tax returns if salary exceeds PKR 400,000. | Contractors file their own income taxes or business taxes if registered. Employers contribute to social security for employees. |
Payroll in Pakistan
Minimum Wages
The minimum wages in Islamabad Capital Territory, Pakistan, have been updated, effective from July 1, 2023. The national minimum wage for unskilled work has been raised from PKR 25,000 to PKR 32,000 per month.
Payroll Cycle
In Pakistan, payroll frequency may occur daily, weekly, bi-monthly, or monthly, with the requirement that employees receive their salaries at least once a month.
Mercans’ Payroll Capabilities in Pakistan
Managing payroll in Pakistan requires a nuanced approach, and Mercans excels in providing meticulous attention and comprehensive solutions through its Employer of Record services.
The payroll cycle in Pakistan typically operates on various frequencies, including daily, weekly, bi-monthly, or monthly. However, the employee must be paid at least once a month, and Mercans ensures precision and compliance in this process.
In the context of Pakistan, paying salaries in the local currency not only enhances convenience for employees but also minimizes complexities related to currency exchange. Mercans facilitates seamless multi-country payment solutions, aligning with the local currency requirements.
Whether it’s setting up payroll systems, processing salaries, managing leave balances, or ensuring statutory filings and payments, Mercans’ EOR services efficiently handle every aspect of payroll administration in Pakistan.
Compliance with local regulations is paramount, and Mercans provides unwavering support to ensure strict adherence to Pakistani labor laws and statutory requirements.
As your trusted payroll partner in Pakistan, Mercans leverages its expertise in Employer of Record services to manage multi-country payroll, delivering accuracy and efficiency across various locations in the country.
Social Security in Pakistan
- Sindh Employees’ Social Security Institution (SESSI) – 6.00%, applicable only for salaries below PKR 30,000.
- Gratuity Fund Contribution – 8.33%
- Life insurance – PKR 608
- EOBI (Employee-Old-Age-Benefit) – PKR 1,250
- Festival Bonus/13th Salary – 8.33%
It’s important to note that certain contributions may have limitations, leading to variations in percentages.
Hiring Cost in Pakistan
In this hypothetical scenario, an employee with a gross annual salary of PKR 999,999.96 incurs additional employer costs, resulting in a total annual cost of PKR 1,188,895.92. The breakdown of the total annual employer costs includes life insurance at PKR 7,296.00, gratuity fund contribution at PKR 83,300.04, EOBI (Employee-Old-Age-Benefit) at PKR 15,000.00, and a prorated festival bonus/13th-month salary at PKR 83,300.04. These additional costs, comprising various mandatory contributions and bonuses, highlight the comprehensive financial considerations involved in employer expenses in Pakistan.
| Hiring Cost in Pakistan | |
|---|---|
| Gross Annual Salary | PKR 999,999.96 |
| Total Annual Employer Costs | PKR 188,895.96 |
| Life Insurance | PKR 7,296.00 |
| Gratuity Fund Contribution | PKR 83,300.04 |
| EOBI (employee-old-age-benefit) | PKR 15,000.00 |
| Festival Bonus (prorated)/13th month Salary | PKR 83,300.04 |
| Total Annual Cost | PKR 1,188,895.92 |
Personal Income Tax
Pakistan imposes income tax on its residents on a global scale, while non-resident individuals are taxed solely on income originating within Pakistan. This includes income received or deemed to be received, or deemed to accrue or arise within Pakistan. Salary is considered Pakistan-source income when it pertains to employment conducted in Pakistan, regardless of where it is paid.
