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2026 Pakistan Employment Guide: Payroll, Wages & Labor Law

Understand Pakistan employment law in 2026, including provincial minimum wages, EOBI, payroll tax, leave, working hours, termination and EOR.

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Pakistan employment law is highly provincial. Employers cannot automatically apply federal legacy rules or Punjab requirements to employees working in Sindh, Khyber Pakhtunkhwa (KP), Balochistan or the Islamabad Capital Territory (ICT). Before setting pay, benefits, leave or termination procedures, a company must identify the employee’s long-term work location, establishment type and legal classification.

This 2026 Pakistan employment guide is intended for international businesses managing local hiring, Pakistan payroll compliance, Employer of Record (EOR) arrangements and the employee lifecycle. Unless stated otherwise, the illustrations use a Lahore commercial establishment, a monthly paid employee, a six-day workweek and 26 paid working days per month. Factories, mining, transport, construction, security and client-site roles require a separate industry-specific review.

1. Pakistan Employment Compliance at a Glance in 2026

Area	2026 position	Employer action
Applicable law	Labor law is substantially provincial; Punjab, Sindh, KP, Balochistan and ICT rules are not interchangeable	Fix the employee’s actual long-term work location before quoting, contracting and processing payroll
Worker classification	Workers or workmen, managers, probationers, temporary employees and contractors have different rights	Classify by real duties and authority, not the English job title alone
Minimum wage	Pakistan has no single amount that can safely be used nationwide; the currently verifiable Lahore baseline is PKR 40,000 per month	Check the latest provincial Gazette by location, skill level and industry
Working time	A commercial-establishment reference baseline is no more than nine hours per day and 48 hours per week; overtime is commonly paid at twice the ordinary rate	Configure both daily and weekly thresholds in contracts, schedules and timekeeping
Leave	A commercial-establishment reference baseline includes 14 days’ annual leave after 12 months, 10 days’ casual leave, eight days’ sick leave and 10 festival holidays	Build the policy around the applicable provincial law and establishment type
Social protection	Common programs include the Employees’ Old-Age Benefits Institution and provincial social security; Punjab uses PESSI	Confirm coverage, base and ceiling separately; do not mechanically add 5% and 6%
Payroll tax	Finance Act 2026 generally applies from July 1, 2026, and payroll withholding parameters changed for Tax Year 2027	Update the payroll tax table from the July cycle and retain calculation records
Termination	Notice, gratuity, unused leave and procedure depend on province, status and reason	Classify the exit before calculating notice and settlement
EOR	EOR may be evaluated but does not replace provincial registration, tax, social security or work authorization	Review the province, role, client-control boundary and workplace safety

Pakistan employment cost should not be summarized as “salary plus 11% social security.” Actual cost may include EOBI, provincial social security, wage ceilings, overtime, public holidays, leave, gratuity accrual, group insurance, payroll tax and contingent termination cost.

2. Three Employment Rules Requiring Attention in 2026

2.1 Finance Act 2026 introduced new payroll-tax parameters

Pakistan’s Federal Board of Revenue published Finance Act 2026. Unless the legislation provides otherwise, the new rules apply from July 1, 2026. FBR also issued a withholding tax rate card updated under Finance Act 2026 for Tax Year 2027.

Employers should update salary withholding from the July 2026 payroll cycle and reassess basic salary, bonuses, allowances, benefits in kind and one-off separation payments. Continuing to use the Tax Year 2026 table can produce under-withholding, over-withholding and year-end reporting differences.

Control point	2026 treatment	Employer action
Effective date	Generally July 1, 2026	Complete the system change before July payroll
Tax year	Tax Year 2027	Do not continue using the Tax Year 2026 rate card
Taxable items	Salary, bonuses, allowances, benefits in kind and one-off payments require separate review	Map each payroll code to its tax treatment
Mid-year transition	One calendar year can contain two payroll-tax parameter periods	Manually review mid-year bonuses, pay rises and final settlements

2.2 Punjab’s PKR 40,000 monthly minimum remains the current operational baseline

Punjab confirmed a minimum monthly wage of PKR 40,000 for workers from September 2025, calculated on 26 working days. Until replaced by a later legally effective notification, it can serve as the 2026 operational baseline for an unskilled monthly paid worker in Lahore. It must not be described as Pakistan’s nationwide minimum wage.

Employers must first establish the employee’s long-term province, then review the establishment, skill grade and industry. Sindh, KP, Balochistan and ICT require their own official notifications.

