Payroll in Pakistan: A Comprehensive Guide for 2026

Introduction

Payroll in Pakistan requires registration with the Federal Board of Revenue (FBR) for income tax withholding, contributions to the Employees' Old-Age Benefits Institution (EOBI) for pension, and enrollment with the relevant provincial social security institution for medical and injury coverage.

Employers deduct income tax at source each month under the Pay-As-You-Earn (PAYE) system and remit it alongside EOBI and social security contributions on separate filing schedules. The Payment of Wages Act governs salary disbursement deadlines, while the Factories Act, 1934 sets working hours, leave entitlements, and overtime rules.

What makes Pakistan different from most markets is that labor became a provincial subject after the 18th Constitutional Amendment. Social security contribution rates, wage ceilings, and filing portals vary between Punjab, Sindh, Khyber Pakhtunkhwa, and Balochistan.

An employer with staff in two provinces faces two parallel provincial regimes on top of the federal layer. Missing any filing, whether FBR deposits, EOBI returns, or provincial remittances, triggers automatic penalties with no grace period.

This guide covers the three-stage payroll process, statutory leave and working hour rules, income tax slabs, employer and employee contribution rates, compliance deadlines, and what non-compliance costs.

How does the payroll process in Pakistan work?

The typical payroll process in Pakistan involves a series of activities to make sure your company's registration and compliance with employment laws, especially payroll. The payroll process comprises three stages: pre-payroll, payroll, and post-payroll.

Pre-payroll stage

This involves setting up a business profile and an office to run daily business operations.

You need a corporate account and business registration to file payroll taxes in Pakistan. After that, you want to develop a system to ensure that the company runs smoothly. From attendance to code of conduct, designing company policies would help new employees easily blend in with the company culture.

Finally, setting up a working payment structure would make sure that employees receive their salaries when due.  

Before processing your first payroll cycle, register with three authorities:

• the Federal Board of Revenue (FBR) for income tax withholding
• the Employees' Old-Age Benefits Institution (EOBI) for pension contributions
• the relevant provincial social security institution (PESSI, also known as Punjab Employees Social Security Institution in Punjab, SESSI, Sindh Employees' Social Security Institution in Sindh, or the equivalent in KPK and Balochistan).

Each registration carries its own timeline and documentation requirements, and you cannot legally withhold or remit contributions without them.

Your salary structure also needs to be defined at this stage. Most Pakistani employers break compensation into basic salary plus fixed allowances (house rent, medical, conveyance).

Skuad's salary insights tool helps benchmark these components against current market rates in Pakistan, so the split between basic salary and allowances reflects what local employers actually pay.

How you split the compensation affects tax liability, since certain allowances carry different treatment under the Income Tax Ordinance 2001. Getting the structure right upfront avoids reconciliation problems later.

Employment contracts must be in writing for companies with more than 20 employees. Each contract should specify:

• Salary breakdown
• Working hours
• Leave entitlements
• Notice period
• Applicable probation terms.

These contracts form the legal basis for every payroll calculation going forward.

Payroll stage

This stage involves the calculation and disbursement of the payment due. Here, you calculate the work hours, determine the gross earnings, and apply the necessary deductions. Next, you pay the net sum to the employee through your preferred payment methods.

Income tax is deducted at source each month under the Pay-As-You-Earn (PAYE) system, based on progressive annual tax slabs set by the federal budget.

The employer calculates the monthly liability by projecting the employee's annual taxable income and dividing the applicable tax across 12 months.

On top of income tax, two statutory contributions apply.

• EOBI contributions are calculated on the minimum wage basis: the employer pays 5%, and the employee pays 1%.
• Provincial social security contributions, typically around 6% of covered wages, are borne by the employer.

These rates and wage ceilings vary by province, so confirm the applicable figures for your employees' work locations.

Salaries must be paid at least once a month, and the Payment of Wages Act requires disbursement by the 7th of the following month. Every employee must receive a payslip showing gross pay, each deduction line item, and net pay.

Post-payroll stage

This is when you balance the books and remit deductions to the government after paying employees. Make sure to keep a record of the payment history and activities to help track transfers if any issue arises.

Monthly withholding tax deposits go to FBR (Federal Board of Revenue) through the IRIS (Income and Revenue Information System) online portal. EOBI contributions are filed monthly using the PR-03 form. Provincial social security contributions follow their own filing schedule depending on the province.

