Expanding your business into Pakistan can be a great opportunity, but managing employees in a new country comes with challenges. This is where the Employer of Record (EOR) service in Pakistan can help. An EOR acts as a local partner, taking care of important tasks like payroll, tax management, compliance, and employee benefits, so you don’t have to set up a legal entity in Pakistan. This model allows companies to hire employees quickly and legally, while reducing the risks and costs of managing local labor laws. In fact, businesses using EOR services save time, money, and effort while ensuring global compliance. With the complexities of Pakistani labor laws and the intricacies of tax regulations, an EOR provides peace of mind by handling these issues professionally. It also simplifies onboarding, termination, and ongoing HR management, making it easier for businesses to focus on their core activities. In this blog, we will explain how an EOR in Pakistan works, its benefits for companies, and why it’s an ideal solution for businesses looking to expand in the region.
How an Employer of Record (EOR) Works in Pakistan
An Employer of Record (EOR) in Pakistan simplifies the process of hiring and managing employees by acting as the official employer on paper, while you maintain control over the employee’s day-to-day work. This solution is ideal for companies looking to expand their operations in Pakistan without the hassle of setting up a local entity. With an EOR, businesses can hire quickly, stay compliant with Pakistani labor laws, and focus on their core operations. The EOR ensures that all payroll management, employee benefits, and legal compliance are handled seamlessly, allowing you to manage a remote workforce with ease. Here’s how it works:
Compliance
In Pakistan, compliance with labor laws is crucial to avoid penalties. The Industrial Relations Act, 2008, and the Factories Act, 1934, provide regulations on working conditions, termination procedures, and employee rights. Additionally, employers must contribute to the Employees’ Old-Age Benefits Institution (EOBI) and provide social security benefits. Outsourcing HR functions to an Employer of Record (EOR) ensures compliance and reduces the risk of fines and lawsuits.
Onboarding
A seamless onboarding process is essential for both employee satisfaction and organizational efficiency. With an EOR in Pakistan, companies can quickly onboard new hires while ensuring compliance with local labor laws. The EOR handles all necessary paperwork, including employment contracts and benefits enrollment, allowing businesses to focus on integrating employees into their roles. This not only speeds up the hiring process but also ensures that your business is adhering to Pakistan’s legal requirements, leading to faster expansion and reduced HR burdens.
Payroll Management
Payroll management in Pakistan includes calculating salaries, tax deductions, EOBI, and other mandatory contributions to ensure correct net salary payments. The Federal Board of Revenue (FBR) oversees income tax collection, with progressive tax rates ranging from 5% to 35% for individual income. Employers must also manage EOBI registration for employees aged 18 and above. An EOR in Pakistan handles these complexities, ensuring accurate payroll calculations, timely payments, and full tax compliance.
Employee Benefits and Leave Entitlements
Employees in Pakistan are entitled to various benefits under the Factories Act, 1934, and the Payment of Wages Act, 1936. These benefits include paid annual leave (at least 14 days per year), paid sick leave (up to 10 days per year), and maternity leave (up to 12 weeks for female employees). Employers must also provide EOBI contributions and social security benefits. Additionally, companies often offer bonuses, health insurance, and retirement plans. An EOR ensures that all employee benefits and leave entitlements are properly processed and communicated.
Tax Compliance and Risk Mitigation
In Pakistan, businesses must comply with various tax regulations, including income tax, sales tax, and corporate tax. The FBR ensures taxes are withheld from salaries and paid to the government. Companies must also contribute to EOBI and Social Security on behalf of employees. Tax evasion or mismanagement can result in significant fines. By using an Employer of Record (EOR), businesses ensure timely, accurate tax filings, mitigating the risk of audits and penalties while maintaining compliance with local tax laws.
Things to Consider When Choosing an EOR in Pakistan
When choosing an Employer of Record (EOR) in Pakistan, it’s essential to evaluate their expertise in local labor laws and tax compliance. Look for an EOR that offers efficient payroll management services in Pakistan, ensuring accurate EOBI contributions and Social Security registration. Ensure they have a solid understanding of employee benefits and leave entitlements as per Pakistani labor regulations. Additionally, assess their experience in risk mitigation for tax compliance to avoid penalties. Choosing the right EOR provider can streamline your hiring process, reduce legal risks, and enhance overall employee management in Pakistan.
