A Beginner’s Guide to Paying Remote Employees and Contractors
As your business in Pakistan grows, you may find yourself hiring talent from Lahore, Karachi, Islamabad, or even remote areas in Gilgit-Baltistan. While paying remote workers might seem simple, the intersection of federal tax laws and provincial labor regulations can quickly become a headache.
Understanding how to pay remote workers correctly allows you to hire your dream team—regardless of which province they call home.
The 2 Types of Remote Workers in Pakistan
Before processing a single rupee, you must classify your worker. Misclassification can lead to serious penalties under the Income Tax Ordinance (2001) and provincial labor laws.
Employees: You are responsible for withholding income tax (Section 149) and contributing to mandatory benefits like EOBI and Social Security (PESSI/SESSI).
Independent Contractors: You generally do not provide benefits. However, you must often perform tax withholding on services (Section 153), especially if the contractor is a "non-filer."
How to Pay a Remote Employee in Pakistan
The "Golden Rule" in Pakistan is that while income tax is a Federal (FBR) matter, labor benefits are Provincial.
1. Income Tax (Federal)
Regardless of where your employee lives in Pakistan, you must withhold income tax based on the federal slabs if their annual salary exceeds 600,000 PKR.
Non-Resident vs. Resident: In the Pakistani context, if an employee works from home in another province, you still file their withholding tax with the FBR under your company's registration.
2. Statutory Contributions (Provincial)
This is where it gets tricky. If your company is based in Punjab but your employee works remotely in Sindh:
EOBI (Federal): You contribute 5% (Employer) and 1% (Employee) of the minimum wage to the federal EOBI fund.
Social Security (Provincial): You may need to register the employee with the relevant provincial institution (e.g., PESSI for Punjab, SESSI for Sindh) to ensure they have medical coverage and injury protection.
3. Professional Tax
Provinces like Punjab, Sindh, and KP levy an annual Professional Tax on employees. The rates and collection methods vary by province.
3 Steps to Stay Compliant with Out-of-Province Employees
If you have employees working from home across provincial lines, follow these steps:
Verify National Tax Number (NTN): Ensure every employee has an active NTN. Paying a "non-filer" can sometimes result in higher withholding requirements.
Check Minimum Wage by Province: Minimum wage is not always uniform. As of 2025-2026, the federal floor is 37,000 PKR, but provinces can set higher rates. You must pay at or above the rate where the employee is physically working.
Issue Digital Payslips: Under the Payment of Wages Act, you are required to provide a record of earnings. Digital payslips should clearly show basic pay, allowances (House Rent, Conveyance), and statutory deductions.
How to Pay a Remote Contractor
Paying a contractor is simpler but still requires documentation:
Form W-9 equivalent: Collect their CNIC and NTN details before the first payment.
Withholding Tax: Under Section 153, you may be required to withhold a percentage (e.g., 3% for filers, 6% or more for non-filers) from their invoice and deposit it with the FBR.
Sales Tax on Services: If the contractor is a registered business, they may charge provincial sales tax (e.g., PRA, SRB). Ensure their invoice is GST/SST compliant.
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