Hire employees in Pakistan
What a foreign company needs to know before employing people in Pakistan in 2026: whether you need a local entity, why statutory contributions are small but gratuity and benefits are not, how the Finance Act 2026 tax slabs work, how provincial labour law changes the rules by city, and what a dismissal really requires. Written for CHROs, CFOs, General Counsel and founders.
Quick answers
The questions leadership teams ask first.
Do I need a local entity in Pakistan to hire?
No. There are three routes:
- Employer of Record. Dryft Global employs the person through a compliant Pakistani employer registered with the Federal Board of Revenue (FBR), EOBI and the provincial social security institution, issues the written contract and runs income tax withholding, gratuity or provident fund and group insurance. You direct the work.
- Direct local entity. You incorporate a private limited company with the Securities and Exchange Commission of Pakistan (SECP), obtain a tax number, register with EOBI, social security and the provincial sales tax authority, and clear the Ministry of Interior security check for foreign directors.
- Independent contractor. Lawful only for a genuinely independent business. Someone who works full time under your direction is an employee whatever the contract says.
When should I use an EOR instead of registering locally?
Use an EOR for your first hires and for engineering, customer support or back-office teams of up to about 50 people. You start in days and avoid incorporation, security clearance and the provincial registrations. Your own entity earns its keep for a large delivery centre, when you will sell into the Pakistani market, or when you want to export services under your own Pakistan Software Export Board (PSEB) registration.
What does an employee actually cost beyond salary?
Statutory contributions are small. EOBI is 5% for the employer and 1% for the employee, but calculated on the minimum wage, so it is about PKR 2,000 a month whatever the salary. Provincial social security covers only workers below a wage ceiling. The real cost is gratuity or a provident fund (about 8.33% of salary), group life and medical cover, and a customary festival bonus. Together these bring the all-in figure to roughly 9% to 20% for professional roles.
How difficult is termination in Pakistan?
For permanent workmen, notice is one month or one month's wages in lieu, with a written order stating the reason, and gratuity of 30 days' wages per year of service unless a provident fund replaces it. Misconduct needs a written charge and a chance to answer. Unfair dismissal claims go to the Labour Court, which can order reinstatement. Managerial staff are governed mainly by their contract. Terminating more than half the workforce or closing an establishment needs Labour Court permission.
Can Dryft Global legally employ my team in Pakistan?
Yes. Dryft Global acts as the legal employer in Pakistan. We issue written contracts under the provincial labour law that applies where the employee works, register employees with EOBI and the provincial social security institution where required, withhold income tax under the Finance Act 2026 slabs, run gratuity or a provident fund and group insurance, and manage leave, notice and terminations.
Hiring routes compared
Speed, local registration, tax administration and liability differ by route.
| Factor | Direct local entity | Dryft Global EOR | Independent contractor |
|---|---|---|---|
| Time to operational state | Several weeks, longer with foreign director clearance | Days to 2 weeks | Days |
| Local entity required | Yes, SECP private limited company | No | No |
| Tax, EOBI and social security | Your FBR, EOBI and provincial files | Handled by Dryft Global | Contractor self-reports |
| Statutory liability | Direct corporate exposure | Assumed by Dryft's local employer | High if reclassified |
| Best fit | Large centre, local sales, own PSEB export status | Teams of 1 to about 50 | Discrete project work |
What an employee costs in Pakistan
Pakistan's statutory payroll contributions are fixed amounts tied to the minimum wage, so the percentage falls as salary rises. The model below is a Lahore or Karachi software engineer on PKR 400,000 a month in fiscal year 2026-27.
| Component | Employer share | Notes |
|---|---|---|
| EOBI | ~0.5% | 5% of the minimum wage base, about PKR 2,000 a month; employee pays 1% |
| Provincial social security | 0% | 6% of the minimum wage base, but only for workers below the coverage ceiling |
| Statutory subtotal | ~0.5% | About PKR 2,000 a month on the model salary |
| Gratuity or provident fund | ~8.33% | 30 days' wages per year of service, or a matched provident fund |
| Group life and medical cover | ~2% | Group life is required for permanent workmen; family medical is expected |
| Festival bonus | ~8% | Customary, not statutory; often one month a year around the Eids |
| Total employer on-cost | ~9% to 20% | Above base salary on the model salary |
For an employee on PKR 400,000 a month, budget roughly PKR 5.3 million to 5.7 million a year all-in before the EOR fee, about USD 19,300 to 20,700 at PKR 277 to the dollar. The Workers' Welfare Fund (2% of taxable income) and Workers' Profit Participation Fund (5% of profits) are levies on the employing company, not per-employee payroll. Ask us for a cost model with current rates applied.