A 2026–27 budget speech, press report or proposal should not enter an offer, contract or payroll system until the competent authority issues an effective notification or Gazette.

Scenario	Use PKR 40,000 directly?	Required treatment
Monthly paid unskilled worker in Lahore	Current verification baseline	Recheck the latest Punjab notification before signing and each payroll run
Skilled or industry-specific role in Lahore	Not necessarily	Check the relevant skill grade and sectoral wage
Employee in Karachi or elsewhere in Sindh	No	Check the applicable Sindh notification and skill grade
Remote employee living in another province	No	Start with the employee’s actual long-term work location
Amount mentioned only in a budget or news article	No	Wait for the Gazette or competent authority’s notification

2.3 Moon-sighting holidays require notification-based calendar updates

The Cabinet Division’s 2026 public and optional holiday calendar supports annual scheduling, but Islamic holidays including Eid-ul-Fitr, Eid-ul-Azha, Ashura and Eid Milad-un-Nabi depend on moon sighting and may be finalized through separate notices.

For 2026, specific notices confirmed:

Eid-ul-Fitr: March 20–21
Eid-ul-Azha: May 26–28
Ashura: June 25–26

Employers should not continue using forecast dates after a specific notice is issued. May 28 overlaps Eid-ul-Azha and Youm-e-Takbeer and should not be counted twice.

HR and payroll teams should maintain an annual planning calendar that can be overwritten by later official notices. Updates must flow to work schedules, attendance, holiday pay, client-site coverage and employee communications.

3. Pakistan’s Employment Law and Regulatory Framework

Employment compliance should be assessed in the following order: location, industry, employee classification and establishment threshold.

Decision point	Key question	Practical impact
Work location	In which province or ICT does the employee work long term?	Determines provincial labor law, minimum wage and social-security body
Establishment type	Is the business a commercial establishment, factory, construction site or another regulated operation?	Determines the applicable shops and establishments, factories, standing orders and sector rules
Employee status	Is the person a worker or workman, manager, probationer or contractor?	Affects hours, notice, discipline, gratuity and other protections
Business size	Does the establishment meet the threshold for standing orders, EOBI or another benefit scheme?	Affects registration, contribution and statutory-benefit obligations
More favorable terms	Does a contract, policy or collective agreement provide better treatment?	More favorable terms normally remain enforceable and should not be reduced unilaterally

A job title is not a substitute for a duties test. Someone called a “Finance Manager” who performs ordinary clerical or technical work without genuine managerial authority may still be treated as a protected workman.

4. Recruitment, Offers and Onboarding

Common channels include Pakistan’s National Job Portal, Punjab Job Portal, ROZEE.PK, Mustakbil and LinkedIn. Vacancy advertising should identify the work city, work model and salary structure. Employers should verify identity and qualifications and avoid improper candidate fees.

An offer and employment contract should specify the employer, actual workplace and province, duties, classification, term, probation, salary components, payday, normal hours, overtime approval, leave, tax and social-security deductions, notice, confidentiality, intellectual property, data processing, assets, discipline and dispute handling.

Onboarding record	Main content	Control
Identity	Computerized National Identity Card or passport, address and emergency contact	Collect only necessary data and define retention periods
Payroll	Bank account, tax or National Tax Number information and salary components	Reconcile with minimum-wage, tax and contribution rules
Social security	Existing EOBI, PESSI or other provincial registration number	Confirm coverage and register on time
Role credentials	Qualifications, licenses, photograph and necessary background checks	Obtain authorization and keep checks relevant to the role
Policy acknowledgements	Contract, confidentiality, privacy, equipment and disciplinary policies	Use a language the employee understands and retain signed evidence

5. Employment Contracts, Employment Status and Probation

Status	Typical use	Primary risk control
Permanent employee	Continuing long-term role	Do not disguise a permanent role through repeated annual contracts; covered workers may have notice and gratuity rights
Probationer	Assessment of a new employee	Define duration, standards, extension conditions and confirmation process
Temporary employee	Genuine short-term work	Record the temporary reason and end condition; avoid indefinite rolling use
Fixed-term or project employee	Defined expiry date or deliverable	Distinguish natural expiry from early termination and avoid automatic continuation
Apprentice	Genuine training arrangement	Maintain a training plan, supervisor, duration and stipend record
Independent contractor	Independent business delivering agreed outcomes	Control over hours, location, tools, reporting and exclusivity can support reclassification as employment

A three-month probationary period is common, but the applicable provincial law and employment framework must be checked. Probation is not a rights-free period: minimum wage, earned salary, hours, overtime, safety, social-security and anti-retaliation duties can still apply.

