There is a specific stage in a Pakistani business, usually somewhere between the fourth and the tenth person, where the informal arrangement stops working. Until then everyone is paid in cash or by transfer, against no contract, with terms agreed verbally and remembered differently by each side. It is normal, it is extremely common, and it works right up until the first dispute, the first audit, the first serious client who asks about your employment practices, or the first time a good person leaves because there is nothing holding them.
Formalising employment is not a paperwork exercise. It is the thing that lets you hire people better than the ones you can currently attract, because a written offer, a payslip and a registered social security number are what a competent candidate with options expects.
One standing note. No wage rates, contribution percentages, thresholds or filing dates appear below. Labour is largely a provincial subject in Pakistan, so the answer differs depending on where you operate, and the numbers change with each provincial budget. Take them from the source that sets them: the Employees' Old-Age Benefits Institution for pension contributions, your provincial social security institution and provincial labour department for social security, minimum wage and registration, and FBR for salary withholding.
The short version
- Put it in writing before the first salary. A short written contract prevents almost every dispute that later costs real money, and retrofitting one after a disagreement is nearly impossible.
- Registration obligations are provincial. Where your office sits determines which institution you register with and what you owe.
- EOBI and provincial social security are employer obligations, not employee choices, and arrears accumulate quietly with penalties.
- Salary withholding is your job as employer. Getting this wrong is a routine and avoidable finding.
- Payroll is a monthly process, not a monthly transfer. Payslips, records and deductions, run the same way every month.
What you are actually signing up for
Four separate obligations, which people tend to collapse into one and then miss three.
A written contract or appointment letter with each employee. Sets out role, salary, hours, leave, notice and confidentiality. Provincial standing orders impose requirements on terms and on issuing appointment letters in the businesses they cover.
Registration with EOBI. The federal old-age benefits scheme. Employers meeting the criteria register the establishment and their employees, and contribute for each of them. The employee contribution is deducted; the employer contribution is a cost on top of salary, which is the part first-time employers routinely forget to budget for.
Registration with provincial social security. Punjab, Sindh, Khyber Pakhtunkhwa and Balochistan each run their own institution, giving covered employees access to medical care. Registration and contributions are the employer's responsibility, and the criteria differ by province.
Salary withholding and payroll records. You deduct income tax from salaries at source, deposit it, and report it. You keep records of what was paid to whom.
There are further obligations depending on your province, sector and size, including matters like provident funds, workers' welfare, and shop and establishment registration. If your headcount is growing past ten, that is the point to get provincially specific advice rather than general advice.
Employee, contractor, or capacity: choosing honestly
The most common way Pakistani businesses get this wrong is calling someone a contractor because it is administratively easier, while treating them exactly like an employee.
| Contractor | Employee | Managed capacity | |
|---|---|---|---|
| Works set hours you control | No | Yes | Handled by the provider |
| Uses your systems and equipment | Usually not | Yes | Provider's |
| Works for other clients | Yes | No | Not your concern |
| You direct how the work is done | No | Yes | Through the provider |
| EOBI and social security | Not yours | Yours | Provider's |
| Salary withholding | Different mechanism | Yours | Not applicable |
| Notice and termination | Per contract | Per law and contract | Per agreement |
| Right for | Genuinely independent specialists | Core, ongoing roles | Volume work you do not want to manage |
The test is substance, not the label on the document. If someone works your hours, at your desk, under your direction, exclusively for you, calling them a contractor does not make it so, and the exposure sits with you rather than with them. If what you actually need is capacity rather than headcount, say so and buy it as capacity: that is the honest version of the third column, and it is what our virtual assistant services do.
What the contract must contain
Keep it short and make it real. A two-page contract that everyone has read beats an eighteen-page template nobody has.
- Role and reporting line. Specific enough to mean something.
- Salary, and what is gross versus net. Ambiguity here causes more disputes than any other clause.
- Working hours, days and location, including whether remote is permitted and on what terms.
- Leave, at or above the statutory entitlement for your province.
- Notice period, both directions, and what happens during it.
- Confidentiality, and for anyone touching client data, something specific about it.
- Intellectual property assignment. Non-negotiable for any technical, creative or product role. Anything an employee produces in the course of employment should be assigned to the company in writing. If you sell software or creative work, a client's due diligence will eventually ask for this, and its absence has ended acquisitions.
- A probation period with a shorter notice term.
Have it reviewed once by a lawyer familiar with your province, then reuse it. That single review is the cheapest legal spend available to a growing Pakistani business.
The order that keeps this cheap
1. Before the first hire: decide the structure. If you are hiring people, you probably want a company rather than a proprietorship, mostly for liability. SECP company versus sole proprietorship covers it.
2. Before the first salary: write the contract. Not after the probation, not after the dispute.
3. In the first month: register. EOBI and your provincial social security institution, based on where the establishment operates. Voluntary early registration is far cheaper than assessed arrears later.
4. From the first payroll run: do it properly. Payslip showing gross, deductions and net. Salary paid by bank transfer, not cash. Withholding deducted and deposited. A payroll register you can produce on request.
5. By the fifth employee: write down the rules. Leave, working hours, expenses, conduct. Not a handbook, a few pages. The moment you have five people, "ask me" stops scaling and starts producing inconsistent answers that look like favouritism. The first ten SOPs every growing business needs has the wider list.
6. By the tenth: get provincially specific advice once. An hour with someone who knows your province's requirements, before you have a problem.
The part nobody budgets for
Employer costs sit on top of salary, not inside it. EOBI contributions, social security contributions, any gratuity or provident arrangement, plus the practical costs of equipment, a desk if you have an office, and the management time that a first employee consumes far out of proportion to their salary.
Budget the fully loaded figure before you make the offer. The most common founder error we see is offering a salary the business could afford and then discovering the employment costs on top, which then arrives as pressure on a cash position that was already tight. If you have not built a thirteen-week cash flow forecast, do that before the first hire rather than after.
Frequently asked questions
Do I have to register with EOBI if I only have two or three employees?
That depends on the current criteria and on your province, so check with EOBI directly. What is consistent: the obligation is the employer's, unregistered periods can be assessed retrospectively with penalties, and voluntary registration is materially cheaper than an assessment.
Can I pay salaries in cash?
You can, and you should not. Cash payroll produces no evidence of what was paid, makes withholding difficult to demonstrate, and leaves you unable to prove your own cost base to a bank, an investor or a buyer. Bank transfer plus a payslip costs nothing and removes an entire category of dispute.
Are remote employees in another province a problem?
They can be, because labour obligations are provincial and the answer may depend on where the employee actually works rather than where your office is. If you are hiring across provinces, get advice once rather than assuming. The management side is covered in building a distributed team.
What about hiring developers specifically?
Same employment obligations, different market dynamics and a different assessment process. The buyer's guide to hiring developers in Pakistan covers that end.
Where to go next
The stage where informal becomes formal is exactly where growth either compounds or stalls, and it is the work we do most: structure, contracts, registrations, payroll and the operating rules underneath, handled together. That is business scaling consulting. If you would rather add capacity than headcount right now, virtual assistant services is the other route. Either way, talk to us.
