Employment laws in Pakistan

Pakistan’s legal framework for employment inherited a colonial-era structure. Consequently, employment laws in Pakistan continue to be modified by regional changes and new federal legislations.

In other words, the labor laws in Pakistan depend on where the employee sits. All four provinces: Punjab, Sindh, Khyber Pakhtunkhwa, and Balochistan, each run their own labor departments, typically set their own minimum wages, and enforce their own versions of key statutes.

Nonetheless, labor law compliance in Pakistan can be cumbersome, especially for foreign employers. 

The following guide lays out the fundamentals of employment contracts in Pakistan, including statutory rights, working conditions, and termination. It also explains where EOR solutions like Payoneer Workforce Management fit into the picture.

Key employment laws in Pakistan

Pakistani labor laws come from a patchwork of federal and provincial statutes. The ones that matter most for day-to-day employment:

• Industrial and Commercial Employment (Standing Orders) Ordinance, 1968: Governs contract terms, classifications, and disciplinary procedures for establishments.
• Provisional acts adapting or replacing the Factories Act, 1934: Covers working hours, overtime, leave, and safety for factory workers. Widely referenced even outside manufacturing and white-collar jobs.

For employers building teams across India and Pakistan simultaneously, the provincial complexity in Pakistan is comparable to India’s state-level variations in labor codes.

• Payment of Wages Act, 1936: Regulates wage disbursement timing, deductions, and penalties
• Employees’ Old-Age Benefits Act, 1976: Mandates pension contributions
• Provincial Employees Social Security Ordinance, 1965: establishes healthcare and injury benefits for provincial bodies, such as Punjab Employees Social Security Institution (PESSI) and Sindh Employees Social Security Institution (SESSI)
• The Maternity and Paternity Leave Act, 2020: Details on maternity leave provisions and expanded parental leave at the federal level

Contract employment laws in Pakistan

Structuring an employment contract in Pakistan sets the tone for the entire working relationship. If done correctly, you will have a structure that you and the employee can use as a base. If not, all it takes is a lawsuit to cause trouble. 

Let’s start with understanding the applicable contract types in Pakistan: 

Types of employment contracts in Pakistan

Pakistani law recognizes six categories of employment, each with different protections:

• Permanent: The default contract type after probation ends. You have to extend full statutory employment rights in Pakistan, including notice period, gratuity eligibility, and social security coverage.
• Probationary: You may treat it as a trial window; however, there is no statutory obligation. Either side can walk away during this period, though we recommend giving 7–15 days’ notice as good practice.
• Temporary: Also known as a fixed-term contract, it is suitable for work lasting under nine months. The advantage here is that you can extend fewer employee protections than in permanent roles.

Essential contract terms

Companies are legally required to issue written contracts.

The contract can be in English, and typically covers:

• Full name and personal details of the employee
• Job title, role description, and reporting structure
• Employment type (permanent, probationary, temporary/fixed)
• Salary breakdown, payment frequency, and method denominated in Pakistani Rupees (PKR). Any foreign currency arrangement needs careful structuring to stay within the State Bank of Pakistan regulations.
• Working hours, overtime terms, and weekly rest day
• Leave entitlements: annual, casual, sick, maternity/paternity
• Probation duration and confirmation criteria 
• Notice period for both sides 
• Termination grounds and severance terms

Minimum wage in Pakistan

The federal floor stands at PKR 37,000/month. However, there could be provincial variations. You must pay whichever figure is higher, federal or provincial.

Working hours in Pakistan

The maximum working hours in Pakistan are 48 hours across a 6-day week. Each shift can run 8-9 hours, with a mandatory 1-hour break for lunch and prayer.

Overtime laws in Pakistan

Extra hours beyond the standard shift are paid at double the normal rate, on regular days and public holidays alike. But there are hard limits, such as: 

• You cannot enforce more than 3 overtime hours in a single day
• Further, working hours in Pakistan cannot be more than 12 total hours in any day, 60 in a week, and 624 over the course of a full year.

Mandatory benefits

You have the obligation to ensure the following employee rights in Pakistan are accessible: 

• Social security and pensions: Employers register with the Employees Old-Age Benefits Institution (EOBI) and the relevant provincial social security body. These funds cover old-age pensions, invalidity benefits, healthcare, maternity, and work injury compensation.

To estimate total employment costs, including statutory contributions, try our employee cost calculator.

• Leave entitlements: Pakistan mandates several categories of paid leave, such as: 
  • 14 days of earned leave after one year,
  • 10 days of casual leave
  • 8 days of sick leave
  • 180/120/90 days maternity leave (first/second/third child), and 
  • 30 days of paternity leave. 

Here’s a full breakdown of the leave policy in Pakistan. 

• Protected periods: Termination is typically prohibited during maternity leave, sick leave, or any period when the employee is receiving injury benefits under provincial social security. Employers who violate this may face labor court proceedings and potential reinstatement orders.

Pakistan’s employment law on termination

The termination laws in Pakistan differ depending on the employee’s classification, tenure, and the province they work in. Let’s explore further. 

Grounds for dismissal

Here are some valid scenarios for terminating employment contracts:

• Resignation by the employee
• Termination by mutual agreement between the employee and the employer
• Termination during the probation period
• Termination by the employer due to misconduct, poor performance, or unauthorized absence

Notice period in Pakistan

During probation, notice isn’t legally required; however, you can maintain 7-15 days as a matter of good practice. 

Once an employee becomes permanent, the law requires 30 to 60 days’ written notice from either side. 

However, an employee dismissed for proven misconduct can be let go immediately, with no notice and no pay in lieu. But the dismissal letter must state the specific grounds in writing.

Severance pay in Pakistan

Employees may be entitled to severance depending on the length of service and the circumstances of the exit.

Take a deeper dive into contractor compliance and global workforce strategies.

Navigate employment laws in Pakistan with trusted support

Compliance with labor laws in Pakistan must account for provincial differences, changing minimum wage floors, and varying statutory timeframes between the Employees Old-Age Benefits Institution (EOBI), Federal Board of Revenue (FBR), and social security offices in the provinces.

For companies also operating in Bangladesh or Sri Lanka, things can get very complicated very fast.

Payoneer Workforce Management assists organizations in engaging talent in more than 160 countries, while supporting compliance with local laws.

Through its comprehensive platform, Payoneer Workforce Management offers EOR, AOR, and contractor management via a unified interface, helping with contracts, payroll, taxation, employee benefits, and leaves.

Book a demo now!