Hire Contractors in Pakistan

Self-employment is high in Pakistan. According to a recent report, in 2022, as much as 57.8% of the total population in this country were self-employed. 

As more individuals utilize various digital tools and online freelancing platforms to find work, it has become hugely advantageous for businesses to hire contractors in Pakistan. 

However, hiring contractors in Pakistan is easier said than done. 

To ensure a successful and, most importantly, compliant contractor onboarding process, you will require a thorough understanding of the labor laws regarding employment classification and the tax requirements of independent contractors, among many other factors. 

In this guide, we will explore the various benefits and challenges of hiring contractors in Pakistan and share a few tips and tricks on how to ensure a seamless and compliant hiring process.

How to Hire Contractors in Pakistan

There are two main techniques for hiring contractors in Pakistan, depending on your business's needs and goals. 

1. Hire Directly

The direct hiring process consists of several stages:

• Understanding the skills and expertise required for your project.
• Create and post a job advertisement highlighting the required qualifications and duties.
• Screening potential contractors according to the role requirements.
• Adhering to local, state, and federal labor laws.
• Making accurate and on-time payments while staying compliant with Pakistan's tax requirements.
• Maintaining accurate and complete records related to direct hires.
• Handling personal data collected by Pakistan's data privacy laws.

It is a highly complicated and time-consuming process. You also run the risk of misclassifying workers and non-compliance, both of which can cost your business its reputation, let alone financial stability.

2. Hire through contractor management software or AOR.

An AOR, agency of record, is a third-party service that manages all aspects of the international contractor onboarding process on your behalf. This includes crucial tasks such as,

• Making proper, compliant contracts and agreements.
• Processing payments to all your contractors in Pakistani official currency (PKR).
• Providing legal expertise to prevent you from misclassifying workers.

Hire Contractors Through Skuad AOR

• With Skuad as your AOR, you no longer have to worry about compliant issues or deal with the complexities of international hiring alone. This all-inclusive solution guarantees a simplified and seamless contractor onboarding process. 
• Skuad’s in-house legal team handles all legal administrative burdens, including drafting locally compliant contracts, worker classification, and more. 
• It runs a multi-currency payroll, meaning that you can always guarantee that all your contractors in Pakistan are paid accurately, on time, and in compliance with the tax laws. 
• Skuad’s built-in IP protection system also safeguards your company’s IP under Pakistan's labor regulations. 

How to Pay Contractors in Pakistan

One of the most commonly followed techniques for paying contractors involves processing the expenses directly. This can be done through bank or wire transfers, cheques, or international payment systems such as PayPal or Wise. 

However, please note that this approach can get very complicated, especially if you are not aware of Pakistan's tax laws or lack knowledge about the currency exchange rate and how to handle multi-currency transactions. Therefore, it is not always recommended, especially when you are hiring multiple contractors at the same time. 

A cost-effective solution to this problem is to pay your contractors in Pakistan with contractor management software or an AOR like Skuad. 

Skuad runs a global payroll in 100+ currencies, so you no longer need to worry about dealing with international payments. Additionally, it features robust automation capabilities, meaning you can simplify all invoicing and expense management processes without having to worry about handling multiple paperwork.

Hiring Contractors Directly vs Hiring Contractors via Skuad

Let’s take a look at this detailed comparison between the two main ways of hiring contractors in Pakistan.

Cost of Hiring Contractors in Pakistan

There is usually no fixed cost associated with hiring contractors in Pakistan. It differs based on multiple factors, such as the scope of your project, the type of work, or the industry. 

Let’s say you wish to hire a contractor in Pakistan for digital marketing-related tasks. The current average salary of professionals in this field is PKR888 an hour. On the contrary, if you want to hire a contractor who specializes in the IT domain, they will likely charge you PKR490 for one hour. 

Please note that these are just tentative estimates. The actual charges might also increase or decrease depending on the experience level of the contractors in Pakistan.

Challenges of Hiring In Pakistan

Let’s examine a few examples of the many challenges that businesses face when hiring contractors in Pakistan. 

1. Complex Labor Laws of Pakistan

One of the most commonly faced challenges of hiring contractors in Pakistan is the lack of a solid legal framework that clearly distinguishes between an employee and a self-employed individual.

In Pakistan, all individuals who are hired directly by an establishment, industry, or through an independent contractor are considered to be employees. 

While a few case laws can provide guidance on this matter, a definitive employee classification is still under development. This can often lead to disputes between workers and employers. 

