Pakistan

Pakistan, a South Asian country, is characterized by its diverse landscapes, ranging from the Himalayas to the fertile Indus Valley, which significantly influence its socio-economic and cultural identity. The nation's history includes ancient civilizations like the Indus Valley Civilization and periods under the Mauryas, Mughals, and British Raj, culminating in its establishment as a separate Muslim-majority country in 1947.

The socio-economic landscape presents both challenges, such as uneven development and political instability, and opportunities, including a strategic location and a young population. The workforce, predominantly in the informal sector, faces skill gaps and high unemployment, prompting efforts to enhance vocational training and education aligned with market needs.

Cultural norms in Pakistan impact employment practices, emphasizing family commitments and featuring indirect communication and formal hierarchical structures in workplaces. The economy is driven by agriculture, textiles, services, and manufacturing, with significant growth in the IT sector and potential in tourism. Addressing infrastructure and skill deficiencies is crucial for sustainable development and leveraging the economic sectors for broader employment opportunities.

• Income Tax Deduction at Source (TDS): In Pakistan, employers must deduct income tax from employee salaries based on the Federal Board of Revenue (FBR) tax tables. Employees earning under PKR 600,000 annually are exempt. Deductions are calculated from the employee's taxable income, which is their gross salary minus exempt allowances, and must be deposited within 7 days of salary payment.

• Employee Social Security Institution (ESSI) Contributions: Employers with over five employees must contribute 5% of the employee's wages to ESSI, with rates varying by province. Employees contribute 1%. Deadlines for these contributions also vary by province.

• VAT Regulations: The standard VAT rate in Pakistan is 17%, with some services taxed at a reduced rate of 14%. Services like education, healthcare, and public transport are exempt from VAT. Businesses with an annual turnover exceeding PKR 30 million must register for VAT and file returns electronically, either monthly or quarterly.

• Tax Incentives: Pakistan offers various tax incentives including tax holidays for businesses in Special Economic Zones (SEZs), tax credits for R&D activities, reduced tax rates for new businesses in specific sectors, and special treatment for export-oriented businesses. These incentives aim to encourage investment and economic growth in targeted sectors and activities.

• Additional Considerations: Employers need to register with the FBR to obtain a National Tax Number (NTN) and file bi-annual income tax withholding statements. Certain allowances are exempt from income tax calculations, potentially reducing taxable income.

• Annual Leave: Employees in Pakistan are entitled to 14 consecutive days of annual leave after completing twelve months of continuous service, as per the Factories Act, Section 49-B. Unused leave can be carried forward, with a maximum accumulation of 28 or 30 days.

• Payment During Leave: Employees receive their daily wages while on annual leave.

• Public Holidays: Pakistan celebrates various public and Islamic holidays, including Eid al-Fitr, Eid al-Adha, Eid Milad-un-Nabi, Ashura, Pakistan Day, Independence Day, Kashmir Day, Labour Day, Iqbal Day, Quaid-e-Azam Day, and Christmas. These holidays reflect the country's rich religious and cultural heritage.

• Leave Policies: Other leave entitlements include sick leave and casual leave, with specific provisions varying by region and type of employment. Unpaid leave options like extraordinary leave and Hajj leave are also available, subject to certain conditions.

In Pakistan, employers are mandated to provide several benefits to their employees, focusing on health, well-being, and financial security. These include paid leave for national and religious holidays, annual leave, casual leave, and sick leave. Additionally, employers contribute to social security and the Employees' Old-Age Benefits Institution (EOBI), which offers pensions and other benefits.

The Workers' Compensation Act, 1923, ensures employees receive medical care and compensation for work-related injuries or illnesses, including death benefits for dependents.

Optional benefits provided by some employers include health insurance, financial benefits like gratuity and provident funds, work-life balance perks such as flexible working hours and remote working options, and training and development opportunities to enhance employee skills and career growth.

Health insurance, while currently optional, may become mandatory as the Securities and Exchange Commission of Pakistan (SECP) is considering a proposal for compulsory health coverage for private sector employees.

Retirement plans vary, with mandatory schemes like EOBI and voluntary options like provident funds, gratuity, and the Voluntary Pension System (VPS), each offering different benefits and suited to varying individual needs and financial goals.

