Employees in Pakistan are entitled to a range of statutory benefits covering paid leave, retirement contributions, social security, and profit sharing. The specific entitlements depend on whether the employer falls under federal or provincial jurisdiction, so the framework is more layered than in many other markets. This guide sets out what you need to know before making your first hire.
Overview of pakistan’s statutory benefits framework
Pakistan’s employment legislation operates at two levels: federal and provincial. Some laws apply nationally, while others are province-specific. In several cases, provincial laws set the floor for employers within that province’s jurisdiction. The four main provincial labour codes cover Punjab, Sindh, Khyber Pakhtunkhwa, and Balochistan, and each can differ on leave entitlements, social security schemes, and procedural rules.
On top of leave entitlements, employers must account for contributions to the Employees’ Old-Age Benefits Institution (EOBI), the Employees’ Social Security Institution (ESSI), the Workers’ Profit Participation Fund (WPPF), and gratuity obligations. Understanding which laws apply to your business type and location determines the full cost of employment.
Leave entitlements
Pakistan’s leave framework covers annual leave, sick leave, maternity and paternity leave, and public holidays. The governing legislation varies depending on the nature of the establishment and which province it operates in.
Annual leave
Employees are entitled to 14 days of paid annual leave per year under the Factories Act and equivalent provincial labour laws. The entitlement accrues after an employee completes one full year of service. Employees who haven’t yet completed a year are not entitled to this paid leave under statute, though some employers offer it by contract.
Sick leave
Most provincial labour laws provide 10 days of paid sick leave per year. The exact provisions vary by province, so it’s worth checking the rules that apply in the province where your employees work.
Maternity leave
Maternity leave entitlements differ significantly depending on whether your establishment falls under federal or provincial jurisdiction.
Federal jurisdiction (Maternity and Paternity Leave Act 2023)
The Maternity and Paternity Leave Act 2023 applies to private and public establishments under federal administrative control. Under this Act, paid maternity leave is structured by birth order:
| Child | Maternity leave entitlement |
|---|---|
| First child | 180 days |
| Second child | 120 days |
| Third child | 90 days |
Leave is paid at full salary throughout.
Provincial jurisdiction
For employers regulated at the provincial level, the older provincial maternity laws typically apply. These generally provide 12 weeks (84 days) of paid maternity leave, without the tiered structure introduced by the 2023 federal Act.
If you’re unsure which regime applies to your business, the key question is whether your establishment falls under federal administrative control or is governed by provincial law.
Paternity leave
The Maternity and Paternity Leave Act 2023 also introduces paternity leave for establishments under federal administrative control. Fathers are entitled to 30 days of paid paternity leave, available on up to three separate occasions (one per child, up to three children).
Provincially regulated employers may have different or no statutory paternity leave provisions. In practice, many employers in the provincial sector offer paternity leave by contract, but there’s no uniform statutory entitlement at the provincial level.
Public holidays
Pakistan observes 14 to 16 gazetted public holidays per year. The exact number varies slightly by province and by year, since the dates of Islamic holidays follow the lunar calendar. Key national and religious holidays include:
- Pakistan Day (23 March)
- Independence Day (14 August)
- Eid ul-Fitr (3 days)
- Eid ul-Adha (3 days)
- Ashura (2 days)
- Eid Milad-un-Nabi
Employees are entitled to paid time off on gazetted public holidays. If work is required on a public holiday, additional compensation rules apply under the relevant labour law.
Eobi: retirement and old-age benefits
The Employees’ Old-Age Benefits Institution (EOBI) is Pakistan’s national pension scheme, covering private sector employees. Both the employer and employee contribute monthly, calculated as a percentage of the minimum wage rather than actual salary.
| Contributor | Rate | Monthly amount |
|---|---|---|
| Employer | 5% of minimum wage | PKR 2,000 |
| Employee | 1% of minimum wage | PKR 400 |
Employees become eligible for an old-age pension after completing the required insurable employment period under the EOBI Act. EOBI registration is mandatory for qualifying employers, and contributions must be remitted monthly.