Payroll and tax
Salaries are paid monthly in rupees. Under the Payment of Wages Act and its provincial successors, the wage period cannot exceed a month and wages are paid within days of its end. The employer withholds income tax every month under section 149 of the Income Tax Ordinance, spreading the estimated annual tax over the remaining months, deposits it with the FBR and files withholding statements. EOBI and provincial social security contributions are paid monthly. Employees receive an annual tax deduction certificate.
Salaried income tax, Finance Act 2026
From 1 July 2026, annual salaried income up to PKR 600,000 is tax free, then rates step through 1%, 11%, 20%, 25%, 29% and 32% to 35% above PKR 7 million. The top band previously started at PKR 4.1 million, and the 9% surcharge on salaried income above PKR 10 million was withdrawn, so higher earners pay noticeably less. On PKR 400,000 a month, tax is about PKR 62,000 a month and net pay about PKR 337,600.
IT export regime
Software, IT and IT-enabled services exporters registered with the PSEB pay a 0.25% final tax on export proceeds received through banking channels (1% if not registered), available to tax year 2029. This applies to the exporting business, not to salaries, which are taxed under the salaried slabs.
Statutory minimum wage
Minimum wage is set by each province, and by the federal government for Islamabad Capital Territory, for an unskilled adult worker. From 1 July 2026 it is PKR 40,700 a month in Islamabad and PKR 43,000 in Sindh. Punjab, Khyber Pakhtunkhwa and Balochistan set their own rates, so check the current notification for the employee's province. Paying below the minimum is an offence.
Leave and mandatory benefits
- Annual leave. 14 days on full pay after 12 months' continuous service. Professional offers often give more.
- Casual leave. 10 days a year on full pay.
- Sick leave. Commonly 8 days on full pay (or 16 at half pay) under the shops and establishments laws, with variations by province and by factory or commercial status.
- Public holidays. National holidays set by the Cabinet Division, including Kashmir Day, Pakistan Day, Labour Day, Independence Day, Iqbal Day and Quaid-e-Azam Day, plus Eid ul-Fitr, Eid ul-Adha, Ashura and Eid Milad-un-Nabi, which follow the lunar calendar.
- Maternity. Depends on jurisdiction. Federal establishments, including Islamabad, give 180 days for a first birth, 120 for a second and 90 for a third under the Maternity and Paternity Leave Act 2023. Sindh gives 16 weeks on full pay and Punjab, Khyber Pakhtunkhwa and Balochistan 12 weeks. Dismissal during maternity leave is prohibited.
- Paternity. 30 days on full pay in federal establishments under the 2023 Act. No statutory private-sector entitlement in the provinces.
- Working time. 9 hours a day and 48 hours a week, with overtime paid at twice the ordinary rate. Most offices work Monday to Friday.
- Gratuity and group life. Gratuity of 30 days' wages per year of service, or a qualifying provident fund instead, and group life insurance for permanent workmen.
- Supplementary benefits. Family medical insurance, a festival bonus, transport or fuel allowance, internet and power backup for hybrid staff.
Termination and notice periods
Probation is three months. After that, a permanent workman becomes protected by the Standing Orders of the province where they work, and termination needs written reasons and notice.
| Situation | Requirement |
|---|---|
| During probation | No notice required |
| Permanent workman | 1 month's notice or 1 month's wages in lieu, written order with reasons |
| Gratuity | 30 days' wages per completed year, unless a qualifying provident fund applies |
| Retrenchment of more than 50% or closure | Prior permission of the Labour Court |
- Misconduct. A written charge, a chance to explain and a written decision. Gratuity is not payable on dismissal for misconduct.
