Updated 8/2026
Here's the rule that actually matters when you employ in Pakistan: there is no single national employment code. Since the 18th Constitutional Amendment devolved labor legislation to the provinces, Punjab, Sindh, Khyber Pakhtunkhwa, and Balochistan each run their own Shops and Establishments legislation and their own labor rules, layered on top of federal statutes that still apply nationally (the Industrial and Commercial Employment (Standing Orders) Ordinance 1968 for larger industrial and commercial establishments, the Factories Act 1934 for factory labor, the Payment of Wages Act 1936, and the Employees' Old-Age Benefits Act 1976 for pension contributions). The EOR platforms selling Pakistan hiring compress all of that into one generic country line. This page doesn't. Here's the breakdown, by topic, with the province flagged wherever it changes the answer.
Pakistani labor law generally recognizes three categories of leave: annual (earned) leave, casual leave, and sick leave, with the specific day counts set by the applicable federal ordinance or the relevant provincial Shops and Establishments law depending on the employer's sector and size. Under the Factories Act 1934 (section 49-B), a worker earns 14 calendar days of paid annual leave after 12 months of continuous service, and up to 14 unused days carry forward to the next year; see WageIndicator's Pakistan annual leave breakdown for the full rule. Casual and sick leave day-counts sit in the provincial Shops and Establishments laws rather than one federal figure, and they differ by province and by which statute covers the establishment, so confirm against the specific provincial act before relying on a number for a given hire.
| Leave type | Governing framework | What to confirm |
|---|---|---|
| Annual/earned leave | Factories Act 1934, s.49-B (14 days after 12 months' service, federal baseline); provincial Shops and Establishments law for non-factory establishments | Whether the hire's establishment falls under the Factories Act or the relevant provincial Shops and Establishments law, since the day-count baseline differs |
| Casual leave | Provincial Shops and Establishments law, employer-sector dependent | Current day-count in the specific province, generally short and often use-it-or-lose-it per cycle |
| Sick leave | Provincial Employees Social Security Ordinance 1965 (insured workers, ss.35-39) covers a separate paid sickness-benefit scheme; provincial Shops and Establishments laws set a smaller day-count for uninsured/non-factory staff | Which framework applies to the hire, since the Social Security Ordinance's 121-day sickness benefit is not the same entitlement as Shops and Establishments sick leave |
| Public holidays | Federal and provincial gazetted holiday notifications, reissued periodically | Current year's gazetted holiday count and dates, since these are set by government notification, not statute, and change annually |
Termination of a permanent employee in Pakistan generally requires a stated cause (for misconduct) or a notice period and, in some cases, retrenchment compensation (for redundancy), under the Industrial and Commercial Employment (Standing Orders) Ordinance 1968 for establishments it covers, or the relevant provincial Shops and Establishments law for others. Under Standing Order 12, a permanent worker may be terminated after one month's notice or payment in lieu of notice, and severance/retrenchment pay runs 30 days' wages for each completed year of service; the Khyber Pakhtunkhwa and Sindh provincial Standing Orders acts carry equivalent provisions (see WageIndicator's notice and severance summary). A worker's category, permanent, probationary, or temporary/contract, changes which rule applies. That's the detail templated EOR pages skip entirely, and it's the detail that gets buyers in trouble.
What EOR pages typically state: "Pakistan requires notice and severance for termination," as a single generic line.
What actually governs it: which statute applies depends on the establishment type (industrial vs. commercial vs. shop) and which province it operates in, and the notice period and severance formula differ by that classification. A buyer terminating someone in Lahore under a commercial Shops and Establishments classification isn't working from the same day-count as a factory termination in Karachi.
Pakistani law generally provides for a gratuity payment on termination (other than for misconduct) for employees who have completed a minimum period of continuous service, most often calculated as a set number of days' wages per year of service, unless the employer instead maintains a recognized provident fund arrangement that substitutes for gratuity. Under the Standing Orders Ordinance framework, gratuity vests after 12 months of continuous service and is calculated per completed year of service, but the rate itself is now provincial: 30 days' wages per year in Punjab and Islamabad Capital Territory, one month's wages per year in Khyber Pakhtunkhwa and Sindh, and two months' wages per year in Balochistan, per WageIndicator's gratuity-law summary citing Standing Order 12 and its post-devolution provincial variants. Confirm the province before quoting a figure to a buyer.
Gratuity is one of three employer-side costs that never appear in a wage figure, and a buyer budgeting from posted salaries alone will underestimate true cost on every hire.
EOBI. The Employees' Old-Age Benefits Institution runs the federal pension scheme, and covered employers contribute for covered employees, with the employee contributing a smaller share. It is a payroll cost, not an optional benefit.
