Employee benefits in Pakistan are a key part of overall compensation, as 66% of employees in Pakistan consider benefits as a major factor in their salary package. To hire and keep top talent in this competitive market, companies should offer fair and attractive benefits to full-time employees.
In this article, we’ll explore payroll compensations for full-time employees in Pakistan, including their benefits over part-time employees, compensation packages, legal obligations, and cultural expectations.
Benefits of having full-time employees in Pakistan
Pakistan has a large and growing labor force, with 67.25 million employed persons in 2022, indicating a challenging job market. In this context, full-time employment is preferred by many Pakistanis over part-time work, as it offers more stability, security, and benefits.
Employee-employer trust
As foreign companies focus on hiring employees from Pakistan, local talent has grown skeptical. They now seek full-time employment due to the risk of project or task-based employment and the need to avoid potential payment issues.
This presents an opportunity for foreign companies looking for talented individuals to join their teams. Establishing trust with a Pakistani resource goes a long way in their quality of work.
Devoted to company growth
Full-time employees are more devoted to the company’s growth and success. They are more invested in the company’s long-term goals and are willing to work hard to achieve them. This is because full-time employees have a greater sense of job security and are more likely to view their job as a career rather than just a job.
What are the Legal obligations associated with employee benefits in Pakistan?
In Pakistan, there are some legal obligations set for all the employers to provide their employees with. Although, the employers who are not fulfilling them, may face penalties and complications by the law. Read below to find out!
Pay at least the minimum wage of PKR 25,000
The minimum wage rate in Pakistan varies by province. On 01 July 2022, the minimum wage for employees in Pakistan was set to PKR 25,000 per month. However, in 2023, Punjab province has increased the minimum wage rate from PKR 25,000 per month to PKR 32,000 per month.
Although, the minimum wage for skilled workers is negotiable between you and the employee. The salary depends on the skills, experience, and profession of the employee and the level of job role and organization.
Provide statutory leaves
Statutory leaves are another type of employee benefits in Pakistan as it is the minimum amount of paid time off work that employees are entitled to by law. This includes paid holiday, sick leave, public holiday, and maternity, paternity leave. In Pakistan, employers are required to provide 14 days of annual leave, along with 10 days of casual leave with full pay and a further 16 days of sick or medical leave on half pay.
Moreover, The Maternity and Paternity Leave Bill (2018) provides paid maternity leave to all female employees working in entities under the administrative control of the Federal Government for 180 days on the first birth, 120 days on the second birth, and 90 days on the third birth of a child.
Deduct and deposit income tax from employees’ salaries
When you pay your employees, you must withhold federal income tax, social security tax, and Medicare tax from their wages. In addition, you may be required to pay federal unemployment (FUTA) tax. The amount of these taxes depends on the amount of wages you pay to your employees.
Tax deduction on salary varies based on the amount of salary earned. For someone earning below PKR 50,000 per month (PKR 600,000 per year), there will be no tax. People earning between PKR 50,000 and PKR 100,000 (PKR 600,000 and PKR 1.2 million per year) will pay a tax of 2.5% of the amount exceeding the PKR 600,000 yearly tax slab.
| Taxable Income-Yearly (PKR) | Tax Limit Income-Yearly (PKR) | Tax on Excess (%) |
| Over 0 | 600,000 | 0 |
| Over 60,000 | 1,200,000 | 2.5 |
| Over 1,200,000 | 2,400,000 | 12.5 |
| Over 2,400,000 | 3,600,000 | 20 |
| Over 3,600,000 | 6,000,000 | 25 |
| Over 6,000,000 | 12,000,000 | 32.5 |
| Over 12,000,000 | – | 35 |
The entire tax is deducted at source on payment of salary to individuals at rates mentioned above for salaried individuals.
Contribute to the Employees’ Old-Age Benefits Institution (EOBI)
If you are a foreign business owner hiring local employees from Pakistan, you need to know about EOBI, which is a government-run pension program for workers. You have to register yourself and your employees with EOBI and pay 5% of the minimum wage (PKR 1,250) per employee per month to EOBI.
Moreover, 1% of the minimum wage (PKR 250) is deducted per employee per month from their employee’s salaries and deposited to EOBI. You have to keep records of your payments and comply with all the rules and regulations of EOBI. Also, employers in Pakistan contribute 6% of the minimum wage of insurable employees to social security.
EOBI provides the following employee benefits in Pakistan to registered ones:
- Old-age pension
- Invalidity pension
- Survivor’s pension
- Old-age grant
- Invalidity grant
- Survivor’s grant
By paying EOBI contributions, you are providing your employees with a secure retirement income and protection in case of disability or death. Your employees will receive a monthly pension when they retire or become disabled, and their dependents will receive a monthly pension if they die.
They can also get other employee benefits, such as medical care, education support, marriage grant, funeral grant, etc., from EOBI or its affiliated institutions.
Overtime Compensation
If a Pakistani employee works beyond the stipulated working hours (9 hours a day and 48 hours a week), they are entitled to overtime pay that is double the rate of their ordinary pay (200% of the normal wage rate).
How do cultural norms influence employee benefits in Pakistan?
Pakistani local employees expect all of the cultural benefits as an important aspect of their commitment to working at a job. Following are the cultural obligations associated with payroll in Pakistan. Let’s have a look!
Performance Appraisal and Increment
It is also important to note that Pakistani local companies have a cultural representation for a performance appraisal and salary increment at the end of each year. While most organizations have a cycle of performance reviews every July, companies may opt for conducting reviews when their employee completes a year of work.
Pay a bonus to employees
One of the statutory employee benefits is to provide their employees with a profit bonus. This benefit applies to all employees who have worked for at least 90 continuous days in a year and if the company declares local profit in that year. The amount of the profit bonus should be equal to one-fifth of the total profits of the organization, or three months’ basic pay, whichever is higher.
However, for most foreign companies, a bonus can be paid as an Eid Bonus, which is equivalent to one gross salary, paid to all permanent employees in the week before Eid ul Fitr.
Provide allowance and benefits
Payroll compensation for full-time employees can include a basic salary, house rent allowance, travel allowance, and life insurance. The house rent allowance can range from PKR 12,000 to PKR 15,000 depending on the organization. You may also want to consider the tax implications of these compensations.
For foreign companies, it is important to note that these benefits are not paid on top of the salary decided between them and the employee. A Tax Accountant may segregate the agreed-upon salary in these benefits to facilitate the employee’s tax filings.
However, it is important to pay for In-Patient and Out-Patient Health Insurance as your employee benefits in Pakistan. While legally an employer needs to only pay for the employee’s In-Patient insurance, it is a norm in the Pakistani market to give both insurances to the employee and their dependents.
Advantages of having an Employer of Record
Foreign companies looking to hire candidates in Pakistan should prefer partnering with a local EOR service as it’ll help them comply with local laws and regulations.
An EOR can help foreign companies navigate the complexities of local employment laws and regulations, which can be different from those in their home country. This can help foreign companies avoid costly legal issues and penalties.
Additionally, an EOR can provide local expertise and knowledge of the local market, which can help foreign companies better understand the needs and preferences of their employees. Also, an EOR can help foreign companies streamline their HR processes, which can save time and money.
Streamline Your EOR Operations by Choosing RecruitGo!
RecruitGo is here for simplifying your operations, such as hiring, onboarding, managing payroll, payroll compensation, and administrative issues, and streamline all HR processes for you. We understand the complexities of complying with local obligations, changing laws, and cultural expectations, and that’s what we’re here for. We offer a range of services designed to help you streamline your HR operations so focus on growing your business.
Contact us today to learn more about how we can help your business succeed!
