Hiring in Pakistan: A Practical Guide for International Employers

Pakistan is rapidly emerging as a key player in the global talent market. With its large, youthful workforce, strong technical education system, and growing digital infrastructure, the country offers a compelling proposition for international hiring. 

Foreign companies are increasingly looking to Pakistan for access to skilled professionals in IT, engineering, finance, and more. The cost-effectiveness of hiring in Pakistan, combined with a strategic time zone overlap with Europe and the Middle East, makes it an attractive destination for global expansion.

For US-based and other foreign companies, the benefits of hiring in Pakistan go beyond just cost savings. Employers gain access to a diverse talent pool, a business-friendly environment for remote work, and a legal framework that supports both direct employment and flexible contractor arrangements. 

Whether you’re seeking full-time employees or project-based talent, Pakistan provides the flexibility and resources to support your international growth strategy.

How to Hire Employees in Pakistan

Assess Your Hiring Needs

Before you begin, clarify your workforce requirements:

• Full-time vs. Project-Based Support: Decide whether you need permanent staff or short-term contractors. Full-time employees are best for ongoing roles, while contractors suit project-based work.
• Local Compliance Requirements: Employment in Pakistan is governed by both federal and provincial laws. Ensure your hiring approach meets all legal standards for contracts, benefits, and worker classification.
• Onboarding Speed vs. Long-Term Control: If you need to hire quickly and compliantly, consider an Employer of Record (EOR). For greater long-term control, setting up a local entity may be preferable.

Hiring Options in Pakistan

You have two main routes to hire talent in Pakistan:

• Set Up a Legal Entity: Establish your own local company, register with authorities, and manage payroll, taxes, and compliance directly. This option gives you full control but requires significant time and resources.
• Partner with an Employer of Record (EOR): An EOR acts as the legal employer on your behalf. They handle compliance, payroll, and HR, allowing you to hire quickly without setting up a local entity.

EOR vs. Legal Entity: Side-by-Side Comparison

Feature	Employer of Record (EOR)	Setting Up a Legal Entity
Setup Speed	Fast (days to weeks)	Slow (months)
Compliance Burden	Managed by EOR	Managed by your company
Upfront Cost	Low	High (registration, legal, admin)
Ongoing Admin	Minimal for you	Significant (payroll, tax, HR)
Control	Limited (EOR is legal employer)	Full (you are direct employer)
Scalability	Easy to scale up or down	More rigid, best for large operations
Risk Exposure	Lower (EOR assumes compliance risk)	Higher (you’re liable for compliance)

Ready to streamline your global hiring? Learn how an EOR can help you expand quickly and compliantly.

Understanding Worker Classification

Employees vs. Contractors in Pakistan

Proper worker classification is critical in Pakistan. Here’s how employees and contractors differ:

Aspect	Employee	Contractor
Supervision	Directly managed by employer	Works independently
Tax Withholding	Employer deducts and remits taxes	Contractor handles own taxes
Benefits	Entitled to statutory benefits (leave, EOBI)	Not entitled to employee benefits
Work Exclusivity	Generally exclusive to one employer	Can work for multiple clients
Contract Type	Written employment contract required	Service contract or purchase order

Legal Implications and Risks of Misclassification

Pakistan’s labor laws do not always clearly distinguish between employees and contractors, but misclassification can result in:

• Back payment of benefits and wages
• Fines for non-compliance with tax and labor laws
• Legal action from workers for wrongful classification or termination

Employers must carefully assess the working relationship and seek local legal advice if unsure. Using an EOR can help mitigate misclassification risks by ensuring proper documentation and compliance.

Want to avoid costly misclassification mistakes? Explore our guide to global employment compliance.

