Hiring in Pakistan means taking on a set of statutory contribution obligations that go beyond the agreed salary. The key ones are EOBI (pension), WPPF (profit-sharing), ESSI (provincial health coverage), and monthly income tax withholding remitted to the Federal Board of Revenue.
This guide breaks down each obligation, explains who it applies to, and shows you how to calculate the true cost of a Pakistani hire before you make an offer.
Overview of pakistan’s employer contribution framework
Pakistan’s employer obligations draw from three distinct sources: federal statute, provincial legislation, and the Income Tax Ordinance. EOBI (the Employees’ Old-Age Benefits Institution) operates federally and covers pension contributions. WPPF (the Workers’ Profit Participation Fund) applies to profitable companies under the Companies Act. ESSI (the Employees’ Social Security Institution) is a provincial scheme with different rules and rates in each province. On top of all three, you’re responsible for calculating and remitting monthly income tax withholding for every salaried employee.
Eobi: pension contributions
EOBI is the federal pension scheme that covers private-sector employees. It’s governed by the Employees’ Old-Age Benefits Act 1976 and administered by the EOBI federal authority.
Who it applies to: Any establishment with five or more employees must register with EOBI and enrol all eligible workers. Establishments with fewer than five employees are exempt, though they can register voluntarily.
How contributions are calculated: EOBI contributions aren’t based on the employee’s actual salary. They’re calculated as a percentage of the provincial minimum wage, which for Punjab, Sindh, and Khyber Pakhtunkhwa (KPK) stands at PKR 40,000 per month for 2025–26.
| Contributor | Rate | Monthly Amount (PKR 40,000 base) |
|---|---|---|
| Employer | 5% of minimum wage | PKR 2,000 |
| Employee | 1% of minimum wage | PKR 400 |
The employer deducts the employee’s PKR 400 from their wages and remits both contributions to EOBI. The total monthly cost to the employer is PKR 2,000 per enrolled employee, regardless of what that employee earns above the minimum wage floor.
EOBI funds old-age pension, invalidity pension, and survivors’ grants. Benefits vest after a qualifying contribution period, so the scheme only delivers value to employees who stay in formal employment long enough to accumulate entitlements.
Wppf: workers’ profit participation fund
The Workers’ Profit Participation Fund requires qualifying companies to distribute 5% of annual net profit to their workers. It’s governed by the Companies Profits (Workers’ Participation) Act 1968 and applies to companies incorporated in Pakistan that meet the profit threshold defined under the Companies Act.
How the 5% is calculated: The figure is 5% of the company’s annual net profit, as certified in the audited accounts. This is a profit-based obligation, not a headcount trigger. A company with 10 employees and strong margins can owe WPPF. A company with 100 employees running at a loss owes nothing.
How funds are distributed: The 5% pool is divided among eligible workers proportionally, typically based on wages earned during the year. Payments are due within a set number of days of the annual accounts being finalised. The scheme is administered through a board of trustees made up of employer and worker representatives.
For foreign companies operating through a local Pakistani subsidiary or permanent establishment, WPPF applies in the same way as for domestic companies. If your Pakistan operation runs at a profit, budget for this contribution when you forecast annual employment costs.
Essi: provincial health coverage
The Employees’ Social Security Institution provides medical care and cash benefits to registered workers. Unlike EOBI, ESSI isn’t federal. Each province runs its own scheme, with its own contribution rates, coverage ceilings, and administrative body.
Punjab ESSI is the largest scheme and the most commonly referenced benchmark. Punjab employers pay approximately 6% of covered wages, and employees contribute 1%. Coverage applies to wages up to a provincial ceiling. Workers enrolled in the scheme get access to ESSI hospitals and dispensaries for themselves and their dependents.
Not every province operates an identical programme. Balochistan’s scheme covers fewer industries, and the administration in some provinces is less developed than Punjab’s. If you’re hiring in a specific province, confirm the local ESSI rates and coverage thresholds with your payroll provider before running your first payroll.
| Province | Employer Rate (approx.) | Employee Rate (approx.) |
|---|---|---|
| Punjab | ~6% of wages (up to ceiling) | ~1% of wages |
| Other provinces | Varies | Varies |
ESSI contributions are remitted to the relevant provincial ESSI authority each month. Employers must register their establishment and each employee with the local ESSI office.
Income tax withholding
Pakistan operates a pay-as-you-earn system for salaried employees. The employer calculates each employee’s income tax monthly and deducts it directly from their salary. The withheld amount is then remitted to the Federal Board of Revenue (FBR).
Progressive tax rates: Pakistan uses a progressive income tax regime for salaried persons. Tax rates range from 0% for incomes below the exemption threshold up to 35% for the highest bracket. The exact brackets are updated annually through the Finance Act, so check the current FBR schedule before each fiscal year.
Your obligations as the employer:
- Calculate the taxable salary for each employee monthly
- Apply the relevant marginal tax rate for their income level
- Deduct the tax before paying the net salary
- Remit the withheld amounts to FBR by the monthly deadline
- File the monthly withholding statement (Form 149)
The tax liability belongs to the employee. Your role is to calculate it correctly and forward it on time. Errors in calculation or late remittance are treated as employer non-compliance, not employee non-compliance.
