Understanding Payroll in Pakistan: What Global Companies Need to Know About Pakistan’s Payroll

Mar 28, 2018  | Topic: Country Payroll

Pakistan is known for its textile industry, but many people aren't aware that it's home to the only fertile desert in the world: the Tharparker, where you can find people, livestock, and plenty of vegetation. The warm culture of Pakistan has attracted plenty of expats looking for a lower cost of living and a sense of community. With a GDP of $283.7 billion and a population of 193.2 million, Pakistan's economy relies heavily on cotton textile production, as well as sugar, cement, and tobacco and food processing. 

Pakistan's global payroll may be difficult for many corporations to navigate because the rules and regulations vary from one neighborhood to the next. Taxes include a number of stipulations that must be met before the tax can be officially processed, and these can change quickly depending on either regional or local politics. Pakistan is still a developing nation, which means an international payroll solution can be a valuable asset to help ensure compliance. 

Business Basics 

Corporations must first have their name approved by the Securities and Exchange Commission, then pay the required fee to complete their application. Fees can be paid with any designated Muslim Commercial Bank (MCB). Opening a bank account is normally straightforward, although businesses may encounter delays depending on the nature of their business or paperwork. Owners will also need a declaration of compliance, the company memorandum (with signatures), and a list of company leaders. 

Businesses must obtain a digital signature from the National Institutional Facilitation Technologies (NIFT) before registering with the Regional Tax Office of the Federal Board of Revenue. With their signature, a company may register with one of several social security institutions, depending on the business location. Finally, businesses will register with the Labor Department. Each district has their own authority, and the fees to file will vary from location to location. 

Employment Law & Employment Rights 

The Pakistan work week is 48 hours, and any time worked beyond that qualifies as overtime and is compensated at 200% of the regular wage. Companies with 20 employees or more must have formal written business contracts with employees, stating the compensation, bonuses, and working hours of each employee. Experts recommend standardizing all contracts to reflect the official currency, the Pakistani Rupee (PKR). Contracts should be as clear as possible prior to the employee beginning work. Probationary periods are allowed in the private sector but should last no longer than six months. Collective bargaining is allowed in Pakistan, though the government places strict regulations on the rights of employees to strike.

Compensation & Services 

The monthly minimum wage for unskilled workers was recently increased to 15,000 PKR (approximately $142 or €120) and may continue to rise in coming years. Wages for skilled labor are generally agreed between employee and employer during the contract negotiation. Additionally, businesses with 20 employees or more who post a profit are required to share their profit by paying a bonus to employees with at least 90 days of consecutive service. Depending on the wages of the employees and the amount of the profit, anywhere from 15% to 30% of the total annual profit must be distributed among workers.

In the case of termination for any reason besides misconduct on the part of the employee, employers will need to provide written notice of termination as well as severance pay. Employees generally receive one month's worth of wages for every year they served the company. 

Tax Requirements & Withholding 

Employees are taxed according to their income brackets, with taxes being withheld from the employee paycheck. Employees making less than 400,000 PKR are not required to pay income tax, while those making more than 7 million PKR are taxed at a rate of 30%. Employers are also expected to deduct up to 7% of employee wages for general social security and up to 5% of wages for the Employees Old Age Benefits Institution (EOBI). Employers submit the funds on behalf of their employees prior to the 15th of each month, and the money must be given to a bank designated by the EOBI. The VAT in Pakistan is equal to 17% on the majority of goods and services in the country. 

Time Off & Paid Leave

Pakistan employees typically receive 14 consecutive days of paid vacation after completing one year on the job. In addition, employees receive the day off on 11 public holidays. Any unused vacation days are expected to carry over to the following year. Employees also receive 10 days for sick (or personal) time off at full pay, plus an additional 16 days of sick leave at half pay. The extra days are typically not taken except in the case of extreme illness with official documentation. New mothers are granted 12 full weeks of paid leave and usually take half before birth and half afterward.

Untold Opportunities 

Between Pakistan’s rich culture and uncharted territory, businesses have untold opportunities to shape the local economies of the country. However, the payroll regulations are complicated enough that businesses need to be careful about how they manage their finances. An international payroll solution may be the best way to ensure local regulations are met, so you can concentrate on establishing your legacy.