The Industrial and Commercial Employment (Standing Orders) Ordinance, 2018 in Pakistan provides a legal framework for employment termination, specifying lawful grounds for dismissal such as misconduct, incompetence, and absence without leave, among others. It mandates a fair inquiry process before dismissal and sets notice requirements based on the length of service, ranging from one to three months. Severance pay is also outlined, with employees entitled to one month's pay for each year of service, except in cases of misconduct or gross negligence.

Additionally, Pakistan has various laws to protect against workplace discrimination, covering characteristics like religion, race, gender, and disability. Employers are required to implement anti-discrimination policies and provide diversity training. The legal landscape for anti-discrimination in the private sector, however, still needs more comprehensive legislation.

Workplace regulations under the Factories Act, 1934, and other ordinances set maximum working hours and mandate rest periods, but lack specific provisions for ergonomic requirements. Health and safety obligations for employers include maintaining a safe work environment and minimizing exposure to hazardous substances, with employee rights to a safe workplace and information on safety procedures also recognized.

Enforcement of these regulations is primarily the responsibility of Provincial Departments of Labour and other relevant agencies, though there are concerns about the effectiveness of these enforcement mechanisms.

In Pakistan, employment contracts vary based on duration, purpose, and specific terms, accommodating different types of employment relationships:

• Permanent Employment Contracts: These offer long-term employment and full benefits, crucial for ongoing company operations. Although not mandated by law to be in writing, it is recommended for clarity and security of rights.

• Badli (Alternate) Employment Contracts: Temporary arrangements where a Badli worker fills in for an absent permanent employee, without the benefits of permanent staff.

• Temporary Employment Contracts: Used for specific projects or seasonal work, these contracts are typically less than nine months long.

• Apprenticeship Agreements: Designed for individuals in formal training programs, detailing training duration, stipends, and job placement upon completion.

• Contract Worker Agreements: For employees hired for a specific period to complete a task, often paid by piece rates and possibly exempt from overtime pay under certain conditions.

The employment agreement should clearly outline terms regarding remuneration, benefits, working hours, overtime, leave policies, termination, and dispute resolution. It should comply with Pakistani labor laws, and consulting a legal professional is advisable.

The probation period, typically three to six months, allows both employer and employee to assess suitability. The employment agreement should detail the probation terms, including duration, performance evaluation, and consequences of completion or termination during probation.

Additionally, employment agreements may include confidentiality clauses to protect sensitive information and non-compete clauses to prevent employees from joining competitors immediately after leaving the company. However, non-compete clauses are scrutinized to ensure they do not unreasonably restrict an employee's right to earn a livelihood. Alternatives like non-solicitation clauses are often more favorably viewed by courts.

• Legislation and Framework: Pakistan lacks specific legislation for remote work, but existing laws like The Employment Act, 1923, and The West Pakistan Shops and Establishments Ordinance, 1965 provide a basic framework. These laws cover employee rights, working conditions, and leave policies adaptable to remote work. Pakistan has not ratified the ILO Convention C177 on Telework.

• Technological Infrastructure: Successful remote work in Pakistan requires reliable technology infrastructure, including stable internet, communication tools, and cybersecurity measures. Employers are responsible for providing or reimbursing the necessary technological equipment.

• Employer Responsibilities: Employers must develop clear remote work policies, provide technology training, support ergonomic home setups, ensure fair compensation, and address potential social isolation to promote mental well-being.

• Flexible Work Options: Options like part-time work, flexitime, and job sharing are available, with existing labor laws providing a regulatory basis.

• Equipment and Expense Reimbursements: There is no legal obligation for employers to provide equipment or reimburse expenses, but clear policies are essential for a fair work environment. Employers may provide equipment or stipends and reimburse internet costs.

• Data Protection: The Constitution of Pakistan and The Electronic Transactions Ordinance, 2002 ensure data protection, emphasizing the privacy and security of employee data in remote work settings. Employers must implement robust data security measures and policies.

• Employee Rights and Best Practices: Remote employees have rights to data privacy and security, with responsibilities to maintain data integrity and report security issues. They should practice strong password hygiene and be cautious with data sharing.

Overview of Labor Laws in Pakistan

Pakistan's labor laws regulate working hours to protect employee well-being and prevent exploitation. The Factories Act, 1934, sets daily working hours for adults at a maximum of nine hours, with women not allowed to work past 7 pm. The weekly limit is 48 hours, with overtime capped at 56 hours weekly, including a maximum of 8 overtime hours. Overtime pay is double the regular rate, increasing to triple on festival holidays, though exceptions like The Railways Act offer a minimum of 1.25 times the rate.

