Your guide to payroll in Pakistan

Payroll management in Pakistan isn’t just about depositing salaries on time. Employers need to calculate gross-to-net correctly, withhold income tax under the PAYE system and make other important adjustments accordingly. 

Moreover, Pakistan’s payroll compliance is shaped by federal tax law and provincial labor regulations. That creates real complexity for companies with employees across multiple provinces.

This guide covers how Pakistan payroll processing works, from wages and deductions to compliance best practices. We’ll also show how Payoneer Workforce Management can help streamline the process.

Pakistan payroll: Wages and other payments

Pakistani labor law lays out specific rules around how employees get paid. Here’s what you need to know before running your first payroll cycle:

Payroll cycle in Pakistan

Wages must be paid at least once a month, in Pakistani Rupees (PKR). Most employers in Pakistan run payroll monthly, with the standard pay date falling on the last calendar day. 

Minimum wage in Pakistan

The federal minimum wage stands at PKR 37,000 per month. 

Overtime pay

The Factories Act 1934 and the Shops and Establishments Ordinance 1969 set the boundaries for overtime. Employees can work up to three extra hours a day, but total working time must not exceed 12 hours per day or 60 hours per week. Overtime is capped at 624 hours annually. Any overtime worked is paid at twice the regular rate, including work done on public holidays.

Bonuses

Annual bonuses aren’t mandatory under Pakistani law. There’s no 13th-month salary requirement either. However, many employers offer discretionary performance bonuses or profit-sharing arrangements to stay competitive in the market.

Payroll in Pakistan: Contributions and deductions

Salaries in Pakistan don’t just get taxed once. Between income tax withholding, provincial social security payments, and Employees Old-Age Benefits Institution (EOBI) contributions, you need to juggle multiple deductions every payroll cycle in Pakistan. 

Here’s what you need to know about: 

Income tax in Pakistan

Pakistan runs a progressive salary tax system with rates ranging from 0% to 35%. You need to deduct income tax in Pakistan at source every month through the Pay-As-You-Earn (PAYE) system and remit it to the Federal Board of Revenue (FBR). 

Social security contributions in Pakistan

Two mandatory contributions sit on top of income tax:

• EOBI (Employees’ Old-Age Benefits Institution): Employers contribute 5% of the minimum wage per employee. Employees contribute 1%. EOBI covers old-age pensions, invalidity benefits, and survivor pensions. Registration is mandatory for any establishment with more than five employees.
• Provincial Social Security: Employers contribute approximately 5% of the minimum wage to the relevant provincial body, such as Punjab Employees Social Security Institution (PESSI) or Sindh Employees Social Security Institution (SESSI). These funds provide healthcare, maternity, disability, and workplace injury benefits.

Overall, employer taxes in Pakistan work out to approximately 2.32% on an annual salary of USD 60,000. The actual figure depends on the employee’s salary level, province, and applicable benefits. 

You may use our employee cost calculator to get a closer estimate.

Other employee benefits

Beyond wages and statutory deductions, Pakistani employees are entitled to several types of leave. Here’s what the law mandates:

• Employees become eligible for 14 days of paid annual leave once they complete one year of service. On top of that, they get ten days of casual leave and eight days of sick leave each year.
• Maternity leave varies by birth order, that is, 180 days for the first child, 120 for the second, and 90 for the third. Fathers are entitled to 30 days of paternity leave.
• Public health insurance isn’t mandatory in Pakistan. Private health insurance is optional but increasingly common. Life insurance, however, is a mandatory benefit to be offered.
• Employers must provide either gratuity or a provident fund when terminating employment contracts. For gratuity, employees with more than five continuous years of service qualify for 30 days’ wages per completed year. Any period over six months rounds up. Further, gratuity formulas vary by province. If an employer opts for a provident fund instead, the contribution must match what the employee would have earned through gratuity.

Companies also hiring in India or Bangladesh will notice similar leave structures, though the specifics, especially around maternity and social security, differ significantly.

Pakistan payroll compliance best practices

Payroll compliance in Pakistan requires attention to multiple filing deadlines and registration requirements. Here’s what you need to know about: 

• Enroll every employee with EOBI and the relevant provincial social security institution.
• Deduct income tax at source monthly and remit to FBR on schedule. Late withholding can trigger a penalty.
• Payslip requirements in Pakistan include issuing payslips at the end of each pay period. Payslips should detail gross earnings, deductions, taxes, and net pay.
• Maintain payroll records for a few years. This includes attendance registers, wage records, and tax filings.
• Track provincial variations as minimum wages, social security rates, and overtime rules differ across Punjab, Sindh, KPK, and Balochistan.
• Misclassifying employees as contractors triggers back payments and penalties. A contractor management system helps streamline the process. Read more about misclassification risks.

Your options for payroll management in Pakistan

Here are the three common ways to engage talent and handle Pakistan payroll:

1) Run payroll in-house: You set up a local entity, register with FBR and EOBI, hire an HR/payroll team, and manage everything directly. You get full control over employees; however, you bear admin and compliance risk across multiple provinces.

2) Outsource to a local payroll provider: A third-party firm, usually a Professional Employer Organization (PEO), handles calculations, filings, and remittances. You still need a registered entity in Pakistan, but the day-to-day payroll burden shifts off your plate.

3) Work with an Employer of Record (EOR): An EOR, like Payoneer Workforce Management, acts as the legal employer. It helps handle payroll, tax withholding, social contributions, benefits, and compliance without the need to set up a local entity.

Payoneer Workforce Management assists businesses with onboarding, managing, and paying employees in Pakistan and 160+ other countries through a single platform. Whether you need EOR, AOR, or contractor management services, from one dashboard.

Book a demo today!

FAQs

1) How often do employers run payroll in Pakistan?

The most common setup is monthly payroll with the last calendar day as the pay date. The Payment of Wages Act typically sets disbursement deadlines.

2) What taxes do employers withhold from salaries in Pakistan?

Income tax under the PAYE system (0%–35%, progressive). Employers also contribute to EOBI and provincial social security (~5% of minimum wage). 

3) What is the minimum wage in Pakistan?

The minimum wage in Pakistan at the federal level is PKR 37,000/month. Provincial governments, especially Punjab and Sindh, publish separate, sometimes higher, schedules by industry. Employers must always pay the higher of the two.

4) What’s the difference between an EOR and running payroll in-house?

In-house payroll requires a local entity, FBR registration, and a dedicated team. An EOR helps handle the process on your behalf, and no entity is needed. You may read the AOR vs EOR guide for a full comparison.

5) How can Payoneer Workforce Management help with payroll in Pakistan?

Payoneer Workforce Management assists with payroll management in Pakistan and 160+ countries, supporting tax withholding, social contributions, benefits, and compliance through one platform.