An employment contract is more than just a piece of paper, it is the legal backbone of every employer-employee relationship in Pakistan. Whether you are hiring staff for your business, starting a new job, or working on a short-term project, a well-drafted employment contract defines your rights, responsibilities, and protections . In Pakistan’s rapidly evolving employment landscape, where minimum wage updates, workplace safety standards, and employee rights are frequently revised, understanding how these contracts work is critical for both workers and employers. Poorly written agreements often lead to disputes, wrongful termination cases, or unpaid wage claims issues that regularly end up in labour courts across the country.
This guide provides a clear and practical overview of employment agreements in Pakistan, covering the types of contracts, essential clauses, and the legal framework that governs them. We will also break down common challenges, employer obligations, and employee rights, so you can navigate the workplace with confidence and compliance.
What is an Employment Contract in Pakistan?
Employment contracts are the foundation of every professional relationship in Pakistan, binding employers and employees to clear agreements under Pakistani law. While some working relationships are based on verbal agreements, written contracts are strongly encouraged and widely used to prevent misunderstandings and protect both parties. Every contract whether for a permanent, fixed-term, project-based, or temporary role, must include these core details:
- Names of employer and employee
- Start date and end date (for fixed-term or project-based roles)
- Job title and description of duties
- Place of work
- Salary, payment frequency, and benefits
- Working hours, overtime rules, and rest periods
- Notice period for termination or resignation
Legal Framework Governing Employment Contracts in Pakistan
Employment contracts in Pakistan draw authority from a mix of federal and provincial labor laws. Since the 18th Constitutional Amendment (2010), labor is a provincial subject, meaning that each province has its own labor legislation, though core principles remain consistent nationwide. Key laws regulating employment contracts include:
- Employment of Children Act, 1991: Prohibits hiring minors in hazardous industries.
- Factories Act, 1934: Covers working hours, safety, and health standards in factories.
- Shops and Establishments Ordinance, 1969: Applies to commercial offices, shops, and businesses outside factories.
- Payment of Wages Act, 1936: ensures timely and fair wage distribution.
- Industrial and Commercial Employment Ordinance, 1968: Governs conditions of service, termination, and misconduct definitions for industrial workers.
- Industrial Relations Act, 2012: Regulates trade unions, worker rights, and collective bargaining.
Every employment contract in Pakistan must follow these laws. If any part of the contract breaks the law, that part does not apply.
Types of Employment Contracts in Pakistan
Employment contracts in Pakistan can be categorized into several forms, each suited to different industries and work arrangements:
Permanent (Indefinite) Contracts
For ongoing roles with no set end date. Permanent employees typically receive job security, regular pay, paid leave, and other employee benefits. These contracts are standard in formal businesses, offices, and factories a permanent contract automatically continues until either side gives proper notice to end it.
Fixed-Term Contracts
For jobs with a specific end date such as covering a maternity leave, a seasonal project, or a one-year role. The contract ends automatically when the term is over, unless both sides agree to extend. Fixed-term workers have the same rights as permanent employees during their contract, but their employment is limited to the agreed period.
Probationary Contracts
A probationary period, usually three months, allows the employer to assess a new employee’s performance. If the employer is satisfied, the worker can become permanent. If not, the contract can end early. This period is common for new hires in most formal jobs.
Project-Based Contracts
For work tied to a specific assignment, such as building a website or completing construction. The contract lasts only as long as the project. Once the project is finished, the agreement ends. The contract should clearly state the project’s start and end dates, and responsibilities.
Part-Time or Casual Contracts
For employees working fewer hours than full-time staff, maybe mornings only or a few days a week. They get benefits like leave and overtime, but these are adjusted based on their working hours. These contracts are common in shops, restaurants, and flexible work environments.
Apprenticeships / Internships
For learning roles, such as trainees or students gaining work experience. These agreements focus on training and skills, not regular employment. Apprentices earn a stipend and receive training, but their contract terms are often shorter and more flexible.
Temporary Contracts
For short-term needs that are not tied to a specific project but are expected to last less than nine months. Temporary workers do not get the full benefits of permanent staff. If the job continues beyond nine months, the worker may become permanent by law.
