Annual Leave
Paid leave an employee earns through time worked, taken across the year for rest, distinct from casual and sick leave, and sometimes called earned leave.
Annual leave is typically earned progressively as an employee completes a qualifying period of continuous service, becoming available to book, subject to employer approval, once earned. Rules on carrying unused leave into the next year, or losing it, vary by employer policy and by the applicable Shops and Establishments Ordinance or Factories Act.
Unused annual leave is commonly encashed, paid out in cash, when someone leaves the company, forming part of their full and final settlement rather than simply being forfeited.
Because annual leave sits under provincial legislation, the exact entitlement, and whether it must be used within the year or can carry forward, should be checked against the specific rules in force for the employee’s actual place of work, rather than assumed to be uniform nationally.
Apprenticeship
A structured arrangement in which an employer trains a worker in a skilled trade over a defined period, governed by apprenticeship law that can require certain industrial establishments to take on a set number of apprentices.
Qualifying industrial establishments above a certain size may be required, under the Apprenticeship Ordinance, to engage a set number of apprentices relative to their skilled workforce, train them in a recognised trade, and pay them a training allowance rather than a full tradesperson’s wage during that period.
An apprentice is treated as its own distinct category of workman (see Categories of Workmen), generally with different rights around termination and benefits compared with a permanent worker, reflecting the fact that the relationship is primarily about training rather than ordinary employment.
Apprenticeship can be a genuine talent pipeline as well as a compliance duty: apprentices who perform well are a natural, already trained source of future permanent hires, rather than simply a legal box to tick.
Bonus
An additional payment made to employees on top of regular salary, most commonly around a religious festival or the close of a company’s financial year, ranging from a purely discretionary gesture to a payment tied to company profit.
Paying a bonus around Eid is a widely observed practice across Pakistani workplaces, to the point that employees often expect it as part of the normal rhythm of the working year, even though a discretionary festival bonus is not, by itself, a guaranteed legal entitlement in the way statutory pay is.
A discretionary or festival bonus is a different thing from the Workers Profit Participation Fund (WPPF), which is a statutory profit sharing scheme with its own eligibility and calculation rules. A company can owe both, at different points in the year, to the same employee.
Once a bonus has been paid consistently, in a consistent way, for long enough, employees, and sometimes courts, can start to treat it as an established part of the compensation package rather than a one-off gift. Companies that genuinely want to keep a bonus discretionary need to say so clearly, every single time it is paid.
Casual Leave
A short, separate form of paid leave, distinct from annual and sick leave, intended for sudden or unplanned personal needs rather than a scheduled holiday.
Employees typically draw on casual leave for genuinely urgent, short notice personal matters, such as a family emergency, rather than booking it in advance the way annual leave is normally planned.
Casual leave is usually a smaller allowance than annual leave, is often not allowed to carry over into the following year, and may not combine freely with other leave types without separate approval, though the exact rule depends on company policy and the applicable provincial law.
Because it exists for genuinely unplanned absence, a repeating pattern of casual leave use, for example consistently around weekends or public holidays, is a common and reasonable trigger for an employer to look more closely at attendance.
Categories of Workmen
The standard set of employment categories defined under the Standing Orders regime, such as permanent, probationer, badli, temporary, apprentice and contract workers, each carrying different rights around leave, notice and termination.
A permanent worker has completed a qualifying period and confirmation, and holds the fullest protection under the Standing Orders. A probationer is serving an initial trial period before that confirmation decision is made. A badli worker temporarily fills the post of a permanent worker who is absent, and a temporary worker is engaged for work that is genuinely temporary by nature. An apprentice is engaged specifically to learn a trade, and a contract worker is engaged for a defined task or period rather than an open ended role.
What matters legally is the category a worker actually falls into based on the real nature of their work, not whichever label happens to appear in their paperwork, since that real category shapes their leave, notice and termination rights.
Misclassifying a long serving worker as temporary, badli or contract, when the reality of their work looks permanent, is a common and well recognised source of dispute, precisely because it is usually an attempt to avoid the rights that come with permanent status.
HR records should track category deliberately and review it as tenure grows: someone originally hired as badli or temporary who keeps being reengaged over time can, in practice and sometimes in law, end up much closer to a permanent worker than their file suggests.
Collective Bargaining Agent (CBA)
The trade union formally recognised, usually by winning a certification process, as the sole representative entitled to negotiate terms and conditions on behalf of workers in a particular establishment or industry.
Where more than one trade union exists at a workplace, the applicable Industrial Relations law sets out a process, typically involving a ballot among workers, to determine which union becomes the certified Collective Bargaining Agent (CBA) for a defined period.
