Companies typically use an Employer of Record for fast entry, payroll management for existing entities, and entity setup for durable presence. Pakistan's provincial variation in social security obligations and its EOBI pension contribution are the features requiring the most careful planning for multi-location hiring.

Employer of Record in Pakistan

An EOR removes the need to register with the Federal Board of Revenue (FBR) and, where applicable, provincial social security and EOBI institutions. It suits distributed tech hiring and companies building remote services teams; it is less suited to established entities. Pakistan's growing technology sector — particularly in Karachi, Lahore, and Islamabad — makes it an increasingly important market for companies building cost-competitive remote teams.

How payroll works in Pakistan

Pakistani payroll withholds income tax at progressive rates under the Income Tax Ordinance and, where applicable, requires contributions to the Employees' Old-Age Benefits Institution (EOBI) and provincial social security schemes. Payroll is monthly. The applicable provincial social security scheme depends on where the employee is based — each of Pakistan's four provinces (Punjab, Sindh, Khyber Pakhtunkhwa, and Balochistan) has its own social security institution with different contribution rates and thresholds.

Payroll frequency and reporting obligations

Monthly payroll is standard, with income tax withholding remitted to the FBR and, where applicable, EOBI and provincial social security contributions remitted separately to the relevant provincial institution. Annual tax reconciliation is required. Employers must register with the FBR for income tax withholding, with EOBI, and with the relevant provincial social security institution before the first employee starts work in that province.

Key payroll nuances

Provincial variation in social security and labour welfare fund obligations means payroll needs to be province-aware for multi-location hiring — the applicable contribution rates, thresholds, and filing requirements differ by province. There is no universal statutory 13th-month payment, though bonuses are common in some sectors and multinational companies. Gratuity or provident fund benefits, where offered, are a common retention tool in Pakistan's competitive technology talent market, though they are not universally mandated for all employers.

Pay components and employer costs

Typical pay components include base salary and, in many companies, an annual bonus. Employer EOBI and provincial social security contributions are comparatively modest, keeping statutory employer on-cost low relative to many peer markets. EOBI employer contribution is a fixed monthly amount per employee (not a percentage of salary), making it a predictable and modest cost. The main variable is the provincial social security contribution rate, which differs by province.

Benefits and leave entitlements

Statutory annual leave is generally 14 working days per year, with some provincial variation. Sick leave entitlements vary by province and sector under the applicable labour laws. Maternity leave is 12 weeks under the Maternity Benefit Ordinance. Public holidays include national and religious observances, with Islamic holidays shifting by lunar calendar each year. Provident fund and gratuity schemes, where offered by the employer, are significant retention benefits in Pakistan's technology sector.

Hiring and employment contracts

Written contracts are standard practice in Pakistan. Probation periods are commonly three months, contract-defined. Termination requires notice per contract or statutory minimum (one month for most employees). Severance pay obligations vary by province and sector under the applicable labour laws. The applicable labour law depends on the province where the employee works, adding a provincial dimension to termination planning.

Entity setup in Pakistan

A private limited company registered with the Securities and Exchange Commission of Pakistan (SECP) is the standard vehicle for foreign employers. Post-incorporation, the entity registers with the FBR for income tax, EOBI, and the relevant provincial social security institution before hiring. End-to-end setup typically takes four to six weeks.

EOR vs Payroll Management vs Entity Setup — Pakistan

Frequently asked questions