Beyond monthly filings, employers must submit bi-annual withholding tax statements to FBR and provide each employee with an annual tax certificate (Form 16A equivalent).

Payroll records, including attendance registers, wage registers, and payslips, must be maintained for a minimum of six years under Pakistani labor law.

Between monthly FBR deposits through IRIS, PR-03 filings with EOBI, and provincial social security remittances on separate schedules, payroll in Pakistan pulls an employer into three filing tracks simultaneously. Missing any one of them carries automatic penalties that compound until cleared.

Skuad helps consolidate these payroll obligations from a single platform, so your team does not need to coordinate across FBR, EOBI, and provincial authorities independently.

Here is what Skuad helps with:

• Payroll processing in 70+ currencies with accurate tax withholding and statutory deductions
• Statutory contribution workflows across supported markets, covering applicable social insurance and pension obligations
• Payslip generation and distribution aligned with local labor requirements across supported markets
• Payroll record maintenance and reporting support to help meet local retention and filing obligations
• Multi-country payroll consolidation from a single dashboard, removing the need to run separate payroll systems per market

Book a demo to see how Skuad supports payroll for a Pakistan hire without entity setup.

What are the payroll components of Pakistan?

Payroll components in Pakistan cover everything that affects what an employee earns and what an employer owes beyond gross salary. It includes statutory leave entitlements, working hour limits, minimum wage obligations, income tax withholding, EOBI pension contributions, and provincial social security.

Let's look at each component one by one.

Maternity leave

Female workers earn the right to maternity leave of 12 weeks before and after delivery.

This applies to every industry, from banking to construction. Pregnant women are eligible for this leave if they've been working in the company for at least four months. However, the compensation depends on the most recent earnings.  

Casual leave

Under the 1934 Factories Act, any individual working for a company in this Islamic nation merits 10 days of casual leave with 100% of their usual earnings. This leave is separate from the annual rest, as it provides an avenue for workers to take some time off to attend to pressing matters.

Pilgrimage leave

Pakistani labor law provides for pilgrimage leave of up to 60 days for employees undertaking Hajj or Ziarat. The Collective Bargaining Agent may support the arrangement of pilgrimage leave terms between the employer and employee.

Annual leave

The employment laws permit all workers in a Pakistani company to have an annual leave of 14 days with their total wages. Annual leave is different from sick or casual leave, and employees may request yearly leave without providing evidence to back the reasons for their request.

Public holidays

Pakistan observes several public holidays each year, which are announced through official government notifications. The number and dates of holidays may change annually, particularly for Islamic holidays that depend on the lunar calendar and official moon-sighting announcements.

Common public holidays in Pakistan include:

Working conditions

Employment contracts between employer and employee must be in writing and include the terms of the agreement. The contract should state the duration, working hours, salary, and benefits for the employee. This rule applies to companies with a staff strength of over 20 employees.

Working hours

• 48 hours a week (six standard days from Monday to Saturday)
• Workers cannot work for 10 consecutive days without a holiday
• Nine-hour workday with one-hour rest
• Women can work between 6:00 a.m. and 7:00 p.m. by default. With the employee's consent and employer-provided transport, women may work shifts between 6:00 a.m. and 10:00 p.m.

Overtime

Under Section 47 of the Factories Act, any work beyond nine hours in a day or 48 hours in a week triggers overtime pay at twice the ordinary rate of wages. The daily spread-over, including work hours and rest periods, cannot exceed 12 hours under Section 38.

Minimum wage

The minimum wage in Pakistan is set by each province through its own Minimum Wage Board notification. As of July 2025:

The minimum wage applies to unskilled adult workers in formal employment and is calculated on 26 working days per month. Rates are typically revised in the annual federal budget, with provincial notifications following.

Income tax

Income tax on salaries in Pakistan follows a progressive slab structure. The employer deducts tax at source every month under the Pay-As-You-Earn (PAYE) system and remits it to the Federal Board of Revenue (FBR).

The annual tax-free threshold is PKR 600,000. Above that, rates rise with each slab.

Here is the structure for salaried persons (FY 2025-26).