Foreign companies with employees in Pakistan are required to register with FBR as withholding agents even if they don’t have a physical presence in the country. FBR registration is a prerequisite for running a compliant payroll.
Withholding tax on payments
Beyond payroll, Pakistan imposes withholding tax (WHT) on various categories of payments made by companies. These are relevant if you’re paying Pakistani entities or individuals for services, dividends, or royalties.
| Payment Type | Standard WHT Rate |
|---|---|
| Dividends | 15% |
| Royalties | 15% |
| Technical services | 15% |
| Card network services | 10% |
The standard rates above apply where no tax treaty is in effect. Pakistan has tax treaties with more than 60 countries, and the treaty rates for dividends and royalties are often lower than the domestic rates. If your home country has a treaty with Pakistan, review the applicable protocol to confirm whether reduced rates apply to your payments.
WHT is deducted at source by the payer and remitted to FBR. The recipient receives the net amount and gets credit for the withheld tax when they file their own return. If you’re making cross-border payments from Pakistan, factor WHT into your cost modelling.
Total employer cost of employment
When you’re building a headcount budget for Pakistan, gross salary is only the starting point. Here’s the full cost stack:
Total employer cost = Gross salary + EOBI contribution + ESSI contribution (if applicable) + WPPF provision (if applicable)
For a concrete example, take an employee in Punjab earning PKR 80,000 per month:
| Cost Component | Monthly Amount |
|---|---|
| Gross salary | PKR 80,000 |
| EOBI (employer share) | PKR 2,000 |
| Punjab ESSI (~6% of wages up to ceiling) | PKR 4,800 (approximate, subject to wage ceiling) |
| Subtotal monthly cost | PKR 86,800+ |
| WPPF (annual, if profitable) | Provisioned from 5% of annual net profit |
A few things to note. EOBI is a fixed PKR 2,000 per employee regardless of salary. ESSI is wage-based up to the provincial ceiling, so for higher earners the contribution caps out. WPPF is an annual obligation tied to profitability rather than salary, so it’s best modelled as a provision against operating profit rather than a per-employee line item.
Income tax withholding doesn’t change your cost, since the tax is deducted from the employee’s salary. But you do carry the compliance and cash flow obligation of remitting it monthly.
Hiring in pakistan without a local entity
Registering a company in Pakistan, obtaining the necessary licences, and setting up a compliant local payroll takes time and money. For companies testing the market or hiring one or two people, that overhead often doesn’t make sense in the early stages.
An Employer of Record (EOR) lets you hire Pakistani employees through an existing local entity without setting up your own. The EOR becomes the legal employer of record, handles all EOBI registration and contributions, manages ESSI enrolment, runs compliant monthly payroll, and remits income tax to FBR under its own FBR registration. You retain control of the work and the employment relationship day to day.
What is an employer of record? The model works well for companies entering Pakistan for the first time, scaling a remote team quickly, or hiring in a province where local compliance nuances make DIY payroll difficult. The EOR carries the employer liability; you pay a single management fee alongside the employment costs.
If you need to compare providers before committing, this breakdown of the EOR services market covers what to look for in a Pakistan-capable partner.
RemotePass operates across Pakistan with local payroll infrastructure, established EOBI and ESSI registrations, and FBR compliance built in. You get accurate total employment cost estimates before you make a hire, and your employees get on-time payslips with all statutory deductions handled correctly.
Book a RemotePass demo to see Pakistan employment costs in detail and find out how quickly you can get your first hire live.
Frequently asked questions
Does EOBI apply if I only have a few employees in Pakistan?
EOBI registration is mandatory for establishments with five or more employees. If your Pakistan headcount is below that threshold, you’re not required to register, though you can do so voluntarily. Once you cross the five-employee mark, registration and contributions become obligatory from that point.
How is WPPF calculated, and do I owe it every year?
WPPF is 5% of your company’s annual net profit as shown in audited accounts. You only owe it in years where your Pakistan operation meets the profit threshold under the Companies Act. A loss-making year produces no WPPF liability. The obligation isn’t tied to headcount; it’s tied to profitability.
Is ESSI the same across all provinces?
No. ESSI is a provincial scheme, and rates and coverage vary by province. Punjab ESSI charges approximately 6% employer and 1% employee on wages up to a ceiling. Other provinces operate different schemes with different rates. If you’re hiring outside Punjab, confirm the local ESSI rules with a Pakistan payroll specialist before your first pay run.
Do foreign companies need to register with FBR?
Yes, if you’re paying salaried employees in Pakistan, you need to register with FBR as a withholding agent to remit income tax on their behalf. FBR registration is a prerequisite for legal payroll in Pakistan. Using an EOR avoids this requirement, since the EOR is already registered and manages the remittance under its own FBR credentials.
What withholding tax rates apply to payments made from Pakistan?
Standard WHT rates are 15% for dividends, 15% for royalties and technical services, and 10% for card network services. If Pakistan has a tax treaty with your home country, the applicable rate may be lower. Pakistan has treaties with more than 60 countries, so it’s worth checking the relevant protocol before modelling cross-border payment costs.