Provincial social security. Each province operates its own employees' social security institution funding medical and related benefits for covered workers, with employer contributions assessed provincially. Which scheme applies, and at what rate, follows the province the establishment sits in, exactly like the leave and gratuity rules above.
Gratuity accrual. The per-year-of-service obligation described above is a liability accruing from month one, not an expense that appears only at termination. Treat it as an accrual in your cost model rather than a surprise at exit.
On an EOR rail these pass through to you on top of the platform fee, which is why an EOR quote of a monthly fee plus "employer costs" is not the whole number until you have asked what the employer costs actually are. On your own entity you carry and file them directly. For what the underlying wages look like by role, see the Pakistan Hiring Cost Guide, and remember every band there is gross wage before any of this.
Contribution rates and wage ceilings for EOBI and the provincial schemes are set by statute and notification and change on their own schedule; confirm current rates before building them into a budget rather than taking a figure from any guide, this one included.
Probationary periods for permanent-track hires run three months under Standing Order 1 of the Standing Orders Ordinance 1968, with the Khyber Pakhtunkhwa and Sindh provincial acts setting the same three-month period (see WageIndicator's contracts and dismissals page). During probation, termination generally requires less procedural burden than a confirmed employee's termination. That's the practical reason we structure a Pakistan hire with an explicit probation clause rather than confirming immediately.
Standard working hours under the Factories Act 1934 and related provincial regulation are generally capped at 8-9 hours a day and 48 hours a week, with overtime paid at double the ordinary rate under the Factories Act, the Standing Orders Ordinance, and the Shops and Establishments laws alike, the one exception being the Railways Act's 1.25x rate (see WageIndicator's working hours and overtime breakdown). Overtime rules historically apply most clearly to factory and industrial labor; office and knowledge-work roles common in Pakistan outsourcing (developers, VAs, BPO staff) are frequently structured on a fixed monthly salary with overtime addressed contractually rather than statutorily. Confirm it per role. Don't assume it.
| Province | What differs | Practical effect |
|---|---|---|
| Punjab | Own Shops and Establishments Ordinance and labor rules, applied to Lahore, Faisalabad, and other Punjab hubs | A Lahore-based commercial hire may follow different leave/notice specifics than a Karachi hire under the same job title |
| Sindh | Own Shops and Establishments Act, applied to Karachi (the largest single talent hub in Pakistan) | Sindh has separately legislated some labor areas since devolution; confirm Sindh-specific text rather than assuming Punjab's rule applies |
| Khyber Pakhtunkhwa | Own provincial framework | Relevant for Peshawar-based hires; less common in Pakistan outsourcing but not absent |
| Balochistan | Own provincial framework | Least common hiring geography in Pakistan currently |
| Federal (Standing Orders Ordinance 1968, Factories Act 1934) | Applies to establishments meeting the federal definition regardless of province | The baseline that provincial law sits on top of, not a replacement for it |
No EOR page we reviewed for Pakistan breaks the rule out by province. That's not a gap in effort on their part. It's structural to how those pages get built: one template, filled in per country. This one is built the other way, one country at a time.
The notice, severance, gratuity, probation, and overtime figures above trace to the Standing Orders Ordinance 1968 and its provincial variants, the Factories Act 1934, and a secondary compilation (WageIndicator/Paycheck.pk) that cites the specific section numbers. What we haven't independently pulled and cross-checked yet is the underlying statute text itself, section by section, and the current-year casual/sick leave day-counts and gazetted public holiday list, which sit in provincial Shops and Establishments laws we haven't fully mapped by province. That primary-source pull is near-term work. Until it's done, confirm the casual leave, sick leave, and public holiday figures against the applicable provincial act before relying on them for an actual termination or leave decision.
Employment rules in Pakistan are granular enough that generic advice gets buyers into trouble. Tell us the role, the province, and the headcount, and we'll tell you what actually applies and how we'd structure it. Connect with our team about a fit-check.
Sources: WageIndicator Foundation / Paycheck.pk Pakistan labor-law pages (notice and severance, gratuity, probation, working hours and overtime, annual leave, checked 8/2026), citing the Standing Orders Ordinance 1968, Factories Act 1934, and their Khyber Pakhtunkhwa/Sindh/Balochistan provincial variants by section number. Sources to verify against directly for the still-thin figures above: West Pakistan Industrial and Commercial Employment (Standing Orders) Ordinance 1968; Factories Act 1934; Punjab Shops and Establishments Ordinance; Sindh Shops and Establishments Act; Khyber Pakhtunkhwa Shops and Establishments Ordinance; Balochistan Shops and Establishments Ordinance; Employees' Old-Age Benefits Act 1976.
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