Legal Compliance
When selecting an Employer of Record (EOR) in Pakistan, ensuring legal compliance is critical. The right EOR should be well-versed in Pakistan’s labor laws, including the Industrial Relations Act, 2008, and the Factories Act, 1934. Compliance with tax regulations, such as income tax withholding and EOBI contributions, is also essential. By partnering with an EOR experienced in local employment regulations, businesses can avoid legal pitfalls and ensure their operations stay compliant with Pakistan’s ever-evolving labor laws.
Transparent Pricing
Transparent pricing is a key consideration when choosing an Employer of Record. Look for an EOR in Pakistan that offers clear, upfront pricing with no hidden fees. They should provide detailed breakdowns of the costs associated with payroll management, tax compliance, and other HR services. Transparent pricing ensures that businesses can accurately forecast HR costs without unexpected surprises, making it easier to scale operations and manage budgets effectively.
Service Offerings
An EOR in Pakistan should offer a comprehensive range of services that cover all aspects of employee management. This includes payroll processing, tax filings, benefits administration, and employee onboarding. The best EORs also handle risk mitigation by ensuring compliance with EOBI, Social Security, and other statutory requirements. Make sure to choose an EOR that provides end-to-end solutions, simplifying HR processes and allowing your business to focus on core operations.
Technology Platform
An effective technology platform is essential when choosing an EOR in Pakistan. The right EOR should offer a user-friendly platform that seamlessly integrates with your business operations, streamlining payroll management, employee data tracking, and compliance reporting. Ensure the platform supports real-time payroll processing, data security, and reporting capabilities, allowing you to efficiently manage employee records and maintain compliance with Pakistani labor laws.
References and Reviews
Before selecting an Employer of Record (EOR), it’s crucial to assess their reputation. References and reviews from existing clients provide valuable insights into their performance and service quality. Look for testimonials or case studies that demonstrate the EOR’s ability to handle complex HR compliance issues and streamline payroll management. Positive feedback and client referrals are a good indication that the EOR delivers reliable, efficient, and professional services tailored to your business needs.
Understanding Employment Laws and Regulations in Pakistan
Understanding employment laws and regulations in Pakistan is crucial for businesses to ensure compliance and avoid legal issues. Key regulations govern employee rights, working conditions, and termination procedures, alongside requirements for income tax, EOBI contributions, and social security. Employers must stay informed about these laws to manage employee relations effectively and maintain compliance with labor regulations in Pakistan.
- Employee Contracts: Employee contracts in Pakistan are crucial for defining the terms of employment, ensuring legal protection for both parties. These contracts typically outline salary, work hours, job responsibilities, and termination procedures. A clear and comprehensive contract ensures compliance with labor laws in Pakistan and prevents potential disputes. By creating well-structured employee agreements, businesses can maintain a transparent relationship with their workforce.
- Working Hours and Overtime Pay: In Pakistan, the standard working hours are typically 8 hours per day or 48 hours per week. Any hours worked beyond this are considered overtime and must be compensated at a higher rate, as specified by Pakistani labor laws. Employers are required to ensure that overtime pay complies with legal standards to avoid penalties. Offering fair compensation for overtime helps foster positive employee relations and reduces the risk of legal issues.
- Termination of Employment: Termination of employment in Pakistan must follow the guidelines set by labor regulations. Employers are required to provide clear grounds for dismissal and adhere to notice periods as outlined in the employee’s contract. Whether for performance issues, misconduct, or redundancy, it’s essential to comply with the Pakistani labor laws to avoid wrongful termination claims. Proper documentation and adherence to legal procedures can minimize the risk of disputes.
- End-of-Service Benefits: In Pakistan, employees are entitled to end-of-service benefits, which may include severance pay, provident fund contributions, and gratuity. These benefits are required by law, ensuring that employees are compensated for their service when employment ends. Employers must comply with Pakistani labor laws regarding end-of-service benefits to ensure a smooth transition and avoid legal complications. Offering clear terms in the employee contract can help manage these obligations effectively.