Salaried employees earning up to PKR 600,000 per year are exempt from income tax. Above that threshold, progressive tax slabs apply, with rates ranging from 1% to 35% under the Income Tax Ordinance 2001. Tax is deducted at source each month by the employer under the Pay-As-You-Earn (PAYE) system and remitted to the Federal Board of Revenue (FBR).

Employer and employee EOBI contributions

EOBI is Pakistan's mandatory federal pension scheme, and every establishment with five or more workers must contribute. Unlike income tax, which is calculated on the employee's actual earnings, EOBI contributions are tied to the government-notified minimum wage. This means the contribution amount stays the same whether an employee earns PKR 40,000 or PKR 400,000 per month.

Here is how the split works.

Provincial social security

The employer contributes approximately 6% of covered wages to the relevant provincial social security institution (PESSI in Punjab, SESSI in Sindh, or the equivalent in KPK and Balochistan). Sindh has raised the employer rate to 7%.

The above contribution funds medical care, sickness benefits, maternity benefits, and workplace injury coverage for insured employees. The employee's social security contribution is a flat nominal amount (approximately PKR 20 to 40 per month).

Between EOBI contributions calculated on minimum wage, provincial social security at 6-7% of covered wages, and income tax withholding across progressive slabs, the total cost of employing someone in Pakistan sits well above gross salary.

Skuad's employee cost calculator helps you estimate the full cost of hiring in Pakistan, factoring in all statutory contributions alongside base compensation.

How to manage payroll compliance in Pakistan?

Payroll compliance in Pakistan is an ongoing obligation across three separate authorities (FBR, EOBI, and provincial social security), each with its own deadlines, forms, and penalty structures.

Missing any one of them triggers automatic financial penalties that compound until cleared. Here is what the obligation actually looks like month to month.

Monthly filing deadlines

Withholding tax deducted from employee salaries must be deposited with FBR by the 15th of the following month. The Section 165 withholding statement must also be filed by that date through the FBR IRIS portal.

EOBI contributions are filed monthly using the PR-03 return, due by the 15th. Provincial social security contributions follow their own schedules depending on the province. You have to treat these as three parallel filing tracks, not one.

Bi-annual and annual obligations

Employers must submit bi-annual withholding tax statements to FBR reconciling all monthly deposits. At year-end, each employee must receive an annual tax certificate (equivalent to a Form 16A) summarizing total earnings, deductions, and tax withheld for the tax year (July 1 to June 30).

Employers must also preserve Form IT-3 records for five years.

Payslip requirements

Payslips are legally required, not optional. Each payslip must show gross salary, every deduction line item (income tax, EOBI, social security), and net pay. In a labor court dispute over deductions, the absence of a payslip typically results in the court ruling in the employee's favor.

Salary disbursement deadlines

Under the Payment of Wages Act, salaries must be paid within 7 days after the wage period ends for establishments with fewer than 1,000 workers, and within 10 days for larger establishments.

Missing these deadlines constitutes a wage violation and can trigger complaints to the provincial labor department.

Record retention

Payroll records, including attendance registers, wage registers, payslips, contracts, and tax challans, must be maintained for a minimum of six years under Section 174 of the Income Tax Ordinance 2001.

The Factories Act requires certain workplace registers (adult workers register, accident log) to be maintained and available for inspection at all times.

Filer status verification

Before processing any payment subject to withholding (including contractor payments), the employer must verify the payee's Active Taxpayer List (ATL) status on FBR's portal.

Applying the filer rate to a non-filer, or vice versa, makes the employer personally liable for the shortfall under Section 161. This liability cannot be passed back to the payee after the fact.

What non-compliance actually costs

The penalties are automatic and stack quickly. Failure to deduct or short-deduct withholding tax triggers recovery of the full amount under Section 161 of the Income Tax Ordinance 2001.

Late deposit of deducted tax carries a default surcharge of 12% per annum under Section 205 until the amount is cleared.

Late filing of withholding statements attracts a penalty of PKR 2,500 per day under Section 182. On the EOBI side, late contributions carry a 6% per annum simple-interest charge plus separate administrative penalties.

Provincial social security institutions impose their own surcharges on delayed payments. There is no grace period on any of these.

Provincial variation

Labor is a provincial subject after the 18th Constitutional Amendment; compliance requirements vary across Punjab, Sindh, KPK, and Balochistan.

Social security contribution rates, wage ceilings, filing portals, and even the threshold for which establishments are covered can differ by province. An employer with staff in Karachi and Lahore is dealing with two different provincial regimes simultaneously.