Once certified, the CBA generally holds exclusive rights to negotiate collective agreements and represent workers in collective disputes, even workers who are not its own members, while individual workers separately keep their own individual rights.
Employers dealing with a certified CBA are expected to negotiate in good faith and to follow the applicable Industrial Relations law’s process for collective bargaining and conciliation, with escalation to a Labour Court or tribunal if the dispute cannot be resolved directly.
Devolution of Labour Law
The shift of law making power over most labour and industrial relations matters from the federal government to the provinces, which is why Pakistan does not have one single national labour code covering most employment topics.
A constitutional reform transferred the labour subject from the federal legislative list to the provinces, so subjects such as Shops and Establishments rules, minimum wage, Standing Orders, social security institutions and industrial relations law are now set and amended separately by Punjab, Sindh, Khyber Pakhtunkhwa and Balochistan, with a separate arrangement for Islamabad Capital Territory, rather than by one federal statute that applies everywhere.
A small number of matters stayed with the federal government, most notably the Employees Old-Age Benefits Institution (EOBI) pension scheme and federal tax law, so Pakistani compliance in practice is a layered mix of federal and provincial rules rather than purely one or the other.
For any employer, this means a company operating in more than one province cannot assume that a single HR policy, or a single payroll configuration, applies everywhere. The name of a law, its detail, and the figures inside it can all differ province to province, even where the underlying idea, such as minimum wage or the Standing Orders, is shared across the country.
This is the single most important structural fact to understand about Pakistani labour law, and it should shape how any multi-province HR policy, employment contract template or payroll setup is built from the outset.
Disability Employment Quota
A legal requirement for employers above a certain size to employ a minimum share of persons with disabilities across their workforce, backed by an employer funded contribution scheme for those who do not meet it.
Qualifying employers are expected to reserve a share of posts for persons with disabilities, and provincial disability employment law, generally descended from the Disabled Persons (Employment and Rehabilitation) Ordinance, allows an employer that genuinely cannot meet the requirement to contribute to a designated fund instead, rather than treating the quota as purely aspirational.
As with much employment law, this obligation is largely administered at the provincial level today, each with its own registration and reporting requirements.
Meeting the requirement through genuine hiring, with appropriate workplace adjustments, is generally the stronger position for an employer to be in compared with routinely paying into the substitute fund instead, both for reputation and for the quality of the workforce it builds.
Employees Old-Age Benefits Institution (EOBI)
The federal social insurance scheme that pays a pension to workers in their old age, and to their survivors or in cases of permanent incapacity, funded by contributions from employers and employees.
The Employees Old-Age Benefits Institution (EOBI) is one of the few employment schemes that stayed federal after labour law was devolved to the provinces, so the same scheme applies to registered workers wherever in Pakistan they are based. Employers register qualifying employees, and both employer and employee pay a monthly contribution that builds up each worker’s individual insurance record over their working life.
The scheme pays several kinds of benefit: an old-age pension once a worker reaches retirement age with enough contribution history, an invalidity pension for workers permanently unable to continue working, a survivor’s pension for the family of a worker who dies while insured, and an old-age grant for those who leave insured employment without building up enough history for a full pension.
EOBI is separate from the provident fund many employers also run and from the provincial social security institutions: EOBI is a long-term, federal old-age and survivor pension, a provident fund is an employer level retirement savings account, and social security institutions cover health care and short-term income replacement.
For payroll, EOBI registration is a standing duty from a worker’s very first day. A lapsed or missed registration usually only comes to light when someone later tries to claim a pension, by which point the gap is far harder to fix.
Factories Act
The law that regulates working conditions inside factories, covering matters such as working hours, rest, safety and welfare facilities, distinct from the law that covers offices and commercial premises.
The Factories Act applies to premises that meet the legal definition of a factory, broadly, places using power driven machinery and employing workers above a certain size, and it sets standards for matters including maximum working hours, weekly rest, overtime premium, and welfare facilities such as canteens, washrooms and first aid provision.
It places specific duties on the employer, referred to in the law as the occupier, covering machine guarding, ventilation, lighting and the reporting of workplace accidents, enforced through factory inspections by the relevant provincial labour department.
Like most Pakistani labour legislation, the Factories Act has been adopted and amended separately by each province since devolution, so specific requirements should be checked against the version actually in force where the factory operates.
A single company that runs both a factory and separate sales or head offices is very often subject to two statutory regimes side by side: the Factories Act on the factory floor, and the Shops and Establishments Ordinance for its offices.
