Salary breakdown in Pakistan isn't just a simple gross-to-net figure. Employers and employees need to understand the moving parts: basic pay, allowances, deductions, and statutory contributions. Getting this right protects your business legally and builds trust with your team.

Basic Pay and Allowances

Your salary structure typically starts with basic pay, which is the fixed monthly wage. On top of that, most employers add allowances—these might include:

  • Housing allowance (HRA)
  • Transport allowance
  • Medical allowance
  • Utilities allowance
  • Special allowance

Allowances are often not part of pensionable income (relevant for EOBI), and some may be tax-exempt up to certain limits under Income Tax law. The way you structure basic versus allowances matters for both tax and pension calculations, so clarity from day one prevents disputes later.

Statutory Deductions

Once you've set gross pay, statutory deductions must be withheld. The main ones are:

  • Income tax: Withheld by employer based on tax slabs and employee dependents
  • EOBI contribution: Employees contribute 1% of pensionable salary (if covered); the employer also contributes 5%
  • Social Security: In some provinces, additional social security levies apply

These are not optional—they're legal obligations. Failure to withhold or remit correctly exposes you to FBR penalties and employee grievances.

Understanding Gross vs. Net

Gross salary is the total before any deductions. Net salary is what the employee actually takes home. For example, if gross is 100,000 and deductions total 15,000, net is 85,000. Always communicate both figures clearly on payslips, so employees understand where their money goes.

Overtime and Bonuses

If you pay overtime, it's usually calculated at a multiple of the base hourly rate (often 1.5× or 2×, depending on the role and agreement). Bonuses, whether performance-based or annual (like Eid bonuses), have their own tax treatment and must be recorded separately in payroll.

Tax Withholding and FBR Compliance

As an employer, you're responsible for calculating income tax correctly each month and remitting it to FBR by the 10th of the following month. Tax is based on the employee's annual income, so it can vary month to month if salaries or allowances change. Mistakes here trigger FBR notices and damage your reputation with staff.

Payslip Transparency

Every employee must receive a detailed payslip showing:

  • Basic pay and each allowance
  • Gross total
  • Each deduction (tax, EOBI, etc.)
  • Net pay
  • Running annual total (helpful for employee reference)

A clear payslip reduces confusion and shows professionalism.

Practical Takeaway

For a small to medium business in Pakistan, the best approach is to document your salary structure in an employee handbook and use payroll software that calculates deductions automatically. This ensures consistency, reduces errors, and keeps your business compliant with FBR and EOBI rules. Tools like PayTime handle tax withholding and statutory contributions in the background, so you can focus on growing your business while your team trusts they're being paid fairly and legally.