Under legacy standing-orders frameworks, a covered probationer may not have a statutory notice entitlement. Even so, employers should document the assessment, issue a written decision, review discrimination and retaliation risk and settle all amounts due.

Repeated automatic extensions can be challenged, and continued employment without confirmation may result in permanent status once statutory conditions are met.

6. Wages, Minimum Wage and Gross-to-Net Payroll

Pakistan has no single minimum wage that can safely be used throughout the country. The applicable rate depends on the province or ICT, establishment, skill grade and industry notification.

Location	Verifiable position as of July 2026	Limitation
Punjab/Lahore	PKR 40,000 per month for workers from September 2025	Current Lahore unskilled monthly baseline pending a later official notification; recheck before contracting and payroll
Sindh/Karachi	The official 2025–26 baseline was PKR 40,000 per month	A 2026–27 budget or press amount does not replace an effective Sindh notification
Khyber Pakhtunkhwa	The competent department issued a minimum-wage notice in October 2025	Review the original notice for the grade and effective date before quoting
ICT/Balochistan	No single amount is safely locked for every scenario in this guide	Treat the latest competent-authority notice as a prerequisite to a final quote

Lahore wage conversion illustration

This quotation illustration does not override any divisor required by the applicable notification.

Item	Calculation	Illustrative amount
Monthly wage	Current verified baseline	PKR 40,000.00
Daily wage	40,000 ÷ 26	PKR 1,538.46
Hourly rate	40,000 ÷ 26 ÷ 8	PKR 192.31
Two hours’ ordinary-day overtime	192.31 × 2 × 2 hours	PKR 769.24

A wage period generally should not exceed one month. A legacy commercial-establishment baseline requires payment on a working day before the seventh day after the wage period.

When the employer terminates employment, wages and other due amounts may be required by the second working day after termination. The current provincial law and bank cutoff must be checked before implementation.

7. Working Time, Overtime and Records

Item	Commercial-establishment reference baseline	Employer action
Normal hours	No more than nine hours per day and 48 hours per week for an adult	Configure both daily and weekly limits
Continuous work	At least one hour’s rest or meal break before work exceeds six continuous hours	Record entry, exit and break periods
Daily spread	Reference maximum of 12 hours including breaks	Do not use a long meal break to disguise excessive availability
Weekly rest	A closing day or weekly rest day should be scheduled	Fix and communicate it in calendars and rosters
Overtime	Commercial-establishment reference rate of twice ordinary pay	Pre-approval does not necessarily remove liability for overtime actually worked
Records	Hours, rosters, approvals and payment must be traceable	Require monthly transfer of client-site attendance records

A fixed overtime allowance does not automatically cover all overtime actually worked. Likewise, a managerial title does not automatically remove working-time protection; actual duties and the applicable provincial law control.

8. Public Holidays, Annual Leave and Other Statutory Leave

The following are reference entitlements for commercial establishments. Factories, covered standing-orders employees and other provincial regimes may differ.

Leave	Reference entitlement	Carryover and treatment
Annual leave	14 days with full pay after 12 months of continuous service	May be carried forward up to an aggregate of 30 days; unused leave may be encashed or settled under applicable law
Casual leave	10 fully paid days per year, generally no more than three days at one time	Not accumulated
Sick leave	Eight fully paid days per year	May accumulate up to 16 days
Festival holidays	10 fully paid days announced by the employer at the beginning of the year	Generally not carried forward; holiday work may trigger overtime or compensatory leave

The legislation does not provide one universal monthly accrual formula for employees with less than one year of service. An employer may offer advance or prorated leave as a more favorable policy, but should label it clearly and handle deductions for excess leave cautiously.

The Maternity and Paternity Leave Act 2023 applies to establishments under the federal government’s administrative control. It provides:

180 days’ paid maternity leave for the first birth
120 days for the second birth
90 days for the third birth
Up to 30 days’ paid paternity leave following the birth of a child

These federal rules should not be applied automatically to an ordinary private employer in Lahore. Private-sector maternity rights require a province-specific review.