Federal Board of Revenue (FBR)
Pakistan’s federal tax authority, responsible for administering income tax and other federal taxes, and the body every employer ultimately reports salary withholding to.
The Federal Board of Revenue (FBR) sets the salary tax slabs and rules that employers must apply under withholding tax, and it is the authority employers file periodic and annual withholding statements with once tax has been deducted from salaries.
Its reach extends well beyond payroll: FBR also administers the wider income tax system, including the return filing regime that affects how individuals and companies are treated for tax purposes, and it oversees withholding tax on payments to contractors and vendors as well as to employees.
Because FBR notifications, rulings and clarifications change fairly often, payroll and finance teams need a live source, whether a tax adviser or an actively maintained payroll configuration, rather than assuming last year’s settings still apply unchanged.
Gazetted Public Holidays
Public holidays formally announced by the federal or provincial government through an official notification, some fixed well in advance and others, particularly religious holidays, confirmed only shortly beforehand.
The government issues a notification listing the gazetted holidays for the year. Religious holidays tied to the Islamic lunar calendar, most visibly the Eid holidays, are only finalised close to the date itself, once the relevant moon sighting committee makes its announcement.
Alongside the shared gazetted list, the government also publishes a separate list of optional or restricted holidays, most often for religious minority observances, from which eligible employees can typically choose to take a small number rather than everyone taking every date on the list.
This creates a genuine planning challenge for attendance, shift and leave systems, since the exact placement of religious holidays can shift at short notice from one year to the next, and provinces occasionally gazette slightly different local holidays on top of the shared national ones.
Payroll, attendance and leave calendars in Pakistan need a live process for updating gazetted holidays close to the date itself, rather than treating the calendar as fixed months in advance, and should confirm the notification that actually applies in each province where staff are based.
Gratuity
A lump sum benefit paid to an employee when their employment ends, calculated from their length of service and their last drawn salary, and one of Pakistan’s core end of service benefits alongside, or instead of, a provident fund.
Some employers keep a funded gratuity scheme, setting money aside regularly in a separate fund and investing it, while others simply pay gratuity directly out of company funds at the point someone leaves. Both approaches are common, and which one a company uses is a matter of policy and cash management rather than law.
The amount is generally worked out from the employee’s last drawn salary (basic salary or gross salary, depending on company policy and the applicable Standing Orders) multiplied by their completed years of service, with partial years usually counted on a proportional basis rather than simply ignored.
Gratuity and provident fund interact rather than simply stack: an employer that already runs a full provident fund scheme is not always separately required to pay gratuity as well, and the exact offset depends on company policy and the Standing Orders that apply to that establishment, so this is worth checking rather than assuming.
Gratuity is typically payable whoever initiated the departure, resignation or employer led termination alike, with forfeiture generally reserved for genuine cases of serious misconduct handled through the proper disciplinary procedure.
Income Tax Ordinance
The federal law that establishes Pakistan’s income tax system, including the rules under which tax is deducted from salary and paid over to the tax authority.
The ordinance is the legal foundation beneath Withholding Tax on Salary (WHT): it defines what counts as taxable salary income, sets out the slab based structure used to calculate tax on that income, and places the deduction and deposit obligation on the employer as a withholding agent rather than leaving each employee to settle their own tax directly.
Unlike most of the employment topics in this glossary, income tax is one of the matters that stayed with the federal government after devolution, so the same ordinance and the same slabs apply to salaried employees wherever in Pakistan they are based, rather than varying province by province the way minimum wage or the Standing Orders do.
Because the ordinance is amended periodically, most visibly through changes to the salary tax slabs, exemptions and rates, payroll and finance teams need to treat their withholding configuration as something to actively refresh rather than a fixed setting. The Federal Board of Revenue (FBR) publishes the current salary tax slabs and rates that apply under it.
Industrial and Commercial Employment (Standing Orders) Ordinance (Standing Orders)
The law that sets out standard terms of employment for larger industrial and commercial establishments, including how workers are classified and the process an employer must follow for discipline, retrenchment and termination.
Once an establishment reaches the size threshold set by the provincial version of this ordinance, it must apply the Standing Orders regime: standard categories of worker, rules on probation and leave, and a defined procedure for handling misconduct and dismissal.
On discipline, the Standing Orders set out the steps an employer should follow before dismissing someone for misconduct, including a proper enquiry, and they separately govern retrenchment, or redundancy, with its own notice and compensation requirements distinct from a disciplinary dismissal.
