Running payroll in Pakistan means navigating provincial minimum wages, two separate social insurance schemes, federal income tax withholding, and a profit-sharing obligation that sits at the company level. This guide covers each component so you know what to set up before you hire your first employee.
How payroll works in pakistan
Pakistan runs on a monthly pay cycle. Employers pay salaries in Pakistani Rupees (PKR) by bank transfer. There’s no statutory mid-month advance requirement.
Payroll administration sits across two authorities: the Federal Board of Revenue (FBR) handles income tax, and provincial labour departments administer minimum wages and social security. That split matters because the rules that apply to each employee depend on where they work, not where your company is registered.
Pay cycle and currency
| Item | Standard |
|---|---|
| Pay frequency | Monthly |
| Currency | Pakistani Rupees (PKR) |
| Payment method | Bank transfer |
| Pay day | No statutory date; set by employer |
Minimum wage compliance
Pakistan doesn’t have a single national minimum wage. Each province sets its own rate, and the rate that applies is the one for the province where the employee is physically based.
For the 2025–26 period, the rates are:
| Province / Territory | Monthly minimum wage (PKR) |
|---|---|
| Punjab | 40,000 |
| Sindh | 40,000 |
| Khyber Pakhtunkhwa (KPK) | 40,000 |
| Balochistan | 37,000 |
| Islamabad Capital Territory (ICT) | 37,000 |
If you have employees in both Punjab and Balochistan, you apply the relevant provincial rate to each person. You can’t average across locations or apply a single company-wide figure.
Statutory deductions
Two schemes come off the employee’s gross salary each month: EOBI and ESSI. Both are calculated at the point of payroll and remitted by the employer on the employee’s behalf.
Eobi (employees’ old-age benefits institution)
EOBI is Pakistan’s federal pension scheme. The employee contribution is 1% of the statutory minimum wage, which works out to PKR 400 per month at the current federal reference rate. This amount is deducted from the employee’s gross salary and remitted to EOBI by the employer.
Essi (employees’ social security institution)
ESSI is a provincial health and social security scheme. It’s administered separately by each province, so the rates differ depending on where your employee works. In Punjab, the employee contribution is approximately 1% of wages, up to a provincial earnings ceiling. Other provinces operate their own schemes under different structures.
Employer contributions
Eobi employer contribution
On top of the employee deduction, you contribute 5% of the statutory minimum wage per employee per month. At current rates, that’s PKR 2,000 per employee. This is your cost to carry and doesn’t come out of the employee’s pay.
Essi employer contribution
The employer also contributes to ESSI. In Punjab, the employer rate is approximately 6% of the employee’s wages, up to the provincial ceiling. Other provinces set their own employer rates. You need to check the specific scheme in each province where you have employees.
Wppf (workers’ profit participation fund)
WPPF is a company-level obligation, not a per-payroll deduction. Companies that meet the statutory threshold must contribute 5% of net profits to a Workers’ Profit Participation Fund, which is distributed to eligible employees annually. This sits outside monthly payroll processing, but you need to account for it as part of your total employment cost in Pakistan.
Income tax withholding
Pakistan uses a pay-as-you-earn system. As the employer, you withhold income tax from each employee’s salary every month and remit it to the FBR. You don’t wait for employees to file their own tax returns and then settle up.
How to calculate the withholding
Each month, you annualise the employee’s gross salary, apply the progressive rate table to get the annual tax liability, divide by 12, and withhold that amount. The rates run from 0% on lower incomes up to 35% on the highest bracket.
The progressive income tax bands for salaried individuals are set by the FBR and revised periodically in the federal budget. You apply the rates in force for the relevant tax year.
Annual tax certificate
At the end of the tax year, you issue each employee a salary certificate showing total gross pay, total tax withheld, and net salary paid. This is the equivalent of a Form 16 in other South Asian jurisdictions. Employees use it when filing their annual income tax returns with the FBR.
Payslip and record-keeping requirements
You must provide employees with a payslip each month. The payslip needs to show:
- Gross salary
- EOBI deduction (employee portion)
- ESSI deduction (employee portion)
- Income tax withheld
- Net salary paid
Keep payroll records for a minimum of five years. Labour inspectors can request records for past periods, and FBR audits can reach back several years. Sloppy record-keeping is one of the more common compliance gaps for foreign employers operating through a local entity.
Running payroll without a local entity
Foreign companies don’t have a legal mechanism to run payroll directly in Pakistan without establishing a local presence. To pay employees compliantly, you need either a registered entity in Pakistan or a local employer acting on your behalf.
An Employer of Record (EOR) is the practical solution most foreign employers use. The EOR employs the worker in Pakistan under its own registration, handles payroll, deductions, and remittances, and invoices you for the total employment cost. You manage the employee’s work day-to-day; the EOR handles everything statutory.
For a deeper explanation of how the model works, see what is an Employer of Record.
The EOR route also lets you start quickly. Setting up a Pakistani subsidiary typically takes several months and requires a registered office, local directors, and ongoing compliance filings. Using EOR services instead, you can have an employee on payroll in Pakistan in days rather than months.
FAQs
Which provincial minimum wage applies to my employee?
The rate for the province where the employee works. If they’re based in Lahore, Punjab’s rate of PKR 40,000 applies. If they’re in Quetta, Balochistan’s rate of PKR 37,000 applies. The location of your company’s headquarters or entity registration doesn’t change this.
How do I calculate the EOBI contribution?
The employee contributes 1% of the statutory minimum wage per month (PKR 400 at current rates) and you contribute 5% (PKR 2,000). Both amounts are based on the minimum wage reference figure, not the employee’s actual salary. You deduct the employee’s share from gross pay and add both contributions when remitting to EOBI.
How does income tax withholding work in practice?
Each month, you estimate the employee’s annual salary, apply the FBR’s progressive rate table, calculate the annual tax liability, divide by 12, and withhold that amount from the monthly salary. You remit it to the FBR. At year end, you issue the employee a salary certificate showing total income and total tax withheld.
Can a foreign company run Pakistan payroll directly without a local entity?
No. Pakistan doesn’t allow foreign companies to employ workers or run payroll there without a local legal presence. The standard options are to register a local entity, open a branch, or use an Employer of Record that already has a registered presence in Pakistan.
Do all employees qualify for ESSI?
ESSI eligibility depends on the province and on the size of the establishment. In Punjab, for example, it covers employees in registered establishments up to a certain wage ceiling. If you’re unsure whether your employees fall within the scheme, check with a local labour compliance adviser or your EOR provider.