The safest approach is to confirm the applicable rates and deadlines with the relevant provincial social security institution for each employee's work location.

Skuad's Shield platform helps flag payroll compliance risks before they turn into penalties, covering tax withholding, statutory contributions, and employment law requirements across 160+ countries.

For Pakistan, that means visibility into FBR filing deadlines, EOBI contribution status, and provincial social security obligations from a single dashboard, rather than tracking three separate filing tracks manually across different portals and schedules.

Why should businesses use a payroll processing platform in Pakistan?

Leveraging a payroll processing solution like Skuad in Pakistan helps bring FBR tax withholding, EOBI contributions, and provincial social security filings into one platform instead of tracking three separate authorities on different deadlines.

It also keeps up with tax slab changes from each federal budget, provincial minimum wage revisions, and payslip requirements that labor courts treat as the employer’s responsibility to prove in any deduction dispute.

Customer story: how RemoteLock scaled tech hiring across six countries with Skuad

RemoteLock, a Denver-based access control software company, needed to hire tech professionals across Europe, Africa, and South Asia, including India. Coordinating employment contracts, payroll, and compliance across six countries created significant operational complexity. Skuad supported localized contract generation, multi-currency payroll processing, and statutory compliance workflows, helping RemoteLock onboard 26 full-time and contract professionals without setting up local entities.

"Partnering with Skuad has transformed our international hiring and onboarding processes. Their streamlined approach has enabled our tech team to scale effortlessly and efficiently." - Jon Santavy, Managing Partner, RemoteLock

Read the full case study

Ready to simplify payroll in Pakistan?

By now you have a complete picture of payroll in Pakistan: how registration works, how salaries are calculated, which deductions apply, and what leave, working hours, and minimum wage rules you must follow. You also know how FBR, EOBI, and provincial social security obligations interact, and what non-compliance can cost in penalties and surcharges.

Running this manually means tracking multiple filing deadlines, provincial rate changes, and record-keeping rules across FBR, EOBI, and provincial authorities.

Skuad supports the operational complexity of paying employees in Pakistan: income tax withholding, social insurance contributions, payroll in 70+ currencies, and statutory benefits, so your team can focus on the work, not the paperwork.

Companies across SaaS, technology, and professional services use Skuad to pay Pakistani and foreign talent without building local payroll infrastructure from scratch.

Book a demo to see how Skuad supports payroll operations in Pakistan.

FAQs

1. What is an employer of record in Pakistan?

An employer of record in Pakistan acts as a legal employer for your workforce, taking on payroll processing, EOBI and provincial social security contributions, income tax withholding through the Federal Board of Revenue, and compliance with Pakistani labor laws on your behalf.

2. How much does payroll outsourcing cost in Pakistan?

Payroll outsourcing costs in Pakistan typically range from USD 29 to USD 150 per employee per month for managed payroll services. EOR providers, which also act as the legal employer, generally charge between USD 199 and USD 599 per employee per month depending on scope and service level.

3. Can a foreign company run payroll in Pakistan without a local entity?

Foreign companies can typically run payroll in Pakistan without setting up a local entity by partnering with an employer of record. The EOR registers with the Federal Board of Revenue, EOBI, and the relevant provincial social security authority, and processes payroll on the company's behalf.

4. What happens if an employer misses EOBI or social security contributions in Pakistan?

Late or missed EOBI contributions in Pakistan can trigger back-payment orders, and the FBR may apply additional tax at 12 percent per year on overdue amounts under Section 161 of the Income Tax Ordinance. Provincial social security institutions can also impose penalties and surcharges on delayed filings.

5. What is the difference between outsourcing payroll and using an EOR in Pakistan?

A payroll outsourcing provider in Pakistan typically processes salary calculations, tax withholding, and statutory filings, but the company remains the legal employer. An EOR takes on legal employment responsibility, registering with FBR and EOBI on your behalf, which removes the need to establish a local entity.

6. How long does it take to set up payroll in Pakistan?

Setting up payroll in Pakistan through an entity typically takes four to six months, factoring in SECP (Securities & Exchange Commission of Pakistan) registration, FBR enrollment, EOBI registration, and provincial social security filings. Through an EOR, onboarding usually takes one to two weeks since the provider's registrations are already in place.