2026 federal public holidays

Date	Holiday	2026 status
February 5	Kashmir Day	Annual official calendar
March 20–21	Eid-ul-Fitr	Confirmed by specific notice, replacing forecast dates
March 23	Pakistan Day	Annual official calendar
May 1	Labour Day	Annual official calendar
May 26–28	Eid-ul-Azha	Confirmed by specific notice
May 28	Youm-e-Takbeer	Overlaps Eid-ul-Azha and is not an additional second holiday on the same date
June 25–26	Ashura	Confirmed by specific notice
August 14	Independence Day	Annual official calendar
August 25, expected	Eid Milad-un-Nabi	Moon-sighting date pending specific confirmation
November 9	Allama Iqbal Day	Annual official calendar
December 25	Quaid-e-Azam Day/Christmas	Annual official calendar
December 26	Day after Christmas	For Christians only

January 1, the forecast February 18 date and July 1 are bank holidays, not automatically general public holidays for all private-sector employees.

9. Employer Social Security, Mandatory Benefits and Tax

Program	Employer responsibility	Employee responsibility	Base and applicability
Employees’ Old-Age Benefits Institution	When applicable, 5% of the minimum-wage base plus registration and reporting	Generally 1%	Not necessarily calculated on full actual salary; establishment and employee coverage must be confirmed
Punjab Employees Social Security Institution	Common employer contribution of 6%	Generally none	Covered employees, wage ceiling and establishment threshold require current confirmation
Other provincial social security	Register and contribute under SESSI or another provincial program	As required by provincial law	Punjab rules cannot be applied to Sindh, KP or Balochistan
Salary income tax	Withhold, pay, report and issue evidence under the current FBR Finance Act	Employee bears the tax	Depends on tax year, residence, bonuses, allowances and benefits in kind
Gratuity	Employer-funded when applicable	None	A covered workman is commonly entitled to 30 days of last monthly wages for each completed year
Group insurance	May be employer-funded for covered permanent workmen	None	Check policy, insured amount, beneficiaries and active employee list
Workers’ welfare or profit participation	Depends on business size, profit and sector	Usually not an ordinary payroll deduction	Finance and legal teams should test annual thresholds

Lahore statutory-cost illustration

Assume a covered commercial establishment and employee are subject to both EOBI and PESSI, monthly salary is PKR 40,000 and the PESSI coverage and contribution base have been confirmed with the competent institution.

Item	Employer cost	Employee deduction
Monthly salary	PKR 40,000	—
EOBI	PKR 2,000	PKR 400
PESSI	PKR 2,400	PKR 0
Direct monthly statutory employer cost	PKR 44,400	—
Employee amount before income tax	—	PKR 39,600

The illustration excludes payroll tax, leave, overtime, group insurance, gratuity accrual, welfare funds, service fees and client-site cost.

A professional employee earning PKR 120,000 should not automatically be quoted at “11% social security.” If the EOBI statutory base remains PKR 40,000, the illustrative employer and employee amounts remain PKR 2,000 and PKR 400. PESSI depends on its current wage ceiling and coverage notification.

10. Local Employees and Expatriates

Issue	Local employee	Expatriate employee
Identity	Usually CNIC and local tax and social-security information	Passport, visa, work authorization and local registration
Labor law	Determined by actual work province and classification	Mandatory local labor rules may still apply to work performed in Pakistan
Social security	Assess EOBI and the relevant provincial program	Review immigration status, assignment structure and any available exemption
Tax	Determined by residence, tax year and payroll items	Separately assess residence, offshore payment and tax-treaty treatment
EOR feasibility	Assess by province, role and client-control boundary	EOR does not automatically have authority to sponsor a work permit

EOR is not a substitute for a visa or work permit. Each foreign-worker project requires separate confirmation of immigration eligibility, employment contract, tax, social security and cross-border payment arrangements.

11. Remote Work, Data Privacy and Record Retention

Risk	Operational requirement
Employee records	Collect only employment, tax, social-security and safety data that is necessary; define access and retention
Cross-border access	Before a regional team accesses employee data, document the purpose, users, transfer method and deletion mechanism
Remote work	State the permanent work location, equipment, expenses, hours, security and office-attendance requirements in the contract
Interprovincial move	Reassess labor law, minimum wage and provincial social security before the employee changes long-term province
Client site	Allocate training, personal protective equipment, incident reporting and stop-work authority in writing
Time evidence	Maintain reliable time records for remote and site workers; an oral month-end confirmation is insufficient

12. Termination, Gratuity and Final Settlement

Before termination, identify:

The employee’s actual work province
Whether the employee is a workman protected by standing orders
Whether the person is probationary, permanent, temporary or fixed-term
Whether the exit is termination without misconduct, redundancy, contract expiry, performance-related termination, misconduct, resignation or mutual separation