As with most Pakistani labour law, each province has adopted or amended its own version of the Standing Orders since devolution, so the exact detail should be checked against the version in force where the employee actually works.
Many company disciplinary and termination policies are, in effect, a plain English restatement of the Standing Orders procedure, because departing from that procedure is one of the surest ways to lose a dismissal dispute.
Labour Court
The specialist court set up to hear disputes between individual workers and employers, such as claims about dismissal or unpaid dues, sitting alongside separate forums for collective, union level disputes.
A worker with a grievance about matters like wrongful dismissal, unpaid wages, or other entitlements under the Standing Orders can typically bring a claim to the Labour Court, generally after any internal grievance process has been exhausted first.
Broader industrial disputes involving a Collective Bargaining Agent (CBA) or a trade union, especially ones spanning more than one province or certain federally regulated establishments, are generally handled through a different route, including conciliation and, for trans-provincial matters, the National Industrial Relations Commission (NIRC).
Decisions of the Labour Court can normally be challenged before a Labour Appellate Tribunal, and ultimately the higher courts, so a first instance decision is rarely the final word in a genuinely contested case.
Because the specific forum and procedure again vary by province, an employer facing a dispute should confirm which court or tribunal actually has jurisdiction before assuming the process will look identical to another province.
Maternity Leave
Paid leave granted around childbirth, protecting a woman’s job and income for a defined period before and after delivery, governed by provincial maternity benefit legislation.
The law generally protects a woman from dismissal because of pregnancy or absence on maternity leave, and requires continued pay through the protected period, sometimes subject to a minimum period of prior service depending on the specific provincial rule.
Like most Pakistani labour law, maternity benefit legislation is now largely provincial, so the precise entitlement and process can differ depending on where the employee actually works, even though the underlying protection is broadly consistent in spirit across the country.
For an employee registered with a provincial social security institution, part of the maternity benefit may be paid through that institution rather than solely by the employer, depending on the scheme and the employee’s registration status.
HR should treat maternity leave as a genuinely protected status rather than simply a period of absence: keeping the role open, and avoiding any performance or restructuring decision that could look connected to the pregnancy or the leave itself, matters as much as paying the leave correctly.
Minimum Wage
The lowest wage an employer may legally pay a worker for normal working hours, set independently by each provincial government rather than by a single national rate.
Punjab, Sindh, Khyber Pakhtunkhwa and Balochistan each notify their own minimum wage through a provincial minimum wage board or government notification, so the figure that actually applies depends on where the employee is based, and it is reviewed and revised from time to time rather than being fixed indefinitely.
Notifications sometimes distinguish unskilled workers from skilled categories, and particular sectors or smaller establishments are occasionally treated differently, so the single headline figure quoted in the press is not always the exact comparison rate for a given role.
Minimum wage applies to what a worker actually receives for their normal hours of work. Whether particular allowances count toward that figure or sit on top of it is an interpretation question that can vary, so it is worth confirming rather than assuming for any given pay structure.
Minimum Wage Notification
The official provincial gazette notification that actually fixes a legally binding minimum wage figure and its effective date, as distinct from a budget speech or press announcement discussing a proposed new rate.
A Minimum Wage change is often first discussed publicly through a budget announcement or news report, but that announcement is not, by itself, the legally operative figure: the rate only becomes binding on employers once the responsible provincial authority actually issues a formal notification in the official gazette, and only from the effective date stated in that notification.
The gap between an announced figure and a gazetted one can matter in practice: an employer that moves early based on a headline number can end up applying a rate that is later confirmed differently, while an employer that waits for the formal notification, but then backdates pay correctly to the stated effective date, is following the legally correct sequence.
For compliance purposes, HR and payroll should keep an actual record of which notification is currently being applied for each province, and its effective date, rather than relying on memory of a headline figure from the news. Each province’s Labour Department is the authoritative source for the current notification.
Paternity Leave
A newer form of paid leave granted to fathers around the birth of a child, introduced by some provinces alongside their existing maternity benefit legislation.
Unlike maternity leave, which is long established nationwide, paternity leave has been introduced more recently and unevenly, so whether it exists as a statutory entitlement, and on what terms, depends on the specific province an employee works in.
Some employers offer paternity leave as a matter of company policy even in provinces where it is not yet a legal requirement, both to compete for talent and in anticipation of wider adoption across the country.
Because this area of law is still genuinely moving, paternity leave is one of the Pakistani leave categories most worth actively checking against current provincial law rather than assuming it works the same way in every province.
Payment of Wages
The legal requirement that wages be paid in full, in a legally permitted way, within a defined time of falling due, with only specific, authorised deductions allowed.