Contract Worker Agreements
For workers hired for specific tasks, sometimes paid by the job rather than a regular wage. These contracts must be for genuine temporary work and cannot be used for core, ongoing business activities. Misusing contract workers for permanent roles can lead to legal problems.
Essential Clauses in a Pakistani Employment Contract
A well-drafted Pakistani employment contract must clearly define the relationship between employer and employee, set expectations, and ensure compliance with labor laws. Below are the essential clauses every employment contract in Pakistan should include:
- Job Title & Scope of Work: Clearly state the role, duties, and responsibilities. This prevents disputes over what the employee is expected to do and sets boundaries for both parties.
- Nature & Duration: Specify whether the contract is permanent, fixed-term, probationary, project-based, part-time, or casual. Include the start date and, if applicable, the end date or project completion criteria.
- Working Hours & Overtime:Define standard working days, hours, rest periods, and overtime rules. Mention the main work location and any remote or hybrid arrangements, following the Factories Act and Standing Orders for compliance.
- Leave Entitlements: Detail annual, casual, and sick leave, as well as maternity/paternity leave (if applicable). Spell out how leave is earned, requested, and approved.
- Compensation & Benefits: State the salary, payment frequency, bonuses, and allowances. Include mandatory benefits such as EOBI, social security, and any additional perks like medical insurance or gratuity.
- Termination Conditions: Set out notice periods, severance, and valid grounds for dismissal. Make clear what happens if either party ends the agreement, including any compensation or procedure required by law.
- Confidentiality & Non-Compete: Protect trade secrets and sensitive business information. Add reasonable limits on sharing confidential data after employment ends. Non-compete clauses must be reasonable in scope and duration to be enforceable.
- Dispute Resolution: Specify how to resolve disagreements, typically through labor courts or arbitration. Clarify jurisdiction and steps to take if a dispute arises.
- Identification of Parties: List the full legal names and contact details of both employer and employee. This ensures the agreement is legally binding and clear.
A clear, detailed contract minimizes misunderstandings and legal risks. In case of disputes, the written contract serves as primary evidence before labor courts. Always ensure each clause complies with current labor regulations and is written in plain, understandable language.
Employer Obligations under Employment Contracts in Pakistan
Employers are legally bound to uphold certain standards under Pakistani law, including:
- Provide Written Contracts: Employers must issue an appointment letter (contract) showing job title, duties, salary, working hours, leave, benefits, and termination rules. Any change in terms (e.g., promotion, transfer) must also be provided in writing.
- Pay Minimum Wage and Overtime: Pay at least the government-mandated minimum wage and properly compensate for overtime, typically double the hourly rate for work beyond 9 hours a day or 48 hours a week.
- Ensure Safe Work Environment: Provide a safe workplace, free from harassment and discrimination based on gender, religion, or other protected grounds.
- Register Employees for Social Security: Enroll employees in Employees’ Old-Age Benefits Institution (EOBI) and provincial social security schemes, and make regular contributions to their behalf.
- Comply With Leave Entitlements: Grant paid annual leave, sick leave, and maternity/paternity leave as per law and company policy. Leave rules must be stated in the contract.
- Issue Payslips and Keep Records: Provide monthly payslips and maintain accurate payroll and contract records for at least 3–5 years for compliance and audit purposes.
- Follow Notice and Termination Rules: Give proper notice before ending employment, usually 1–3 months depending on service length. Pay severance or gratuity if required by law or contract.
- Prevent Unfair Dismissal: Terminate only with valid reason and due process. Arbitrary dismissal can result in reinstatement or compensation orders from labor courts.
- Uphold Confidentiality and Data Privacy: Protect employee data and include confidentiality clauses in contracts where necessary. If using contract workers, ensure agreements comply with legal limits and are not used for core, ongoing roles.
Employee Rights under Pakistani Employment Law
Employees in Pakistan are granted several protective rights, including:
- Right to a Written Contract: Employers must provide a written contract stating job duties, salary, working hours, leave, and termination rules. This document is your proof of employment and your reference in any dispute.
- Right to at Least Minimum Wage: You must be paid at least the government-set minimum wage for your province and sector. The current federal minimum wage is Rs37,000 per month (2025), but check for updates some provinces pay more.