Daily and Weekly Rest Requirements

Employees must not work more than five consecutive hours without a break, with a total rest period of at least one hour. Weekly, they are entitled to 24 consecutive hours off, typically on Sundays, though alternatives can be negotiated.

Special Considerations

During Ramadan, work hours are reduced by 2 to 3 hours. Night work, defined as work between 7 pm and 6 am, is generally prohibited for women, with specific exceptions for pregnant women. Weekend work on designated rest days requires overtime compensation.

These regulations aim to ensure the health, safety, and well-being of workers, with additional provisions for breaks, night shifts, and weekend work. For the most accurate and specific information, consulting the Ministry of Labour & Manpower or relevant legislation is recommended.

Understanding market competitive salaries in Pakistan is crucial for ensuring fair employee compensation and for companies to attract and retain talent. Factors influencing these salaries include:

• Cost of Living: Varies by location, with urban areas like Karachi and Lahore being more expensive than rural areas.
• Job Title and Industry: Different sectors and job titles have varying salary benchmarks, with fields like technology and finance often offering higher salaries.
• Experience and Qualifications: More experienced and qualified candidates typically command higher salaries.
• Company Size and Reputation: Larger companies may offer better salaries and benefits, while smaller ones might offer quicker career progression.
• Negotiation Skills: Effective negotiation can significantly impact salary outcomes.

Resources for Researching Salaries:

• Salary surveys, job boards, and recruitment agencies provide data and insights into current salary trends.

Minimum Wage Regulations:

• Governed by the Minimum Wages Ordinance, 1961, which allows provinces and the Islamabad Capital Territory to set minimum wages for various worker categories.
• Minimum Wage Boards recommend rates for different worker types and must review these at least every three years.
• Enforcement of minimum wage laws includes penalties like imprisonment or fines for non-compliance.

Employee Compensation:

• Includes mandatory bonuses like profit bonuses, which are dependent on company performance and employee eligibility.
• Common allowances cover housing, travel, education, and overtime, with additional industry-specific allowances also available.

Payroll System:

• Employers in Pakistan can choose their pay frequency, with monthly being the most common.
• The Factories Act, 1934 mandates monthly payments at minimum.
• Payslips, detailing earnings and deductions, are legally required for transparency and record-keeping.

These components are integral to understanding and implementing competitive salary and compensation practices in Pakistan.

In Pakistan, the Industrial Relations Ordinance (IRO) 2002 governs employment termination and outlines the legal requirements for notice periods. The key points include:

• Minimum Notice Period: A one-month notice is mandatory for terminating indefinite or permanent contracts, with compensation equivalent to one month's wages if notice isn't given.
• Notice Period Variations: Notice periods can be extended via contractual agreements. During a probation period, typically three months, contracts can be terminated without notice or compensation.
• Additional Considerations: Fixed-term contracts may have specific clauses that override general provisions. Disputes are handled by labor or civil courts, and financial compensation, known as severance pay, is mandated for eligible employees unless termination is due to misconduct.
• Severance Pay: Eligible employees receive a minimum of 30 days' wages for each year of service, calculated pro-rata for periods over six months, based on the average earnings of the last three months.
• Alternative to Severance Pay: Employers may opt to contribute to a provident fund instead of direct severance pay, which accumulates and is disbursed upon retirement or termination.

Termination procedures require adherence to specific steps including written notice, honoring notice periods, final payments, and issuing a certificate of service. Documentation throughout the process is crucial to minimize disputes.

In Pakistan, the distinction between an "employee" and a "workman" significantly affects their rights and obligations. The classification of a worker, whether as an employee or contractor, is determined by factors such as control over work, nature of work, integration into the business, and handling of benefits and taxes. The legal landscape for worker classification is still evolving, with case law providing some guidance but lacking a definitive framework.

For independent contractors, it's crucial to have a well-structured contract that outlines the scope of work, payment terms, and termination clauses. Effective negotiation practices are essential, focusing on setting rates, defining payment terms, and managing scope creep. Independent contracting is prevalent in industries like IT, creative sectors, and consulting, benefiting from the flexibility and specialized skills offered.