Hiring Costs and Payroll

Hiring Costs Overview

• Minimum Wage: Varies by province. Federal minimum is PKR 37,000/month; Punjab and Khyber Pakhtunkhwa set it at PKR 40,000/month for unskilled workers.
• Statutory Benefits: Employers must contribute to EOBI (5%), PESSI (6%), and either gratuity or Provident Fund.
• Additional Costs: Written contracts, background checks, and optional benefits (like health insurance) may add to total employment costs.

Payroll Setup Steps

1. Register with Authorities: Federal Board of Revenue (FBR), EOBI, and provincial labor departments.
2. Set Up Payroll System: Ensure accurate calculation of wages, deductions, and contributions.
3. Issue Written Contracts: Required for employers with more than 20 employees.
4. Determine Pay Frequency: Can be daily, weekly, bi-weekly, or monthly (monthly is standard).
5. Remit Taxes and Contributions: Meet all monthly deadlines to avoid penalties.

Income Tax Rates

• Progressive Tax System: Employee income tax rates range from 0% (up to PKR 600,000/year) to 35% (over PKR 4,100,000/year).
• Employer Contributions: EOBI (5%), PESSI (6%), and Workers’ Welfare Fund.
• Employee Contributions: EOBI (1%), income tax withheld by employer.

Payment Methods

• Direct Deposit: Most common for employees.
• Bank Transfers: Used for both employees and contractors.
• EOR Payroll: EORs manage all payments, deductions, and filings on your behalf.

Using Global Payroll Services

A global payroll provider or EOR can:

• Handle local payroll processing, tax withholding, and statutory contributions
• Ensure compliance with federal and provincial regulations
• Simplify currency conversion and cross-border payments

For more on global payroll solutions, see how Tarmack streamlines payroll and compliance.

How to Properly Hire and Pay Contractors

• Written Agreements: Always use a service contract outlining deliverables, payment terms, and IP ownership.
• Tax Compliance: Contractors are responsible for their own taxes, but you should verify tax status and maintain records.
• Payment Methods: Use secure transfers and document all payments for audit purposes.

Looking for best practices in paying international contractors? Check out our guide to contractor payments.

Compliance Risks

Incorrect Payroll Contributions

Failing to remit EOBI, PESSI, or other statutory contributions can result in:

• Heavy fines and penalties
• Legal action by authorities
• Back payments for missed contributions

Permanent Establishment Risk

If your business activities in Pakistan are deemed a “permanent establishment,” you may be liable for local corporate taxes. To reduce this risk:

• Limit local activities and duration of assignments
• Maintain clear records of employee roles and work locations
• Seek local tax and legal counsel

Learn more about permanent establishment risk in our complete EOR guide.

Statutory Benefits

Employers must provide:

• Old-age, disability, and survivor pensions (EOBI)
• Medical and maternity benefits (PESSI)
• Gratuity or Provident Fund
• Group life insurance (up to PKR 500,000)

Misclassification Risks

Misclassifying employees as contractors can lead to:

• Retroactive benefits and wage payments
• Tax penalties
• Lawsuits from misclassified workers

Provincial/Regional Law Variances

• Minimum wage, leave entitlements, and benefits may differ by province.
• Always check local regulations for each region where you hire.

Overview of Main Types of Intellectual Property Rights

Employers should secure:

• Copyrights: For original works created by employees or contractors
• Patents: For inventions developed during employment
• Trademarks: For brand assets
• Confidentiality Agreements: To protect trade secrets and proprietary information

Protect your business’s IP globally. Read our guide to managing intellectual property with EORs.

Onboarding Process

Before Their First Day

• Verify Work Eligibility: Ensure all documentation is in order, especially for foreign nationals.
• Issue Offer Letter and Contract: Clearly outline terms, compensation, benefits, and policies.
• Register with Authorities: Complete all required registrations (FBR, EOBI, PESSI).

On Day 1

• Orientation: Introduce company policies, team members, and IT systems.
• Provide Equipment: Laptops, software access, and security credentials.
• Collect Documentation: ID, tax forms, and signed contracts.