Essi: social security and healthcare
The Employees’ Social Security Institution (ESSI) operates at the provincial level. It’s the primary mechanism for providing medical benefits to registered workers, funded through employer and employee contributions.
Punjab has the most developed ESSI scheme. Under the Punjab ESSI, the employer contributes approximately 6% of the employee’s wages, and the employee contributes approximately 1%. ESSI-registered workers and their dependants can access medical treatment through the scheme’s hospitals and facilities.
Other provinces operate their own social security institutions with varying contribution structures and benefit coverage. If you’re hiring across multiple provinces, you’ll need to register with the relevant provincial body in each location.
Wppf: profit sharing
The Workers’ Profit Participation Fund (WPPF) requires qualifying companies to allocate 5% of their annual net profit to a fund for distribution to employees. This is a statutory obligation, not a discretionary bonus scheme.
The fund is distributed to employees based on a formula set out in the applicable legislation. WPPF applies to companies above a certain size and profit threshold, so smaller businesses may not be subject to it. If your Pakistan entity qualifies, WPPF contributions represent a real cost line in your employment budget that needs to be accounted for from day one.
Gratuity
Gratuity in Pakistan sits in an interesting middle ground: it isn’t universally mandated by a single national statute, but it’s a near-universal feature of employment packages and is statutory in some sectors and under some provincial laws.
Where the Gratuity Act applies, the standard entitlement is one month’s wage for each completed year of service. Many employers provide gratuity by contract rather than by statutory obligation, using the same one-month-per-year formula as the benchmark.
In practice, employees in Pakistan expect gratuity as part of their overall compensation package. If you’re benchmarking against the local market, building gratuity into your offer is the standard approach, regardless of whether it’s technically mandated for your specific establishment type.
Hiring in pakistan without a local entity
Setting up a legal entity in Pakistan takes time, involves ongoing administrative obligations, and ties up capital before you’ve validated the market. Many international employers choose to hire in Pakistan through an Employer of Record (EOR) instead.
An Employer of Record employs your Pakistan-based team members on your behalf, handling payroll, statutory contributions (EOBI, ESSI, WPPF), leave administration, and compliance with the federal and provincial rules that apply to your hires. You retain full day-to-day management of the work, while the EOR handles the legal employer responsibilities.
This approach is particularly useful in Pakistan given the federal/provincial complexity. A good provider of EOR services understands which provincial rules apply in Lahore versus Karachi versus Islamabad and handles the differences across your team without you having to map it all yourself.
FAQs
Does the 180/120/90-day maternity leave structure apply to all private sector employers in Pakistan?
No. The tiered structure under the Maternity and Paternity Leave Act 2023 applies to establishments under federal administrative control. If your business is regulated at the provincial level, the older provincial maternity laws typically apply, which generally provide 12 weeks (84 days) of maternity leave without the tiered entitlement.
Do private sector employers in Pakistan have to provide paternity leave?
It depends on whether your establishment falls under federal or provincial jurisdiction. The 2023 federal Act entitles fathers to 30 days of paid paternity leave on up to three occasions, but this only applies to federally controlled establishments. Provincial employers may have different or no statutory paternity leave obligations. Many employers in the provincial sector offer paternity leave by contract.
When does an employee become eligible for an EOBI pension?
An employee qualifies for an EOBI old-age pension after completing the required insurable employment period under the EOBI Act. Both the employer’s and employee’s monthly contributions count toward this period. The EOBI also provides invalidity pension and survivors’ grants in certain circumstances.
Is gratuity legally mandatory for all employers in Pakistan?
Not universally. Gratuity is statutory in some sectors and under some provincial frameworks, and the Gratuity Act sets the standard quantum at one month’s wage per year of service where it applies. That said, gratuity is standard market practice across most of the private sector, and most employees expect it as part of their package regardless of the strict statutory position.
Does ESSI apply across all provinces in Pakistan?
ESSI is a provincial scheme, so coverage and contribution rates differ depending on where your employees work. Punjab has the most developed scheme, with employer contributions of approximately 6% and employee contributions of approximately 1%. Other provinces have their own institutions with different structures. If you hire in multiple provinces, you’ll need to register with each relevant provincial ESSI body separately.