Freelancers must navigate intellectual property rights carefully, ensuring contracts clearly define copyright ownership and usage rights. The Copyright Act of 1976 primarily governs these aspects, with specific provisions for "work made for hire." Freelancers are advised to take steps to protect their work, such as copyright registration and using NDAs.

Regarding tax obligations, freelancers and independent contractors in Pakistan must register with the Federal Board of Revenue, file income taxes, and may voluntarily contribute to social security for future benefits. They also have various insurance options to secure their health and financial well-being. Consulting with legal and financial experts is recommended to navigate these complexities effectively.

Pakistan has a robust legal framework for public health and occupational safety, governed by both federal and provincial laws. The Pakistan Occupational Health and Safety Act, 2018 (POHSA 2018) sets the national standard, while provinces like Sindh, Punjab, Khyber Pakhtunkhwa, and Balochistan have their own specific legislation. Other important laws include the Factories Act, 1934, the Mines Act, 1923, and the Dock Workers Act, 1934, which address safety in specific work environments.

Public health is also well-regulated with laws like the National Institute of Health Ordinance, 1980, various food safety laws, communicable disease control laws, and the Environmental Protection Act, 1997. These laws aim to manage public health risks and promote a safe living environment.

The enforcement of Occupational Health and Safety (OSH) involves identifying and eliminating workplace hazards, providing a safe work environment, developing OSH policies, training employees, and reporting accidents. Regular inspections by Provincial Labour Departments ensure compliance with OSH standards, focusing on general workplace safety, hazard control, emergency preparedness, and worker training.

In case of workplace accidents, employers must report incidents promptly, with investigations potentially following to determine causes and prevent future occurrences. Workers affected by accidents may be entitled to compensation through schemes like the Employees' Old-Age Benefits Institution or Workers' Compensation Scheme, or through civil lawsuits for employer negligence.

Pakistan's legal system offers two primary methods for resolving labor disputes: Labor Courts and Arbitration Panels, each with distinct roles, structures, and jurisdictions.

• Labor Courts: Established under the Industrial Relations Ordinance (IRO) 2002, these courts deal with a wide range of employment issues including unfair termination, non-payment of wages, and industrial disputes. The process involves filing a petition, issuing a summons, conducting hearings, and delivering a binding judgment.

• Arbitration Panels: Governed by the IRO 2002 and the Arbitration Act 1940, arbitration allows parties to choose a neutral third-party arbitrator to resolve disputes in a less formal setting than Labor Courts. The arbitrator's decision is usually final and preferred for complex or urgent disputes.

Additionally, compliance audits and inspections are crucial for ensuring businesses adhere to legal and regulatory standards. Various entities, including government agencies and private certification bodies, conduct these audits, which can be mandatory or risk-based.

Non-compliance can result in severe consequences such as financial penalties, operational restrictions, and reputational damage. Meanwhile, whistleblower protections are provided under specific laws like the National Accountability Bureau Ordinance 1999, although comprehensive legislation is lacking.

Pakistan's adherence to international labor standards is evidenced by its ratification of numerous International Labour Organization conventions and its compliance with the EU's GSP+ requirements, which necessitate continuous improvement of domestic labor laws. However, challenges remain in enforcement and legislation, particularly concerning informal sector workers and freedom of association.

• Communication Styles: In Pakistan, indirect communication is preferred due to respect for hierarchy and a desire to maintain group harmony. Directness increases with familiarity, but messages often remain implied.

• Formality: Formal language, in Urdu or English, is used in professional settings, reflecting the high power distance in Pakistani culture. Meetings are structured with agendas, emphasizing the hierarchical nature of interactions.

• Non-Verbal Cues: Non-verbal communication, such as eye contact, gestures, and facial expressions, plays a crucial role in conveying messages, especially given the indirect communication style.

• Negotiation: Pakistani business culture values long-term relationships, leading to a collaborative negotiation style, though distributive elements are present. Negotiations are lengthy and involve multiple rounds, with a significant reliance on non-verbal cues and personal relationships.

• Hierarchy in Business: Pakistani businesses are characterized by clear hierarchical structures, with decisions typically made at the top. This impacts team dynamics, limiting cross-functional collaboration and reinforcing deference to authority.

• Holidays and Observances: Major Islamic holidays like Eid al-Fitr and Eid al-Adha, along with national holidays such as Independence Day, significantly affect business operations. Regional observances also impact business activities, and businesses must respect these cultural and religious significances in their scheduling and operations.