During Their First 90 Days

• Probation Period: Typically up to three months; performance is closely monitored.
• Regular Check-Ins: Ensure smooth integration and address any issues early.
• Confirm Compliance: Verify all statutory benefits and contributions are set up.

Offer Letter Essentials

• Names and contact details of both parties
• Start date and job description
• Compensation and benefits
• Working hours and leave entitlements
• Probation and termination terms
• Confidentiality and non-compete clauses

NDAs and Confidentiality

• Use NDAs to protect sensitive business information.
• Include confidentiality clauses in employment contracts.

Running Background Checks

• Permitted for roles involving finance, security, or sensitive data.
• Obtain written consent from candidates.
• Verify education, employment history, and legal standing as appropriate.

Need a smooth onboarding process for your global team? Discover onboarding best practices.

Remote Employee Management

Managing remote employees in Pakistan requires clear processes and robust security:

• Computer Access: Provide secure laptops and use device management tools.
• App Access: Grant access to only necessary apps and data. Use identity and access management solutions.
• IP Protection: Require NDAs, use secure file-sharing, and monitor for data leaks.
• Types of IP Rights: Ensure all inventions, code, or creative works are assigned to your company via contract.

Learn how to manage employees remotely and globally.

Labor Law Compliance

Key Working Condition Requirements

• Working Hours: Max 9 hours per day, 48 hours per week. Overtime capped at 12 hours/week.
• Leave: 14 days paid annual leave, 16 days sick leave (at 50% pay), 10 days casual leave, and maternity/paternity leave as per law.
• Minimum Wage: Varies by province, with federal minimum at PKR 37,000/month.

Working Conditions by Employment Type

• Permanent Employees: Full statutory benefits and leave.
• Contract/Temporary Workers: Fewer benefits, but still protected by minimum wage and some leave entitlements.

No At-Will Employment

• Pakistan does not recognize at-will employment. Termination must be for cause and follow due process.

Trade Unions and Collective Bargaining

• Unionization rates are low (about 2.2%). Trade unions exist but are not widespread.

Curious about labor law compliance in other countries? Explore our global expansion guide.

Termination Guidelines

Acceptable Termination Reasons

• Misconduct: Theft, fraud, or serious policy violations.
• Poor Performance: Documented underperformance.
• Medical Reasons: Serious illness or incapacity.
• Redundancy: Business restructuring or closure.

Employers must clearly document the reason and follow legal procedures.

Notice Periods and Legal Protections

• Notice Period: One month’s notice required for both employer and employee.
• Severance Pay: 30 days’ wages per year of service (or part thereof over six months), unless terminated for misconduct.
• Legal Protections: Anti-discrimination laws protect against unfair dismissal. All terminations must comply with written contract terms and statutory requirements.

Need help with compliant offboarding? Read our termination best practices.

Benefits of Hiring in Pakistan

• Large, Skilled Talent Pool: Access to professionals in IT, engineering, finance, and more.
• Cost Efficiency: Competitive wages and lower employment costs compared to many markets.
• Time Zone Advantage: Overlaps with Europe and Middle East for real-time collaboration.
• Flexible Hiring Models: Options for both direct employment and contractor arrangements.
• Growing Digital Infrastructure: Reliable internet and modern work tools support remote teams.
• Business-Friendly Ecosystem: Support for global hiring, EOR solutions, and compliance services.

Pakistan Being the Next Strategic Growth Market 

Hiring in Pakistan offers international employers a unique blend of skilled talent, cost savings, and operational flexibility. By understanding local labor laws, payroll requirements, and compliance risks, companies can confidently build and manage teams in this dynamic market. 

Leveraging solutions like EORs and global payroll providers streamlines the process, reduces risk, and enables rapid scaling. With the right approach, Pakistan can be a strategic hub for your global workforce.Ready to build your team in Pakistan? Get started with Tarmack’s global hiring platform.