Scenario	Notice and procedure	Potential payment
Employer terminates probation	Legacy rules may provide no statutory notice, subject to provincial law and better contract terms; issue a written decision	Salary through the last day, overtime, expenses, leave settlement and statutory benefits
Permanent workman terminated without misconduct	Common baseline of one month’s written notice or pay based on the preceding three-month average; the order should state the reason	Salary, notice pay, unused leave, applicable gratuity and contractual amounts
Employee resignation	A permanent workman commonly gives one month’s notice or pay in lieu	Salary, unused leave and applicable gratuity
Fixed-term expiry	Review continuity, contract facts and expiry reminders	Final salary, leave, bonus, commission and statutory benefits
Early fixed-term termination	Apply the early-termination clause, classification and provincial law	Possible balance-of-term loss, notice and gratuity
Misconduct dismissal	Written allegation, opportunity to respond, impartial inquiry, evidence and written decision	Earned wages; notice and gratuity consequences require case review
Retrenchment	Last-in-first-out, re-employment priority or closure approval may apply	Notice, gratuity, leave and other amounts

For a covered permanent monthly paid workman resigning or terminated for a non-misconduct reason, the reference formula is:

Gratuity = last monthly gratuity wage × credited years of service

Each completed year commonly earns 30 days’ wages. A period exceeding six months is generally rounded to one year.

A qualifying provident fund or recognized pension arrangement may replace gratuity for the relevant period, so the plan documents must be checked.

Final-settlement illustration

Assume a permanent monthly paid workman in Lahore earns PKR 120,000, has 3 years and 7 months of service, is terminated immediately without misconduct, worked 13 of 26 days in the final month, has 10 days of encashable annual leave and has no qualifying provident-fund replacement.

Item	Calculation	Amount
Final-month salary	120,000 ÷ 26 × 13	PKR 60,000.00
One month’s pay in lieu of notice	Previous three-month average	PKR 120,000.00
Unused leave	120,000 ÷ 26 × 10	PKR 46,153.85
Gratuity	120,000 × 4 years	PKR 480,000.00
Gross amount before tax	Total	PKR 706,153.85

The final settlement should also account for lawful payroll tax, final employee contributions, approved expenses, commission, bonus, unpaid overtime and any other deduction supported by law and written evidence.

An employer should not withhold undisputed amounts merely because the employee refuses to sign a “full and final” release.

13. Choosing an Employment Model: Entity, EOR or or Payroll Outsourcing

Model or scenario	Initial assessment	Required verification
Direct employment through own entity	Suitable for a long-term team	Provincial registration, tax, social security, workplace rules and internal payroll capability
Lahore office-based EOR	May be assessed	EOR entity, Punjab registration, EOBI/PESSI, classification and client-control boundary
Karachi/Sindh EOR	May be assessed	Do not reuse Punjab wage or PESSI rules; confirm Sindh and SESSI requirements
Factory, engineering, warehouse or driver role	Higher-risk assessment	Workplace safety, licenses, hours, accident responsibility, insurance and client direction
Expatriate	Separate assessment	Visa and work-permit route; do not promise automatic EOR sponsorship
Long-term exclusive contractor	High misclassification risk	Control, economic dependence, tools, exclusivity, workplace and termination facts
Payroll outsourcing	Available where the client already has a lawful employing entity	Data handoff, approvals, filings, funding and responsibility matrix

EOR is not a mechanism for avoiding entity registrations, minimum wage, tax, social security, labor protection or foreign-worker authorization.

14. Common Pakistan Employment Risks for International Employers

Risk	Common error	Escalation trigger
Wrong province	Using the entity’s registered address instead of the employee’s workplace	Long-term work in Lahore, Karachi or another province
Misclassification	Using a managerial title to exclude worker protection	Duties are clerical or technical, or a contractor is tightly controlled
Outdated minimum wage	Using a budget speech or press amount	No current Gazette or competent-authority notification
Wrong contribution base	Applying EOBI to full salary or PESSI nationwide	Coverage, base, ceiling or provincial institution is unconfirmed
Incomplete leave policy	No first-year policy, missing unused-leave records or forecast lunar dates left in payroll	A specific holiday notice or cross-regime employee applies
Defective dismissal	Client demands same-day removal without performance or misconduct evidence	Union activity, pregnancy, reporting, injury or protected status
Underestimated termination cost	Missing notice, gratuity or unused leave	Long-service permanent worker, no provident-fund replacement or early fixed-term exit
Site safety	EOR employee works in a client factory or construction site	Client controls scheduling, PPE or incident reporting