- Right to Limited Working Hours & Paid Overtime: The standard work week is 48 hours (6 days, 8 hours/day). Any overtime must be paid at double your usual rate, and total weekly hours usually cannot exceed 60.
- Right to Paid Leave: After 12 months of continuous service, you are entitled to 14 days of paid annual leave, 10 days of casual leave, and 8 days of sick leave per year.
- Right to a Weekly Holiday: You are entitled to at least one paid weekly rest day, usually Sunday.
- Right to Fair Termination and Notice: You cannot be fired without a valid reason and proper notice (usually 1 month for permanent roles). If dismissed unfairly, you can challenge the decision in labor court and seek reinstatement or compensation.
- Right to Appeal and Dispute Resolution: If you have a workplace dispute over pay, dismissal, safety, or discrimination, you can file a complaint with the labor court or relevant authority for a fair hearing.
These rights are not just on paper, they are enforceable by law. If your employer fails to meet these standards, you have legal options to protect your job and well-being. Knowing your rights is the first step to ensuring fair and lawful treatment at work.
Common Issues and Disputes in Employment Contracts
Employment contracts in Pakistan are designed to provide clarity and fairness, but disputes often arise due to unclear terms, changing workplace dynamics, or non-compliance with labor laws. Understanding the most frequent sources of conflict can help both employers and employees avoid costly disputes and resolve issues efficiently.
- Ambiguous or Unclear Contract Terms: Contracts that do not clearly state job duties, salary, working hours, or leave entitlements often lead to disagreements. Vague language about role expectations or benefits is a frequent source of disputes.
- Unpaid or Delayed Wages: Disputes over salary, overtime pay, bonuses, or statutory benefits (such as gratuity, social security, or EOBI) are common. Non-payment or late payment is a leading cause for complaints.
- Unlawful or Unfair Termination: Employees may claim wrongful dismissal if termination occurs without a valid reason, without notice, or without following due process as stated in the contract and law.
- Excessive or Uncompensated Overtime: Employers demanding work beyond the legal maximum hours without proper overtime pay can trigger disputes.
- Denial of Leave Entitlements: Refusal to grant annual, casual, sick, or maternity/paternity leave as per law or contract leads to grievances.
- Discrimination and Harassment: Unfair treatment, harassment, or discrimination based on gender, religion, or other protected grounds is a growing concern and a clear breach of labor law.
- Misclassification of Employees: Using contract worker or temporary agreements for core, ongoing roles, instead of offering permanent contracts, is a legal risk and a common cause of litigation, especially after court rulings on regularizing contract workers.
- Lack of Proper Documentation: Missing or incorrect records of working hours, leave, overtime, or pay can complicate disputes and make resolution difficult.
How to Draft an Employment Contract in Pakistan
A well-drafted employment contract is the foundation of a clear, compliant, and secure working relationship in Pakistan. The following best practices ensure your contract meets legal requirements, protects both parties, and minimizes disputes.
- Identify Both Parties Clearly: List the full legal names and contact details of the employer and employee. This eliminates ambiguity and establishes a formal agreement.
- Define Job Title, Duties, and Scope of Work: Clearly state the job title and describe the main responsibilities. Include any additional tasks that may reasonably be expected. This prevents future disputes over role boundaries.
- Specify Duration and Type of Employment: State whether the contract is permanent, fixed-term, probationary, or project-based. For fixed-term or project roles, include the start and end dates.
- Detail Working Hours, Overtime, and Place of Work: Define standard working hours, rest periods, and overtime rules. Mention the primary workplace and any flexibility for remote or hybrid arrangements.
- State Compensation, Payment Schedule, and Benefits: Clearly outline the salary, payment frequency, bonuses, and allowances. Include mandatory benefits like EOBI, social security, and any additional perks such as medical insurance or gratuity.
- List Leave Entitlements: Specify annual, casual, sick, and maternity/paternity leave. Make clear how leave is earned, requested, and approved.
- Describe the Probationary Period (If Applicable): If the role includes a probationary period, state its duration and the conditions for confirmation or termination.
- Set Out Termination Conditions: Define notice periods for termination by either party, valid grounds for dismissal, and any severance or gratuity due. Ensure these terms comply with Pakistani labor laws.
- Include Confidentiality Clauses: Protect business information with confidentiality clauses. If applicable, add reasonable non-compete restrictions, but ensure they do not violate legal limits.