- Final dues. Payable within two working days of termination under the Standing Orders.
- Unfair dismissal. A grievance to the employer, then the Labour Court or, for establishments in more than one province, the National Industrial Relations Commission, which can order reinstatement with back pay.
- Managerial staff. Governed mainly by the contract, so set notice and termination terms clearly.
- Restrictive covenants. Non-competes are hard to enforce. Confidentiality and IP clauses are standard.
Can I use independent contractors?
Only where the person genuinely runs their own business: their own clients, schedule and tools, invoicing for output rather than a fixed monthly fee. Pakistani courts look at control, integration and permanence, and the Supreme Court has repeatedly ordered that third-party contract workers doing core work under the principal's control be made permanent employees. Many Pakistani freelancers are paid from abroad and can benefit from the export tax regime, but a full-time person who works like an employee should be employed. For anyone in that position, an EOR is the compliant route.
The legal framework in brief
Since the 18th Amendment in 2010, labour law has been a provincial subject. Punjab, Sindh, Khyber Pakhtunkhwa and Balochistan each have their own standing orders, shops, minimum wage and maternity laws, and Islamabad uses federal law. The instruments you will hear most:
- Standing Orders. The Industrial and Commercial Employment (Standing Orders) Ordinance 1968 and provincial successors such as the Sindh Terms of Employment (Standing Orders) Act 2015 and the Khyber Pakhtunkhwa Act 2013: probation, notice, gratuity, misconduct and group insurance.
- Shops and establishments laws. Hours, overtime, leave and holidays for offices and commercial establishments, province by province.
- Punjab Labour Code 2026. Signed into law in February 2026 to consolidate Punjab's labour statutes. Watch for its commencement, which will replace several older Punjab laws.
- Social security. Employees' Old-Age Benefits Act 1976 (EOBI, federal) and the provincial employees' social security laws.
- Income Tax Ordinance 2001 as amended by the Finance Act 2026. Salaried slabs, withholding and the IT export regime.
- Data protection. No comprehensive data protection law is in force. The Prevention of Electronic Crimes Act 2016, amended in 2025, and sectoral rules apply, and a Personal Data Protection Bill is pending.
- Immigration and right to work. Work visas recommended by the Board of Investment and issued by the Ministry of Interior, valid for one year and renewable.
- Authorities. Provincial labour departments, FBR, EOBI, provincial social security institutions, SECP, Board of Investment and Ministry of Interior.
Where the talent is
About 241.5 million people and a labour force of 83.1 million, with unemployment of 7.1% in the 2024-25 Labour Force Survey. IT and IT-enabled services exports reached a record USD 4.6 billion in fiscal year 2025-26, up 21%, and freelancers earned USD 1.76 billion. English is an official language and the language of business, contracts and the courts. Pakistan Standard Time is UTC+5 with no daylight saving, which overlaps the Gulf and European working day fully and the US East Coast morning.
| Region | Talent and industry concentration |
|---|---|
| Karachi | Largest city: finance, telecoms, BPO and customer support |
| Lahore | Largest software cluster, product companies and universities |
| Islamabad and Rawalpindi | Government, telecoms, software and technology parks |
| Faisalabad | Textiles, manufacturing and a growing services base |
Pakistan Implementation Kit
This page tells you the rules. The kit tells you what to do, in what order, and what goes wrong when you skip a step.
- Step-by-step checklist, from route selection to first payroll
- Provincial law map: which Standing Orders and shops law apply in each city
- FBR, EOBI and social security registration sequence with the monthly calendar
- Income tax worksheet with the Finance Act 2026 slabs
- Gratuity, provident fund and group insurance set-up guide
- Notice, misconduct procedure and termination pack
- Every official Pakistani authority with direct links
This guide is general information, not legal, tax or immigration advice. Minimum wages are set by each province and change each fiscal year, tax slabs change with each Finance Act, and the Punjab Labour Code 2026 may change rules in Punjab once it commences. Confirm current figures with a qualified adviser or with Dryft. Last reviewed November 2026.
Ready to hire in Pakistan?
Tell us who you want to hire and where they sit. You will get a cost model and a compliant route within a day, from a person who has done this before.