Personal Income Tax Rates
For individuals whose income from salary exceeds 75% of taxable income:
| Taxable Income (PKR*) | Tax on Column 1 (PKR) | Tax on Excess (%) |
|---|---|---|
| Over (Column 1) | Not Over | |
| 0 | 600,000 | 0 |
| 600,000 | 1,200,000 | 2.5 |
| 1,200,000 | 2,400,000 | 15,000 |
| 2,400,000 | 3,600,000 | 165,000 |
| 3,600,000 | 6,000,000 | 435,000 |
| 6,000,000 | - | 1,095,000 |
*Pakistani rupees For other cases (individuals and associations of persons [AOPs]):
| Taxable Income (PKR) | Tax on Column 1 (PKR) | Tax on Excess (%) |
|---|---|---|
| Over (Column 1) | Not Over | |
| 0 | 600,000 | 0 |
| 600,000 | 800,000 | 7.5 |
| 800,000 | 1,200,000 | 15,000 |
| 1,200,000 | 2,400,000 | 75,000 |
| 2,400,000 | 3,000,000 | 315,000 |
| 3,000,000 | 4,000,000 | 465,000 |
| 4,000,000 | - | 765,000 |
Withholding Requirements
In general, the entire tax is deducted at the source when paying salaries to individuals at the rates specified above for salaried individuals. Various withholding tax (WHT) rates apply to different goods, services, and contracts provided and executed by individuals and AOPs, based on the vendor’s status as an active taxpayer or not.
Employee Benefits in Pakistan
Statutory Leaves
It is crucial to address the unique aspects of the leave policy in this Islamic nation. Workers in Pakistan are entitled to specific days off and public holidays, ranging from maternity to pilgrimage leave, without facing any adverse consequences. The country has witnessed a notable increase in the workforce participation rate, rising from 32% in 2020 to 32.3% in 2021, with a significant portion engaged in the agriculture sector.
Navigating the intricacies of the leave policy in Pakistan can be challenging for foreign employers. To overcome this challenge, partnering with a global employer of record, such as Skuad, becomes essential. Skuad offers expertise in designing leave policies tailored to the Pakistani context and ensures compliance with local legislation, providing a hassle-free solution for managing a global team.
Public Holidays
Public holidays in Pakistan differ from those in many other parts of the world. Employees have the right to abstain from work-related activities on these days, although there are instances where employers may deny leave for certain holidays. The government categorizes holidays into public, bank, and optional, totaling 10 public holidays. Employees can be absent from work without repercussions on public holidays, while banks suspend operations on bank holidays. Muslim holidays, dependent on moon sightings, may vary in dates, and optional holidays require official requests from employees.
| Date | Holiday Name | Notes |
|---|---|---|
| January 1 | New Year's Day | Optional holiday |
| February 5 | Kashmir Day/Basant Punchami | Public holiday |
| March 1 | Shivaratri/Shab-e-Meraj (27th Rajab 1443 A.H.) | Public holiday |
| March 17 | Holi | Optional holiday |
| March 18 | Dulhandi/Shab-e-Barat (15th Shaban 1443 A.H.) | Optional |
| March 23 | Pakistan Day | Public holiday |
| April 4 | Corresponding to 1st Ramazan 1443 A.H. | Bank holiday |
| April 14 | Baisakhi | Optional |
| April 15 | Good Friday | Optional holiday (Christians only) |
| April 18 | Easter Monday | Optional holiday (Christians only) |
| April 21 | Eid-e-Rizwan (Bahai's Community only) | Optional |
| May 1 | Labor Day | Public holiday |
| May 3-5 | Eid-ul-Fitr (1st Shawal 1443 A.H.) | Public holiday |
| May 16 | Buddha Purnima | Optional |
| July 10-12 | Ed-ul-Azha, (10th Zil Haj 1443 A.H.) | Public holiday |
| August 7, 8 | Ashura (9th & 10th Moharram 1444 A.H.) | Public holiday |
| August 14 | Independence Day | Public holiday |
| August 16 | Nauroze (Parsi's New Year's Day) | Optional |
| August 19 | Janam Ashtami | Optional |
| August 21 | Birthday of Lord Zoroaster (Khordad Sal) | Optional |
| September 17 | Chehlum (20th Safar 1444 A.H.) | Optional |
| October 3 | Durga Puja | Optional |
| October 5 | Dussehra | Optional |
| October 9 | Eid Milad-un-Nabi (12th Rabi-ul-Awwal 1444 A.H.) | Public holiday |
| October 24 | Diwali | Optional |
| November 7 | Giyarvee Shareef (11th Rabi-us-Sani 1444 A.H) | Optional |
| November 8 | Guru Nanak Dev Jee Birthday | Optional |
| December 25 | Christmas Day/Quaid-e-Azam Day | Public holiday (Christians only) |
Termination, Resignation or Retirement
Employment dynamics involve various phases, and three significant events that mark the conclusion of an employment relationship are termination, resignation, and retirement. Each holds distinct legal implications, rights, and procedures in the context of Pakistani labor laws.