- Specify Dispute Resolution Procedures: Indicate how disputes will be resolved, usually through labor courts or arbitration. This provides a clear path if disagreements arise.
How HRBS Can Help With Employment Contracts in Pakistan
We provide end-to-end support for hiring, managing, and paying employees in Pakistan, removing the complexity of local payroll, tax, and labor law compliance. Whether you operate locally or internationally, we streamline every step from contract drafting to payroll processing and statutory reporting, ensuring full legal compliance and operational efficiency.
- Compliant Contract Drafting: We prepare clear, legally sound employment contracts tailored to Pakistani labor laws. Our agreements cover job duties, salary, working hours, leave, benefits, termination rules, and dispute resolution, reducing misunderstandings and protecting both parties.
- Payroll Management: We handle payroll processing, tax deductions, and social security contributions (EOBI, provincial schemes) on your behalf. This ensures employees are paid accurately and on time, with full compliance to tax and labor regulations.
- Employer of Record (EOR) Solutions: For companies without a local entity in Pakistan, HRBS act as the legal employer. We manage all employment contracts, payroll, tax, and benefits administration so you can focus on managing your team while we ensure compliance with local laws.
- Remote and Flexible Hiring: We support remote, contractor, and full-time hiring, handling contracts, payments, and statutory benefits for all worker types. This flexibility lets you scale your team as needed, without administrative burden.
- Employee Benefits Administration: We administer statutory employee benefits, including paid leave, social security, EOBI, workers’ compensation, and maternity leave, ensuring consistent compliance across your workforce. Our systems handle claims, deductions, and eligibility tracking for all required benefits, so you avoid delays, penalties, or confusion.
Ready to hire in Pakistan? Get a free compliance check and payroll setup schedule your expert consultation now.
FAQs
Is a written employment contract mandatory in Pakistan?
Although oral employment contracts are legally valid in Pakistan, a written employment contract is highly advisable and often required by law, especially for employers with 20 or more employees. The Industrial and Commercial Employment (Standing Orders) Ordinance, 1968 mandates that employers issue appointment letters specifying employment terms. Written contracts provide crucial legal proof and help prevent disputes, making them standard practice in formal sectors.
What should be included in a probation clause?
A probation clause should specify the probation period, typically between three and six months, the criteria for assessing performance during probation, and the process for confirmation as a permanent employee. It should also clarify whether probationary employees receive the same benefits as permanent staff and outline the terms for termination during this period, including notice requirements.
What must be included in an employment contract in Pakistan?
Pakistani law requires written contracts that clearly state the names of both parties, job title, start date, place of work, salary, working hours, and notice period for termination. Additional details such as leave, benefits (EOBI, social security), and dispute resolution are recommended for clarity and compliance.
Are verbal employment contracts valid in Pakistan?
Verbal agreements are legally recognized but difficult to enforce. Written contracts are required for formal sector jobs under the Industrial and Commercial Employment (Standing Orders) Ordinance and provincial laws. Courts prefer written evidence in disputes, so employers should provide written agreements.
What happens if an employment contract does not follow Pakistani labor laws?
Contracts with clauses that violate statutory protections, including minimum wage, working hours, leave, and termination rules, are not enforceable. Employers face penalties, legal disputes, and may be ordered to pay back wages or benefits. Employees can challenge invalid contract terms in labor courts.
How can an employment contract be changed or terminated in Pakistan?
Changes to contract terms require agreement by both employer and employee and must be documented in writing. Termination must include proper notice, depending on contract type, valid grounds, and due process. Fixed-term contracts end on the agreed date unless both parties renew.
What are the main types of employment contracts used in Pakistan?
Common contract types include permanent (indefinite-term), fixed-term (specific period), probationary (trial period), temporary (less than 9 months), substitute (badli), and apprenticeship agreements. Each type carries specific rights, benefits, and termination rules.
What are an employee’s basic rights under a Pakistani employment contract?
Employees have the right to minimum wage, paid annual, casual, sick, and maternity/paternity leave, safe working conditions, social security and EOBI benefits, protection against unfair dismissal, and access to labor courts for dispute resolution. These rights apply to most full-time, part-time, and contract workers.