Payment of Wages law restricts what an employer may deduct from pay, permitting authorised items such as tax, provident fund contributions or a lawfully imposed fine, and it requires wages to actually reach the worker within a set time after the end of the wage period, regardless of the size of the establishment.
Deducting pay informally, for example to recover a disputed loss or as an unapproved penalty, is a common source of worker complaints, and it can expose an employer to a claim before the Labour Court.
This law is the backstop underneath almost every other payroll topic, tax withholding, provident fund, social security contributions, even disciplinary fines, because it is what ultimately determines whether a deduction actually made through payroll was lawful in the first place.
Payroll in Pakistan
The practical picture of how a typical Pakistani salary comes together: gross pay, statutory deductions such as withholding tax and provident fund, employer contributions such as those to the Employees Old-Age Benefits Institution (EOBI), and the filings that sit around all of it.
A Pakistani gross salary is usually split into a basic salary plus allowances. From that base, the employer deducts income tax under the withholding tax rules and the employee’s share of the provident fund contribution where the company runs one, and registers the employee with the applicable Employees Old-Age Benefits Institution (EOBI) and provincial social security scheme. The employer then separately pays its own matching contributions on top, which never appear as a deduction on the payslip because the employee never had them in the first place.
On top of the monthly run sit obligations that are not paid to any individual employee at all, such as Workers Welfare Fund (WWF) and Workers Profit Participation Fund (WPPF) contributions assessed against company profit, plus periodic withholding statements filed with the Federal Board of Revenue (FBR).
When someone leaves, payroll also has to produce a full and final settlement: any unpaid salary, encashed leave, gratuity or provident fund balance, and any notice or retrenchment payment due, brought together into one closing calculation.
Because so many of the pieces involved (minimum wage, the applicable social security institution and tax slabs) sit at the provincial or annually updated level, a payroll configuration that is correct for one province, or one tax year, cannot simply be copied to another without checking every layer again.
Professional Tax
A modest provincial tax on people carrying on a trade, profession or employment, and on companies themselves, collected either through payroll or as a periodic business filing depending on the province.
Each province sets its own professional tax rules and its own collection method, sometimes charging salaried employees a small annual amount through their employer, and separately charging registered companies their own professional tax based on the company’s category.
Where the tax is collected through employment, the employer is generally responsible for deducting it from pay and depositing it with the relevant provincial revenue authority, on top of the company’s own separate liability as a registered business.
Because it is provincial, and lower profile than income tax, professional tax is an easy compliance item to miss when a company opens in a new province, so it is worth checking explicitly for each new location rather than assuming income tax withholding already covers it.
Protection Against Harassment of Women at the Workplace Act
The law requiring every workplace to prevent and address harassment of women, most visibly through a mandatory inquiry committee and a published code of conduct that all employees are made aware of.
Employers are expected to constitute an inquiry committee to receive and investigate harassment complaints fairly and confidentially, and to adopt and circulate a code of conduct setting out what harassment means in practice and how a complaint will be handled, rather than leaving the matter to be worked out informally whenever a complaint happens to arise.
As with other employment law, this framework sits alongside the wider pattern of devolution: provinces can maintain their own amendments or extensions to it, so the exact procedural detail is worth checking against the version in force where the employee actually works, even though the core duty, a genuine inquiry committee and a live code of conduct, is shared everywhere. The law is also generally understood to reach conduct connected to the working relationship broadly, not only conduct between colleagues of very different seniority.
For HR, this is a standing structural duty rather than a one-off policy exercise: the inquiry committee needs to actually exist, be known to staff and be used when a complaint comes in, and the code of conduct needs to be genuinely current rather than a document filed away once and forgotten.
Provident Fund (PF)
A retirement savings account built up through regular contributions from the employee and, usually, a matching contribution from the employer, paid out as a lump sum when employment ends.
A provident fund (PF) is an occupational, company level scheme, distinct from the state administered Employees Old-Age Benefits Institution (EOBI) pension. Many employers set up a recognised provident fund trust, which brings favourable tax treatment for both employer and employee as long as the fund meets the conditions set for recognition.
Provident fund is deducted from the employee’s pay each cycle and matched by the employer, with both amounts credited to the employee’s own account within the fund rather than pooled generally into company assets. The fund is normally administered by trustees and kept legally separate from the employer’s own money.
Not every employer offers a provident fund: some provide only gratuity, some offer only a provident fund, and some offer both as part of the same reward package, so the split between the two is a genuine company policy choice rather than something fixed by a single rule.
