Payroll in Pakistan

Payroll Process in Pakistan

The typical payroll process in Pakistan involves a series of activities to ensure your company 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 ensure that employees receive their salaries when due.  

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.

Post-payroll stage

This is when you balance the books and remit deductions to the government after paying employees. Ensure to keep a record of the payment history and activities to help track transfers if any issue arises. The payroll process typically ends after paying your corporate taxes and remitting deductions from salaries.

Payroll Management in Pakistan

Payroll management is crucial to effective payroll processing in Pakistan. This process is dedicated to monitoring payroll, disbursing salary, troubleshooting payment issues, and complying with payroll laws.

Carrying out this responsibility involves maintaining employee financial records and payment history while keeping up with recent developments in payroll laws.

Proper payroll management can help you file taxes on time, avoid errors in payroll processing, and complete payroll in Pakistan faster.

Payroll Compliance in Pakistan

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The Pakistan government encourages employers to comply with labor laws. Violating these laws could lead to penalties.

Being compliant with payroll laws is key to enjoying a long and successful business in this country. Late remittance of employee salary deductions or filing of taxes and not paying the due salary may lead to non-compliance. To avoid these penalties and be in good standing with the law in this country, ensure that you have your employees' details and documents ready.

Payroll software in Pakistan helps you complete the procedure faster with more accurate results while paying attention to the labor laws. If you need help integrating your payroll with other core HR duties, hire a payroll specialist like Skuad for your payroll automation.

Payroll Processing in Pakistan

Processing payroll in Pakistan involves a lot of paperwork and activities to ensure you have what the law requires to be payroll compliant.

You need some crucial employee information to process payroll. Ensure you have employee contact information, insurance plan, and income tax withholding documents. Payroll processing can only start when you at least have these papers.

Payroll Components in Pakistan
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Leave

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

Islam influences the labor laws in Pakistan; thus, employees have access to leave on pilgrimage grounds. A pilgrimage leave can last up to 60 days. From Hajj to Ziarat, employees willing to make these trips are also supported by the Collective Bargaining Agent.

Annual leave

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

Pakistani holidays

Workers have a right to be absent from work on national holidays in Pakistan.

However, an employee may work on a public holiday, depending on their agreement with their employers. According to employment law in this country, an employee automatically gets an extra day off with full pay if they work on such days. It violates labor law in Pakistan if an employee works for 10 consecutive days without a holiday.

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
• Night shifts for men only
• Women cannot work more than nine hours or beyond 7 p.m.

Overtime laws

• Overtime lasts three hours
• Workers earn 100% extra

Minimum wage

• Between Pakistani Rupees (PKR or Rs) 17,500 and 25,000  

Tax and mandatory deductions

• Tax withholdings begin after employees earn up to PKR 600,000
• Social security contribution is 6% for employees
• Employees' Old-Age Benefits Institution contribution is 1%

Employee Benefits in Pakistan

Two significant laws guide employee benefits in Pakistan: the Provincial Employees Social Security Ordinance of 1965 and the Workmen's Compensation Act of 1923 with their variations. These laws protect the rights of employees to benefits in virtually every sector, from banking to mining. These laws affect all who earn at least PKR 15,000, the equivalent of PKR 18,000 in Punjab.

Compensation for a work-related injury

Workplace accidents are sometimes inevitable. Currently, 340 million workplace accidents are reported globally. According to Pakistani labor laws, the employer bears the cost when this happens.

In worst cases—permanent injuries or death—the employer compensates the victim's family or next of kin. The sum is different across various regions of the country.

• Punjab: PKR 400,000
• KPK: PKR 300,000
• Sindh: PKR 500,000

The 1965 Employee Social Security Benefit law protects employees who may have lost their full ability to earn a living. If temporarily disabled, employees receive 50% salary for up to a year or about 33% of their salary for five years for severe health issues. Employers should pay insurance for each permanent staff, the least amount for work-related hazard compensation.

Sick leave and benefit

An employee in Pakistan is entitled to sickness benefits, and the percentage depends on the gravity of the sickness, their location, and their contribution to health insurance.

A sick employee gets between 50% and 75% of their salary for 121 days in a calendar year. If an employee has a chronic ailment, such as cancer or tuberculosis, they get between 50% and 100% of their salary for a year.

These benefits are for insured individuals who may have contributed to insurance within at least three of the previous six months. Workers in Pakistan are entitled to 16 days on medical grounds, with 50% of their salary paid. Employees must prove their health status and need for sick leave by providing a medical certificate.

Dependents' benefits

Employers pay certain benefits to the family or dependents if the employees die while associating with the company. These benefits automatically become void in case of the following:

• The dependent's death—spouse, children, or other family members
• The widow or widower remarries
• A female child attains the age of 19, or a dependent son clocks 21.

The age barrier only applies to male survivors. If the deceased staff was unmarried or had no children, the parents receive 20% of the disability pension until their passing. The deceased's spouse gets 60% of their permanent disability pension while their children get 20%.

Superior payroll processing begins with Skuad

With a population of skilled and dynamic professionals and a GDP on a steady uptrend, there's probably never been a better time to start a company in Pakistan. Processing and managing payroll (documents needed, calculating deductions, and handling paperwork) is usually a burden to virtually any company.

Handing your payroll responsibility to Skuad helps you save money on processing extensive data. Skuad enables you to automate your payroll system to integrate HR with payroll to manage payroll and realize more accurate results quickly. This drastically reduces payroll processing time and helps you meet your deadlines.

The Pakistani Rupee (PKR or Rs) is the country's official currency. The Pakistani Rupee to US Dollar exchange rate is Rs 198.7 = $1 (05/30/2022).