Employee Benefits and Compensation in Pakistan
In Pakistan, employee benefits and compensation are governed by various labor laws, including the Factories Act, 1934, Industrial Relations Ordinance, 2002, and Employees’ Old-Age Benefits Institution (EOBI). Companies are required to provide employees with a variety of benefits, including social security, health insurance, and paid leave. Compensation packages typically include basic salary, allowances, bonuses, and non-cash benefits. Ensuring compliance with local laws is crucial for businesses, and using an Employer of Record (EOR) service can help ensure that employee benefits and compensation packages are structured correctly.
- Annual Leave: Employees in Pakistan are entitled to at least 14 days of paid annual leave per year, as outlined in the Factories Act, 1934. Employers are also required to grant additional leave for certain circumstances, such as illness or public holidays. Annual leave must be provided on a full salary basis, and employees should be allowed to carry forward any unused leave for a limited period. If an employee resigns, they are entitled to be paid for unused leave days.
- Sick Leave: Sick leave in Pakistan is typically granted to employees who fall ill or need medical attention. The Factories Act, 1934 mandates that employees are entitled to 8 days of paid sick leave per year. After exhausting their sick leave, employees may be required to provide a medical certificate from a registered doctor. In cases where an employee’s sickness extends beyond the allotted days, employers may offer unpaid leave or explore other accommodations.
- Parental Leave: Parental leave is provided for both male and female employees, but it primarily benefits women. Under the Maternity Benefit Ordinance, 1958, female employees are entitled to 12 weeks of paid maternity leave. This leave can be taken before or after childbirth, depending on the employee’s preference. Male employees are entitled to 30 days of fully paid paternity leave for each of the first three births of a child. The Maternity and Paternity Leave Act, 2023 mandates this leave.
- Public Holidays: Pakistan recognizes several public holidays, including Independence Day, Eid ul-Fitr, Eid ul-Adha, and Labor Day. The Factories Act, 1934 mandates that employees must be given paid leave on these public holidays, and if employees are required to work on a public holiday, they are entitled to additional compensation or time off in lieu.
- Health Insurance: Health insurance is not mandatory under Pakistani labor laws, but many companies offer health benefits to their employees as part of their compensation packages. These benefits may include coverage for medical expenses, hospitalization, and surgeries. Some companies also provide health insurance for employees’ families. Given the rising healthcare costs in Pakistan, health insurance is an important part of employee benefits that can be managed effectively through EOR services.
Termination and Offboarding in Pakistan
Terminating an employee in Pakistan must follow local employment laws to avoid legal complications. Employers must ensure proper procedures, such as providing the required notice period and severance pay. The offboarding process should ensure employees receive all due compensation, benefits, and entitlements. Following the correct process during employee termination helps businesses prevent disputes and maintain compliance with Pakistani labor regulations.
- Notice Period: In Pakistan, the notice period for resignation or termination is typically 30 days for employees who have been employed for more than one year. For employees with less than one year of service, the notice period is usually 15 days. If an employee fails to give the required notice, they may be required to pay the employer for the notice period. Similarly, if the employer terminates an employee without notice, they must pay the employee the equivalent salary for the notice period.
- Severance Pay: Severance pay is mandatory in Pakistan under the Industrial Relations Ordinance, 2002. Employees are entitled to severance pay if they are terminated without cause or if their contract is ended prematurely. The severance pay is typically calculated based on the employee’s length of service and salary. If an employee has worked for more than one year, they are entitled to one month’s salary for every year of service.
- Redundancy Procedures: Redundancy procedures in Pakistan must follow specific rules outlined in the Industrial Relations Ordinance, 2002. When a business needs to lay off employees due to redundancy, they must first seek permission from the relevant labor department. Employees who are made redundant are entitled to severance pay and other compensation as per the law. Employers must ensure they follow the proper procedure and provide affected employees with due compensation.
Payroll and Tax Compliance in Pakistan
Payroll and tax compliance in Pakistan is governed by a combination of federal and provincial regulations. Employers are responsible for deducting income taxes, contributing to EOBI, and complying with social security regulations. Accurate payroll processing is essential for maintaining legal compliance and avoiding penalties.