On resignation, retirement or death, the accumulated balance, including any profit credited to it over the years, is paid out to the employee or their nominated survivors as a single lump sum.
Provincial Employees Social Security Institution
The provincial schemes that provide medical care and cash benefits, such as sickness, injury and maternity benefits, to registered workers, run separately by each province since labour became largely a provincial subject.
The best known examples are the Punjab Employees Social Security Institution (PESSI) and the Sindh Employees Social Security Institution (SESSI), with Khyber Pakhtunkhwa and Balochistan each running their own equivalent institution for workers based in those provinces. Each is governed by its own provincial social security legislation, though all four share a broadly similar design inherited from the original nationwide scheme.
Registered, insured workers and their dependants can generally use the institution’s own hospitals and dispensaries at no direct cost, and can also draw cash benefits during illness, injury at work or maternity, funded by employer contributions rather than by the worker.
These institutions are easy to confuse with the Employees Old-Age Benefits Institution (EOBI), but the two cover different ground: social security is about health care and short-term income replacement while someone is still working, whereas EOBI is a long-term old-age and survivor pension. Many employees are registered with both at once.
Which institution applies depends on the province where the employee actually works day to day, not where the head office happens to be registered, which matters for any employer running teams across more than one province.
Provincial Labour Statutes
The separate sets of provincial law, covering matters such as factories, shops and commercial establishments, Standing Orders, payment of wages, minimum wages, maternity benefits, occupational safety and health, and social security, that Sindh, Khyber Pakhtunkhwa and Balochistan each maintain and amend on their own.
Unlike Punjab, which folded most of this ground into its own consolidated Punjab Labour Code, Sindh, Khyber Pakhtunkhwa and Balochistan have each kept the older pattern inherited from devolution: a separate Factories Act, a separate Shops and Commercial Establishment Act, a separate Standing Orders ordinance, a separate Payment of Wages law, separate minimum wage and maternity benefit legislation, and separate occupational safety and health rules, alongside its own social security institution on top of all of it.
The underlying ideas are broadly shared across all three provinces, a factory is regulated on a broadly similar principle, wages are protected in a broadly similar way, but the exact wording, the specific procedure, and any figure such as a wage rate or a leave entitlement can differ from one province’s statute to the next, even where the law’s title and structure look almost identical on paper.
A company with people in more than one of these provinces cannot run a single shared statutory configuration and assume it fits all of them: policies, contracts and payroll settings need a province-specific setting for each of Sindh, Khyber Pakhtunkhwa and Balochistan individually. Each province’s own Labour Department publishes the current version of these laws and is the source to check before assuming a rule from one province carries over to another.
Punjab Labour Code
The single consolidated statute through which Punjab brought together much of its previously separate employment, wages, leave, industrial relations, safety and worker benefit law into one provincial code, rather than a set of standalone laws.
Where the older pattern, still followed elsewhere, was a separate law for each topic, one statute for shops and establishments, another for factories, another for Standing Orders, another for payment of wages, and so on, Punjab’s labour code brings the corresponding rules together under one umbrella, restated as chapters of a single piece of legislation rather than a shelf of separate ordinances.
This is a genuinely significant structural change layered on top of devolution itself: it is not just that Punjab regulates labour separately from the other provinces, which has been true since labour became a provincial subject, but that Punjab has also adopted a fundamentally different legislative shape, one consolidated code, while Provincial Labour Statutes in Sindh, Khyber Pakhtunkhwa and Balochistan remain a set of distinct, separately amended laws covering the same ground.
For any employer or HR system operating in Punjab alongside other provinces, this means the Punjab configuration cannot simply mirror the structure used elsewhere: concepts that sit in entirely separate laws in another province may sit as different chapters of the same Punjab code, so mapping rules from one province onto another’s framework needs genuine care rather than a straight copy. Punjab’s own Labour Department is the authoritative source for how a specific topic is currently treated under the code.
Registration of Establishments
The set of statutory registrations a new workplace must complete before, or shortly after, it starts employing people, spanning tax, labour and social security authorities.
A typical new workplace needs to register the business itself for tax purposes, register the physical workplace under the applicable provincial Shops and Establishments Ordinance or Factories law, register with the Employees Old-Age Benefits Institution (EOBI), and register with the relevant provincial social security institution, each with its own authority, its own paperwork and its own reference number.
Registration is not a one time box to tick: most of these registrations carry ongoing duties, whether periodic contribution filings, returns, or renewal, and the relevant labour department can inspect a workplace’s records against them at any time.
