Payroll and Employment Taxes in Pakistan

Overview of Payroll Taxes in Pakistan

Understanding payroll taxes in Pakistan is crucial for both small business owners and larger enterprises to ensure compliance with legal requirements and maintain employee trust. Employers in Pakistan need to be aware of various taxes, including income tax withholding, social security contributions, and other levies. Managing these payroll taxes can be challenging due to complex regulations and the risks of non-compliance, such as penalties and strained employee relations.

Fiscal Year in Pakistan

1 January- 31 December is the 12-month accounting period that businesses in Pakistan use for financial and tax reporting purposes.

Payroll Cycle in Pakistan

The payroll cycle in Pakistan is usually monthly, with employees being paid as stipulated in the employment contract.

Minimum Wage in Pakistan

The minimum wage for employees in Pakistan is typically 192.71 PKR per hour, amounting to ~37,000 PKR per month for a typical 45 hour work week.

Bonus Payments in Pakistan

Employers are not legally required to make 13th-month salary payments in Pakistan.

Types of Payroll Taxes in Pakistan

In Pakistan, employers must navigate various types of payroll taxes, each with its own regulations and compliance requirements.

Income Tax Withholding

Employers are responsible for withholding income tax from employees' salaries based on progressive tax rates. The tax rates for the fiscal year 2022-2023 are as follows:

 
• Up to PKR 600,000: 0%
 
• PKR 600,000 - PKR 1,200,000: 5%
 
• PKR 1,200,000 - PKR 1,800,000: 10%
 
• PKR 1,800,000 - PKR 2,500,000: 15%
 
• PKR 2,500,000 - PKR 3,500,000: 17.5%
 
• PKR 3,500,000 - PKR 5,000,000: 20%
 
• PKR 5,000,000 - PKR 8,000,000: 22.5%
 
• PKR 8,000,000 - PKR 12,000,000: 25%
 
• PKR 12,000,000 - PKR 30,000,000: 27.5%
 
• PKR 30,000,000 - PKR 50,000,000: 30%
 
• PKR 50,000,000 - PKR 75,000,000: 32.5%
 
• Over PKR 75,000,000: 35%

Employers must deduct the appropriate tax amount each month and remit it to the Federal Board of Revenue (FBR). Failure to comply can result in penalties and legal action.

Social Security Contributions

Pakistan's social security system includes contributions to the Employees' Old-Age Benefits Institution (EOBI). Both employers and employees contribute to this fund, with employers contributing 5% and employees contributing 1% of the minimum wage. These contributions fund pensions and other benefits for employees.

Provincial Taxes

In addition to federal taxes, employers may be subject to provincial taxes, such as the Sindh Employees' Social Security Institution (SESSI) contribution, which is 6% for salaries below PKR 30,000.

How To Set Up Payroll in Pakistan

Setting up payroll correctly is vital to ensure compliance with legal requirements and maintain employee trust.

Example Calculation

Consider an employee earning a monthly salary of PKR 100,000.

 
• Income Tax: 15% tax rate = PKR 15,000.
 
• Employer's EOBI Contribution: 5% of the minimum wage (e.g., PKR 1,250).
 
• Employee's EOBI Contribution: 1% of the minimum wage (e.g., PKR 250).
 
• Net Salary: PKR 100,000 - PKR 15,000 - PKR 250 = PKR 84,750.

Submitting Payroll Tax in Pakistan

 
• Online Portals: Utilize the FBR's online portal for income tax submissions.
 
• Bank Deposits: Payments can be made at designated banks authorized to collect taxes.
 
• EOBI Online System: Employers can use the EOBI's online submission system.

Payroll Tax Due Dates in Pakistan

Payroll Contributions in Pakistan

Understanding the tax obligations for both employers and employees is crucial when operating in Pakistan's business landscape. This section explains how taxes and statutory fees affect payroll and individual earnings in Pakistan.

Employer Tax Contributions

• Employees' Old-Age Benefits Institution (EOBI): Employers are required to contribute 5% of the minimum wage to the EOBI, which provides pensions and other benefits to employees upon retirement or disability. For example, if the minimum wage is PKR 25,000, the employer's contribution would be PKR 1,250 per employee per month.
• Provincial Social Security Contributions: Employers must also contribute to provincial social security schemes. The contribution rate varies by province; for instance, in some regions, it is 6% of the employee's salary, up to a specified limit. These contributions fund medical care and other social security benefits for employees.

Employer payroll contributions are generally estimated at an additional 13.33% plus 150 PKR per month on top of the employee salary in Pakistan.

Employee Payroll Tax Contributions

• EOBI: Employees contribute 1% of the minimum wage to the EOBI. Using the same example, if the minimum wage is PKR 25,000, the employee's contribution would be PKR 250 per month.
• Healthcare: Employees may also be required to make nominal contributions to provincial social security schemes, depending on regional regulations.