- Monthly Payroll Management: Payroll management in Pakistan requires employers to calculate salaries, deduct taxes, and manage contributions to the EOBI and Social Security Fund. Employers must ensure that salary payments are made on time and that all necessary deductions are made in accordance with the Income Tax Ordinance 2001. Monthly payroll reports must be submitted to the Federal Board of Revenue (FBR) for tax purposes. Using an EOR can simplify this process and ensure compliance with local laws.
- Tax Compliance and Reporting: Tax compliance in Pakistan involves withholding taxes from employees’ salaries under the Income Tax Ordinance 2001. Employers must file monthly tax returns and ensure that taxes are remitted to the FBR. Employees’ taxes are deducted at the source, with progressive tax rates ranging from 5% to 35%. Employers are also required to submit annual tax returns, detailing the taxes withheld and paid. Failure to comply with tax laws can result in penalties and legal consequences.
- Employee Benefits Management: Employee benefits management in Pakistan involves ensuring compliance with EOBI contributions, social security benefits, and any other additional benefits provided to employees. Employers must keep track of employees’ eligibility for various benefits, including leave entitlements, health insurance, and retirement benefits. Proper record-keeping and communication are key to managing benefits effectively.
- Payslip Compliance: Employers in Pakistan must provide employees with monthly payslips that include a detailed breakdown of their earnings, deductions, and net pay. This is in accordance with the Payment of Wages Act, 1936. The payslip should clearly state deductions for taxes, EOBI contributions, and other mandatory contributions. Ensuring that payslips are issued on time and accurately reflects deductions helps maintain transparency and trust.
Challenges and Risks of Using an EOR in Pakistan
While using an Employer of Record (EOR) in Pakistan offers numerous benefits, there are challenges and risks that companies must be aware of.
- Dependence on Third Parties: Outsourcing HR functions to an EOR in Pakistan can create dependence on third-party providers, making it more difficult to maintain direct control over the HR process. Companies need to ensure that the EOR has a reliable track record and transparent communication to avoid any operational challenges.
- Compliance Risks: Although EORs help ensure compliance with local laws, there is always a risk of non-compliance due to misunderstandings or miscommunication. Companies must work closely with their EOR provider to ensure that they are always up-to-date with changes in Pakistani labor and tax laws.
- Data Security and Privacy Concerns: Using an EOR involves sharing sensitive employee data, which can raise concerns about data security and privacy. Companies should ensure that the EOR complies with data protection regulations and uses secure systems to handle employee information.
- Communication and Control Challenges: Outsourcing HR functions can lead to communication barriers, especially if the EOR operates remotely. Clear communication and regular updates are essential to avoid misunderstandings and to maintain control over the HR process.
Get Started with HRBS EOR Services in Pakistan
Are you looking for reliable Employer of Record (EOR) services in Pakistan? HRBS simplifies the complexities of Pakistani labor laws, payroll management, and compliance regulations. Whether you’re expanding your team or managing remote employees, our EOR services ensure your business stays compliant with local regulations while handling all HR tasks smoothly and efficiently.
With HRBS, you can trust that we’ll manage everything from tax compliance to employee benefits, so you can focus on growing your business. Our tailored EOR solutions make it easy to onboard employees, manage payroll, and ensure your business meets all legal obligations in Pakistan. Contact us today to see how we can help you streamline HR operations and stay compliant with Pakistani employment laws, all while saving time and reducing risks.
FAQs About Employer of Record in Pakistan
Is using an Employer of Record (EOR) legal in Pakistan?
Yes, using an Employer of Record (EOR) is fully legal in Pakistan. It’s a widely accepted practice for businesses looking to outsource HR and payroll functions while ensuring compliance with Pakistani labor laws. An EOR helps businesses navigate local regulations while managing employment-related tasks effectively.
Can an EOR help with hiring foreign workers in Pakistan?
Yes, an EOR can help businesses hire foreign workers in Pakistan. The EOR ensures compliance with visa, work permit, and tax regulations, making it easier for employers to onboard international employees without worrying about legal requirements. They handle all the complexities of employing foreign nationals in Pakistan.
What are the costs of using an EOR in Pakistan?
The cost of using an EOR in Pakistan varies depending on the services offered and the size of your workforce. EOR providers generally charge a fee based on a percentage of the employee’s salary or a fixed monthly rate per employee. It’s crucial to clarify the pricing structure before entering into an agreement to ensure transparency and avoid unexpected costs.