Because devolution means the correct registering authority depends on the province an establishment operates in, opening a new office in an additional province typically means working through a fresh registration checklist there, even for a company that is already fully registered elsewhere.
Retrenchment
Ending someone’s employment because their role is no longer needed, the Pakistani labour law term closest to what is often called redundancy elsewhere, with its own rules on selection, notice and compensation.
Retrenchment law generally expects an employer to follow a fair process, including notice or payment in place of notice, and to pay retrenchment compensation calculated from the worker’s length of service, before employment actually ends on this ground.
A common principle applied when choosing who to retrench within a given category of worker is to let go of the most recently hired first, sometimes described as a last-in, first-out approach, unless there is a fair and properly documented reason to depart from it.
Because retrenchment is treated as legally distinct from dismissal for misconduct, and carries its own compensation obligation, labelling what is really a restructuring as a disciplinary termination, in order to avoid that obligation, is both legally risky and easily challenged.
Shops and Establishments Ordinance
The provincial law that regulates conditions of employment in shops, commercial establishments and offices, covering matters such as working hours, holidays, leave and termination for staff outside factory settings.
Each province now maintains its own version of this law, descended from a single ordinance that once applied nationwide before labour law was devolved to the provinces. The substance is broadly similar from province to province, but the exact wording, and any updates made since, differ.
It applies to commercial and office based establishments, as distinct from factories, which sit under separate legislation, and it sets baseline rules on matters such as weekly rest days, leave entitlement, working hours and permitted closing days.
Larger establishments covered by this ordinance are also frequently subject to the Standing Orders regime for discipline and termination, so in practice the two laws are usually read and applied together rather than as alternatives to one another.
Registering under the applicable provincial Shops and Establishments law is normally one of the very first compliance steps when a company opens an office in a new province.
Sick Leave
Paid leave granted for illness or injury, typically requiring a medical certificate once an absence runs beyond a short number of days, and tracked separately from annual and casual leave.
Employees are generally entitled to a set allowance of paid sick leave each year, with the employer entitled to ask for a doctor’s certificate to support longer periods of absence.
Where an employee is registered with a provincial social security institution, part of their income protection during illness may come through that institution’s own cash sickness benefit rather than through company administered sick leave alone, so the two sit alongside each other rather than duplicating one another.
Unused sick leave is generally treated quite differently from annual leave: it is far less commonly encashed on leaving, since its purpose is protection against illness rather than a savings style entitlement that accumulates value over time.
Termination of Employment and Notice
The rules governing how an employer may lawfully end someone’s employment, including the notice, or payment in lieu of notice, required, and the process to be followed depending on the reason for termination.
Employment can end through resignation, mutual agreement, the expiry of a fixed term contract, retrenchment because a role is no longer needed, or dismissal for misconduct, and each route carries its own process and its own entitlements under the applicable Standing Orders or Shops and Establishments Ordinance.
Either side is generally expected to give a notice period, or a payment in place of notice, before ending employment, with the specific length usually set by the contract, subject to any statutory minimum under the applicable law.
Dismissal for serious misconduct typically follows a defined enquiry procedure under the Standing Orders, and in genuine cases of serious misconduct can allow termination without notice or certain final payments. Departing from that procedure, rather than the underlying reason itself, is one of the most common grounds on which a dismissal is successfully challenged.
Whatever the route, a clear documented reason, a fair process, and a proper full and final settlement covering outstanding salary, leave encashment and any gratuity or provident fund due, are what separate a defensible termination from a disputed one.
Trade Union
An organisation of workers formed to represent their collective interests on pay, conditions and disputes with an employer, with the right to register and organise protected under Pakistani industrial relations law.
Workers in an establishment or industry can form and register a trade union, subject to meeting the requirements of the applicable federal or provincial Industrial Relations law, and they are legally protected against being penalised simply for joining or organising one.
A registered trade union is not automatically the workplace’s bargaining voice: where more than one union exists at an establishment, only the one certified as the Collective Bargaining Agent (CBA) negotiates formally on behalf of the whole workforce, even though every registered union keeps its own organisational rights.
Which specific law and forum governs a union depends, again, on devolution: certain trans-provincial and Islamabad based establishments fall under federal industrial relations law, while most others fall under the relevant province’s own version.
Wage Categories
The standard worker grades, commonly unskilled, semi-skilled, skilled and highly skilled, against which provincial minimum wage law sets a rate, meaning minimum wage is not one single blanket figure across an entire workforce.
Provincial Minimum Wage notifications generally set out a scale rather than a single number, with a base rate for unskilled workers and progressively higher rates for semi-skilled, skilled and highly skilled workers, sometimes with further distinctions for particular trades or sectors layered on top of the general scale.
