Employer of Record Guide in 

Pakistan

Annual Leave

• Entitlement: 21 calendar days after completing 12 months of continuous service
• Accrual: Earned proportionally throughout the year
• Carry Forward: Up to 7 days may be carried to the next year
• Encashment: Unused leave must be paid out upon termination

Sick Leave

• Paid Sick Leave: 14 days per calendar year
• Medical Certificate: Required for absence exceeding 3 consecutive days
• Accumulation: Unused sick leave may accumulate up to 120 days
• Half Pay: Additional sick leave may be granted at half pay

Maternity Leave

• Duration: 16 weeks total
• Paid Period: 12 weeks at full pay
• Unpaid Period: 4 weeks unpaid
• Eligibility: Available to all female employees
• Job Protection: Position must be held during leave period

Casual Leave

• Entitlement: 10 days per calendar year
• Purpose: Personal matters, family events, emergencies
• Notice: Advance notice preferred but not always required
• Non-Accumulative: Cannot be carried forward to next year

Religious Leave

• Hajj Leave: 45 days once in service (unpaid)
• Eid Holidays: As per official calendar
• Friday Prayers: 1.5 hours weekly for Muslim employees

Summary

Termination Categories

Termination with Cause:

• Misconduct, dishonesty, or breach of contract
• No notice or severance required
• Must follow proper disciplinary procedures

Termination without Cause:

• Redundancy, restructuring, or performance issues
• Requires notice period and severance pay
• Must comply with labour law requirements

Notice Period Requirements

Severance Pay

• Calculation: 30 days' wages for each completed year of service
• Minimum: One month's wages regardless of service length
• Maximum: No legal maximum specified
• Payment: Must be paid within 30 days of termination

Retrenchment Procedures

For layoffs affecting multiple employees:

• 60 days' advance notice to labour department
• Last-in-first-out principle generally applies
• Compensation equal to 30 days' wages per year of service
• Priority for re-employment if positions become available

Final Pay Requirements

• Timeline: Within 30 days of termination
• Components: Final salary, accrued leave, gratuity, and severance
• Deductions: Only legally permissible deductions allowed

Legal Protections

Employees cannot be terminated for:

• Trade union activities
• Filing complaints with labour authorities
• Pregnancy or maternity leave
• Discrimination based on religion, gender, or ethnicity

National Public Holidays

Pakistan observes both fixed and variable religious holidays:

Note: Religious holidays follow the Islamic lunar calendar and dates vary annually.

Provincial Holidays

Each province may declare additional holidays:

• Sikh/Hindu festivals in areas with significant minorities
• Regional cultural celebrations
• Provincial founder days

Holiday Pay Rules

• Eligibility: All employees entitled to holiday pay
• Rate: Full day's wages for each public holiday
• Working on Holidays: Double pay plus compensatory leave
• Religious Accommodation: Alternative holidays for non-Muslim employees

Required Documentation

Employment Contract Must Include:

• Job title and description
• Salary and benefits
• Working hours and location
• Termination clauses
• Confidentiality agreements

Employee Documentation:

• National Identity Card (CNIC)
• Educational certificates
• Previous employment certificates
• Medical fitness certificate
• Passport-size photographs

Tax Registration

• National Tax Number (NTN): Required for all employees
• Tax Deduction at Source: Employer responsibility
• Annual Tax Returns: Employee obligation
• Tax Certificates: Issued annually by employer

Social Security Registration

• EOBI Registration: Within 10 days of employment
• Social Security: Registration with provincial authorities
• Medical Coverage: Enrollment in applicable health schemes

Background Verification

• Police Verification: Required for sensitive positions
• Reference Checks: Standard practice for most roles
• Educational Verification: Verification of degrees and certificates
• Previous Employment: Confirmation of work history

Probationary Period

• Duration: Maximum 6 months
• Performance Review: Regular assessments required
• Confirmation: Written confirmation upon successful completion
• Termination: Simplified process during probation

Banking and Payroll Setup

• Bank Account: Required for salary payments
• Salary Transfer: Electronic transfer mandatory for formal sector
• Payslip Generation: Monthly detailed payslips required

Worker Classification

Employee vs. Contractor Distinction:

• Employees: Subject to labour laws, entitled to benefits and job security
• Contractors: Independent service providers, not covered by employment laws
• Misclassification Risks: Penalties and back-payment of benefits

Key Factors for Classification:

• Control over work methods
• Integration into business operations
• Financial risk and investment
• Exclusivity of services

Labour Unions and Collective Bargaining

• Right to Organise: Protected under Pakistani law
• Union Registration: Required for legal recognition
• Collective Bargaining: Mandatory in unionised workplaces
• Strike Rights: Legal with proper notice and procedures

Industry-Specific Regulations

Textile and Manufacturing:

• Additional safety requirements
• Specific working hour regulations
• Export industry compliance standards

Banking and Finance:

• State Bank of Pakistan regulations
• Fit and proper criteria for key positions
• Enhanced background checks

Cultural and Workplace Considerations

Religious Observances:

• Five daily prayers accommodation
• Friday prayer breaks
• Ramadan working hour adjustments
• Religious holiday observances

Gender Considerations:

• Separate facilities where required
• Maternity and childcare support
• Equal pay legislation compliance

Communication Styles:

• Respectful hierarchical structures
• Urdu and English language capabilities
• Cultural sensitivity in management

Remote Work Framework

Legal Considerations:

• Employment contracts must specify remote work terms
• Data protection and confidentiality requirements
• Equipment and expense responsibilities
• Performance monitoring and evaluation methods

Practical Implementation:

• Internet connectivity standards
• Communication protocol establishment
• Regular check-in requirements
• Cybersecurity compliance

What We Handle

Borderless AI manages all aspects of Pakistani employment compliance:

• Contract Management: Legally compliant employment agreements
• Payroll Processing: Accurate salary calculations and tax deductions
• Compliance Monitoring: Ongoing adherence to labour law changes
• Local Representation: In-country legal entity and support
• Benefits Administration: Social security and statutory benefit management
• Termination Support: Proper procedures and documentation