In Pakistan , the typical estimation for employee payroll contributions cost is around 1%.

Individual Income Tax Contributions

Individual income tax in Pakistan varies from 0% to 35%, calculated using progressive rates based on factors such as household status and the number of children. These contributions affect both the employer's payroll expenses and the employee's net earnings. Employers need to account for their portion of contributions when budgeting for personnel costs. Simultaneously, employees will see deductions in their gross salaries corresponding to their contribution obligations, resulting in the net pay they take home.

Pension in Pakistan

Employers contribute 5%, employees contribute 1% towards old-age pensions. Eligibility starts at the government mandated retirement age of 60 for both men and woman.

Managing Common Payroll Challenges in Pakistan

‍Global employers operating in Pakistan often encounter unique payroll challenges that can affect compliance and efficiency, like navigating evolving tax laws and managing employee data. With a need for real-time accuracy, modern organizations must develop strategies to overcome these challenges effectively. Below, we explore some of the most common payroll hurdles and provide actionable solutions to streamline payroll processes in Pakistan.

Maintaining Accurate and Detailed Payroll Reports

Maintaining accurate global payroll reports is often challenging due to currency exchange complexities, data integration issues, and the need to keep employee information up-to-date – including tax information, hours worked, leave balances, and any changes in salary or job status. Generating accurate reports is easy with a comprehensive payroll automation tool that consolidates fragmented data sources, and can keep track of employee payments and deductions.

Keeping Up With Ever-Changing Tax Laws & Compliance Laws

In Pakistan, tax laws and compliance regulations can change frequently, presenting a significant challenge for global employers. Monitoring updates to federal, state, and local tax codes is crucial to avoid non-compliance and costly penalties, but requires significant time and resources. Partnering with local experts or a reputable global HR platform is an effective way to maintain compliance. These services can help employers stay compliant with evolving regulations while freeing up time for more strategic work.

Consolidating Multi-Vendor Payroll Analytics

Managing payroll across multiple vendors often leads to fragmented data and inefficiencies, making it difficult to consolidate analytics. These challenges can hinder decision-making, especially when trying to gain a clear view of workforce costs and trends. To address this, organizations can invest in a centralized payroll management system that unifies data from multiple vendors. A consolidated platform simplifies payroll tracking, ensures data accuracy, and provides actionable insights into payroll expenditures.

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Integrating Multiple HR & Payroll Systems

Global companies are prone to using multiple HR or payroll systems across regions, which can easily lead to fragmented payroll data, increasing the risk of delays and errors in employee compensation. To combat this, seamless integration between payroll and other systems is critical.

Payroll management systems that connect with existing HR and financial platforms can help streamline workflows by reducing manual inputs and ensuring that all departments operate with up-to-date, accurate information. In turn, this helps guarantee on-time, accurate payroll, boosting employee satisfaction.

What Does a Global Payroll Management Platform Cover?

A global payroll management platform is a software solution designed to streamline and automate the payroll processes for organizations with employees across multiple countries. It helps ensure accurate and timely payment while maintaining compliance with legal and regulatory requirements in Pakistan.

Key functions of a payroll management platform can include:

• Consolidate payroll data: Streamline fragmented payroll data into one source of truth when you’re operating in multiple regions.‍
• Analytics and reporting: Advanced capabilities to analyze payroll data and generate automated reports per region.
• Monitor and standardize payroll: Get an accurate view of employee costs, bonuses, and taxes per region, catch variances, and standardize payroll processes across regions to minimize errors.
• Compliance and record-keeping: Maintains accurate payroll records and ensures adherence to labor laws and regulations, reducing the risk of legal issues.
• Employee self-service: Provides portals where employees can access pay stubs, update personal information, and manage benefits selections.

How Playroll Can Streamline Payroll & Taxes in Pakistan

Expanding globally is an exciting milestone for any company, but it comes coupled with complex payroll challenges. It doesn’t have to be complicated. At Playroll, our easy-to-implement global payroll management software combines automation with hands-on support to make global payroll truly simple. Here's how Playroll helps:

• Multi-Vendor Integration: Our platform syncs seamlessly with your providers and in-house systems to unify global payroll services in one platform.
• Standardize Payroll Processes: Unify your operations in one dashboard to ensure payroll is running smoothly globally, with advanced approval flows and reports.
• Improve Governance & Compliance: Improve compliance by centralizing all your compliance tasks and processes. Easily track your payment obligations, with digitized audit trails.
• Advanced Reporting: Access and configure your data, your way, with a comprehensive suite of payroll analytics and reporting tools.