- Relevant Legislation: Termination of employment in Pakistan is governed by key statutes, with the Industrial and Commercial Employment (Standing Orders), 1968, at its core. Additional regulations include the Industrial Relations Act, 2012, and Provincial Industrial Relations Acts.
- Applicability of Standing Orders Ordinance, 1968: The Standing Orders Ordinance applies to industrial and commercial establishments employing 20 or more workers, with potential extensions by provincial governments. Smaller industrial establishments have exemptions based on specific provisions.
- Termination Process: Termination can occur due to various reasons such as resignation, dismissal, or redundancy. The process involves adherence to the statutory notice periods, especially for permanent employees. Written termination letters explicitly stating the reasons, as required by the law, are essential.
- Grounds for Termination: Employers can terminate employment based on valid grounds, including serious illness, inefficiency, or the financial needs of the establishment. Misconduct, with proper procedure and an opportunity for the employee to respond, is also considered a valid reason for dismissal.
- Severance Pay: Workers terminated for reasons other than misconduct are entitled to severance pay or gratuity under the Standing Orders Ordinance. This gratuity is equivalent to 30 days’ wages for each completed year of service or any part thereof exceeding six months.
- Termination by Employee: Resignation is a voluntary act initiated by the employee, indicating their intent to terminate the employment relationship. It can occur for various reasons, such as pursuing better opportunities, personal circumstances, or dissatisfaction with the current work environment.
- Notice Requirements: In accordance with Standing Order 12 of the Industrial and Commercial Employment (Standing Orders), 1968, permanent employees are required to provide and be served with one-month notice before resigning. Temporary workers, badlis, and probationers are exempt from notice requirements.
- Termination Due to Retirement: Retirement marks the conclusion of a worker’s active employment, often at a specified age. Employers may have retirement policies in place, and the retirement process involves a planned exit with benefits.
- Relevant Laws: While retirement is not explicitly covered by the Standing Orders Ordinance, other laws, such as pension and provident fund regulations, may govern the retirement process.
- Retirement Benefits: Employees retiring from service may be entitled to retirement benefits, including pensions or provident funds, as stipulated by the employer’s policies or relevant laws.
- Relevant Legislation: Termination of employment in Pakistan is governed by key statutes, with the Industrial and Commercial Employment (Standing Orders), 1968, at its core. Additional regulations include the Industrial Relations Act, 2012, and Provincial Industrial Relations Acts.
- Applicability of Standing Orders Ordinance, 1968: The Standing Orders Ordinance applies to industrial and commercial establishments employing 20 or more workers, with potential extensions by provincial governments. Smaller industrial establishments have exemptions based on specific provisions.
- Termination Process: Termination can occur due to various reasons such as resignation, dismissal, or redundancy. The process involves adherence to the statutory notice periods, especially for permanent employees. Written termination letters explicitly stating the reasons, as required by the law, are essential.
- Grounds for Termination: Employers can terminate employment based on valid grounds, including serious illness, inefficiency, or the financial needs of the establishment. Misconduct, with proper procedure and an opportunity for the employee to respond, is also considered a valid reason for dismissal.
- Severance Pay: Workers terminated for reasons other than misconduct are entitled to severance pay or gratuity under the Standing Orders Ordinance. This gratuity is equivalent to 30 days’ wages for each completed year of service or any part thereof exceeding six months.
- Termination by Employee: Resignation is a voluntary act initiated by the employee, indicating their intent to terminate the employment relationship. It can occur for various reasons, such as pursuing better opportunities, personal circumstances, or dissatisfaction with the current work environment.
- Notice Requirements: In accordance with Standing Order 12 of the Industrial and Commercial Employment (Standing Orders), 1968, permanent employees are required to provide and be served with one-month notice before resigning. Temporary workers, badlis, and probationers are exempt from notice requirements.
