Employee benefits in Pakistan

Pakistan employment laws set several benefits for employees, namely:

Type of benefit	Paid by the employer	Deducted from the employee’s salary
Employees Old Age Benefit	5%	1%
Social Security	6%	0%
GratuityorProvident Fund	Based on the length of service and the latest salary 8.33%	N/A 8.33%
Bonus	Paid once a year if the company has been profitable	N/A

#1 Employees Old-Age Benefits

The Employees Old Age Benefit is a retirement plan for the employees paid by the employer to the government. This benefit is applicable if the employer has 5 or more employees.

As prescribed by the Federal Government, 6% is calculated on the minimum wage. By which, the employers pay the 5% while they also deduct the remaining 1% to the employee’s salary.

The minimum wage prescribed by the Federal Government in 2018 is PKR 13,000 (~106 USD). Minimum wages vary in different provinces but this benefit is calculated only on the minimum wages specified by the Federal Government.

This benefit keeps accumulating irrespective if the employee has changed job (in which case new employer will submit this contribution to the government). The employee can avail this benefit on a monthly basis after 65 years of age (retirement).

#2 Social Security

The employee and his dependent (spouse and children) are entitled to this benefit. It covers the following areas in:

• Health
• Maternity
• Injury
• Death
• Other related issues of the employees  

This benefit is paid entirely by the employer and is calculated as 6% on the net salary of the employees. However, there is an upper cap which is PKR 22,000 (~178 USD). For employees with an income of PKR 22,000 or above, the Social Security will be the same.

#3 Gratuity or Provident Fund

These are two separate schemes, and the employer must choose at least one. The employer can also opt for both if he wants but the minimum requirement is one.

This is more like a severance package and here’s how to calculate:

A) Gratuity

The employer deposits one salary for each year worked by the employee. The latest salary is the basis for this.

For example, if the employee started with PKR 50,000 salary, worked for seven years with that employer and has accumulated higher salary of PKR 100,000 over the time, he will receive a gratuity of PKR 700,000. (100,000 X 7 *years* = PKR 700,000).

B) Provident Fund

In this scheme, the employer contributes 8.33% of the employee’s salary and 8.33% is deducted from the employee’s salary and at the time of leaving of the job, the employee will receive all the accumulated money.

#4 Bonus

By law, the employer gives the employee a bonus once a year if the company has been profitable in the last year. Any employee whose employment period is 90 days above can receive the profit bonus.

Here’s the calculation of a bonus according to the law:

• if profit is less than the total monthly wage of all employees, 15% of the profit is distributed to the qualified employees
• if profit is equal to the total monthly wage of all employees, 30% of the profit is distributed to the qualified employees
• if profit is greater than the total monthly wage of all employees, at most 30% of the profit is distributed to the qualified employees

Also, take note that foreign employees do not qualify to receive Employees Old-Age Benefit nor Social Security.