Getting this right depends on classifying each role honestly against the real nature of the work, in the same spirit as the Categories of Workmen classification used for Standing Orders purposes, rather than defaulting everyone to the lowest category to minimise cost, or, just as wrongly, labelling roles upward without a genuine basis.
For payroll, this means storing a wage category against each employee as a deliberate, reviewed field, not a one-off setting made at hiring, since a worker who gains a recognised skill or moves into more skilled work over time should be reassessed against the scale rather than left on their original category indefinitely. Each province’s Labour Department publishes the current rate for every category.
Where to Find Pakistan Employment Rules
A short guide to which authority actually publishes the current, figure-specific detail behind Pakistan’s employment rules, since the concepts in this glossary are explained in general terms while the numbers behind them are set, and regularly revised, by specific bodies.
For anything to do with salary income tax, slabs, rates, exemptions and the withholding rules employers must apply, the Federal Board of Revenue (FBR) is the source to check. For old-age pension, invalidity and survivor benefits under the single federal scheme that applies wherever in Pakistan a worker is based, the Employees Old-Age Benefits Institution (EOBI) is the authority.
Everything else of real substance in Pakistani labour law sits at the provincial level, which is why there is no single national answer to most questions. Each province’s own Labour Department is the source for the current minimum wage notification, and for the specific labour law, whether a consolidated code or a set of separate statutes, in force in that province. Each province’s own Employees Social Security Institution is the source for social security registration, contribution and benefit detail for workers based there.
The practical habit worth building is to always ask which government level, and which specific body, actually owns the figure or the rule being relied on, and to treat the province a worker actually works in, rather than where a company is headquartered, as the starting point for finding the right one.
Withholding Tax on Salary (WHT)
The requirement for employers to deduct income tax directly from an employee’s salary every pay period, under the withholding tax (WHT) rules, and deposit it with the tax authority, rather than leaving each employee to settle their own tax bill at year end.
Under this system the employer acts as a withholding agent: expected annual income is taxed against the salary tax slabs the government sets, and the resulting annual figure is spread across the pay periods in the year rather than charged all at once.
For most salaried people, tax withheld this way is an adjustable advance tax: it is set against the employee’s final annual tax liability once a return is filed, rather than being an automatically final charge, so over or under withholding during the year is corrected rather than simply left as is.
Beyond the deduction itself, the employer must deposit withheld tax within the required timeframe, issue each employee an annual statement of what was withheld, and file periodic and annual withholding returns with the Federal Board of Revenue (FBR).
Getting withholding wrong, in either direction, creates two separate problems: an employee trust and take home pay problem if too much is taken, and a compliance exposure for the employer if too little is, since correcting under withheld tax is the employer’s liability to fix.
Workers Profit Participation Fund (WPPF)
A scheme requiring qualifying companies to share a portion of their annual profit with eligible employees, paid either directly or through a trust fund set up for that purpose.
A qualifying company sets aside a share of its annual profit, which is then allocated among eligible employees, commonly with reference to salary and length of service, and paid out as a yearly participation payment once the year’s accounts are finalised.
Not every company is covered: the obligation generally attaches to companies of a particular legal form and size, and not every employee necessarily qualifies, since senior management can be excluded under the scheme’s own rules.
The Workers Profit Participation Fund (WPPF) is a statutory profit sharing obligation tied to a set formula, which is a meaningfully different thing from a discretionary bonus that a company can vary or withhold from one year to the next.
Because it depends on the audited annual profit figure, WPPF is usually calculated and paid after the year end accounts close, rather than as part of a regular monthly payroll cycle.
Workers Welfare Fund (WWF)
A federal fund financed by contributions from industrial and commercial establishments above a certain profit level, used to finance housing, education and other welfare schemes for workers generally, rather than paid to any individual employee.
Eligible establishments pay a contribution calculated on their taxable profit, collected alongside the ordinary income tax process, and the resulting Workers Welfare Fund (WWF) is used to build worker housing colonies, schools and similar welfare projects rather than distributed to individual workers directly.
It is easy to confuse with the Workers Profit Participation Fund (WPPF): WWF is a welfare fund drawn from a share of company profit and spent on broader worker welfare infrastructure, while WPPF distributes a share of profit to individual eligible employees. The two obligations are separate and can both apply to the same company in the same year.
Whether a particular company is liable for WWF depends on its legal form, sector and profit position, so this is normally assessed alongside the annual corporate tax return rather than calculated as part of the regular monthly payroll run.