Many businesses seek the services of contractor management software or legal professionals to address this issue. 

However, this can be extremely costly, especially for small to mid-sized businesses that do not always have a hefty amount of capital to spare. 

2. Decoding the Tax Requirements For Independent Contractors in Pakistan

Unlike an employee, an independent contractor in Pakistan is required to file and manage their own taxes. Some of the general provisions related to this include,

• Contractors are required to register with the IRIS, the Federal Board of Revenue’s online system for taxpayer registration. 
• Following this, they will be provided with an NTN (National Tax Number) or a STRN (Sales Tax Registration Number), depending on the nature of their services.
• The personal income tax rate in Pakistan currently varies from 0%-35% depending on the amount of taxable income. 

Understanding these different requirements and, most importantly, ensuring compliance with them is not always easy, especially when hiring contractors directly. 

Therefore, most businesses tend to hire an automated contractor payment system for this purpose. However, it requires a substantial upfront investment in terms of monetary resources and energy.

3. Lack of Stringent Data Protection Laws

Pakistan currently does not have any general regulatory framework related to data protection. This lack of stringent data privacy laws poses additional challenges for businesses that wish to hire contractors in Pakistan.

Although certain sectors, such as the banking industry or the telecommunications domain, have relevant regulators that set prescribed standards and operating frameworks, the same can not be said for all the other industries. 

Thus, employers are directly responsible for taking proactive measures to safeguard personal information, such as employing encryption or regular security audits. Failure to fulfill this responsibility can result in legal repercussions and significant financial penalties.

How to Convert a Contractor into an Employee In Pakistan

Converting a contractor in Pakistan to a full-time employee or switching from Form 1099 to W2 can be advantageous for both the employer and the worker. Here’s how you can achieve this. 

• Research the employment laws of Pakistan

Carefully conduct extensive research on Pakistan's labor laws to understand what requirements need to be met. For example, employees in Pakistan are only required to work 48 hours a week (six days).

• Offer competitive benefits

Offer your contractors the top competitive salaries and benefits packages to ensure a smooth transition. 

• Draft a compliant contract

Draft a proper contract (preferably in writing) that outlines the specific roles and responsibilities of your contractor-turned-employee, highlighting essential details such as working hours, leave entitlements, and salary. Also, make sure that it follows the provisions of Pakistan's labor laws. 

• Onboard and add employees to the payroll

Once they have signed the contract, you can then begin with the onboarding process, which includes conducting background verification checks, adding them to your existing payroll, and setting up proper withholdings and contributions.

Hire Contractors in Pakistan with Skuad

Skuad, the leading global hiring partner, has been the go-to choice for numerous companies worldwide. It is a comprehensive platform, meaning you can access features such as contractor onboarding, global payroll, and guaranteed compliance all from one single place. 

With Skuad, you can always stay up-to-date with Pakistan's latest labor and tax laws, thereby reducing the chances of worker misclassification. 

Additionally, if you ever wish to convert your contractors to employees, Skuad is there to help you with that. It ensures a seamless transition by keeping all past employment records and other necessary documents intact.

To know more, get in touch with us today!

FAQs

Q1: Can I hire a contractor in Pakistan?

Ans: Yes, you can hire a contractor in Pakistan either directly or through contractor management software or an AOR, such as Skuad. If you choose the former option, make sure that you understand all the labor and tax laws of the country to ensure compliance. 

Q2: What is the labor law in Pakistan?

Ans: The labor laws in Pakistan encompass multiple provisions such as the Employee’s Old Age Benefits Act, Punjab Shops and Establishments Ordinance, Payment of Wages Act, and Workmen’s Compensation Act, among others. 

Q3: How do I pay an independent contractor in Pakistan?

Ans: One of the most commonly followed methods of paying contractors in Pakistan is direct payments. You can use international bank transfers, physical checks, or online payment platforms such as PayPal or Wise.

Q4: How does Skuad help hire, pay, and manage contractors in Pakistan?

Ans: Skuad is an integrated solution that enables you to hire contractors in Pakistan easily. For example, Skuad features multi-currency payroll, meaning you do not have to worry about the complexities of international payment, such as currency exchange rates. Additionally, Skuad facilitates other aspects of global hiring, such as automated contractor invoicing, locally compliant contracts, and more. 

Q5: What is meant by contractor management in Pakistan?

Ans: Contractor management is a form of work management typically used for projects in which all or some of the workers are contractors. It includes setting deadlines, drafting contracts, and evaluating terms and conditions, among other crucial tasks.