- Termination Due to Retirement: Retirement marks the conclusion of a worker’s active employment, often at a specified age. Employers may have retirement policies in place, and the retirement process involves a planned exit with benefits.
- Relevant Laws: While retirement is not explicitly covered by the Standing Orders Ordinance, other laws, such as pension and provident fund regulations, may govern the retirement process.
- Retirement Benefits: Employees retiring from service may be entitled to retirement benefits, including pensions or provident funds, as stipulated by the employer’s policies or relevant laws.
Work Permit in Pakistan
In Pakistan, the intricacies of securing a work visa involve collaboration between the Ministry of Interior, Pakistan Missions overseas, and the Pakistan Board of Investment (BOI). Mercans provides insights into the procedural intricacies, visa types, and essential requirements for a seamless work visa application process.
Application Process Overview
Types of Work Visas in Pakistan
- Standard entry work visa
- Entry work visa for the Reko Diq Project
- Standard extension work visa
- Extension work visa for the Reko Diq Project
- Chinese passport holders’ work visa
Validity Period of Work Visas
Understanding Durations: The validity periods of work visas vary according to the type:
- Entry work visa: Allows legal work for three months.
- Entry work visa (Reko Diq Project): Valid for five years, suitable for first-time entry.
- Extension work visa: Permits living and working for up to two years.
- Extension work visa (Reko Diq Project): Valid for up to three years for visa renewals.
- Chinese passport holders’ work visa: Lasts up to two years.
Work Visa Requirements:
Documentation Essentials: Compliance with specific rules and documentation is vital for obtaining a work visa. Essential documents include:
- Valid international passport
- Passport photograph
- Applicant’s Curriculum Vitae
- Contact details of the employer
- Letter of recommendation
- Company’s letterhead covering letter
- Company’s registration letter
- Employment contract signed by the employer
- Company’s full profile
- Company’s FBR NTN certificate
Application Process:
Three-Step Application: Applying for a Pakistan work permit involves a systematic three-step process:
Processing Time: The processing time varies based on factors such as visa type, entry frequency, and applicant location:
- First-time visa entry (Reko Diq Project): Completed within 24 hours on business days.
- First-time entry: Takes 48 hours on business days.
- Visa extension: Processed in four weeks for individuals with expired visas.
- First-time application or extension (Somalia and Afghanistan passport holders): Completed in four weeks.
EOR Solutions in Pakistan
Top Skills on Demand in Pakistan
In response to the escalating talent shortage in the corporate sector amid economic challenges, the American freelancing platform, Upwork Global Inc., has identified the most sought-after skills for independent professionals in 2023. As Pakistan’s corporate and industrial sectors brace for challenges in the coming year, focusing on skill development becomes paramount, especially for the nation’s youth, seen as the cornerstone of its future.
- Full Stack Development
- Front-End Development
- Back-End Development
- Mobile App Development
- Web Design
- E-commerce Website Development
- UX/UI Design
- CMS Development
- Manual Testing
- Scripting & Automation
Additionally, marketing skills like SEO, Social Media Marketing, Lead Generation, and essential Customer Service/Admin Support skills are highlighted. To tap into these opportunities, individuals are encouraged to explore online courses, video tutorials, and collaborative efforts with fellow freelancers, ensuring a strategic approach to skill acquisition and income generation.
From skill development to understanding markets and identifying business models, it is essential to develop a comprehensive plan that encompasses short-term and long-term goals. Furthermore, the evolving skills landscape in Pakistan places a spotlight on digital skills such as:
- Web Development
- Graphic Designing
- Digital Marketing
- Content Writing
- Search Engine Optimization (SEO)
These skills offer individuals pathways to economic growth and professional success.
Conclusion
In the realm of global workforce management, Mercans’ EOR solutions in Pakistan emerge as a strategic ally for businesses seeking to navigate the complexities of international expansion. With a commitment to legal compliance, efficiency, and client success, Mercans empowers organizations to thrive in the global marketplace while ensuring a compliant and engaged workforce.