Running payroll in Pakistan involves several interconnected legal and financial obligations. Whether you manage a small team or a large workforce, understanding tax withholding, pension contributions, and statutory deductions is essential to stay compliant and protect your business.
FBR Tax Withholding on Salaries
Employers in Pakistan must withhold income tax from employee salaries under the Federal Board of Revenue (FBR) rules. The amount depends on the employee's salary band and applicable tax rates. You are responsible for calculating, withholding, and depositing this tax monthly or quarterly, depending on your business's turnover and FBR registration.
Keep clear records of all withholdings. A small error in calculation can trigger audit questions and penalties. Many businesses use payroll software to automate this step, reducing human error and saving time.
EOBI and Pension Contributions
Employees earning below a certain threshold are typically enrolled in the Employees' Old-Age Benefits Institution (EOBI). Both employer and employee contribute a percentage of the salary—usually around 5% each, though rates vary by sector and regulatory updates.
If an employee earns above the EOBI threshold, they may be enrolled in a private pension scheme instead. Ensure you understand which scheme applies to each employee and that contributions are deducted and remitted on time.
Other Mandatory Deductions
Beyond income tax and EOBI, your payroll may include:
- Zakat and Ushr: If applicable under relevant legislation
- Professional tax: Depending on the province and profession
- Health and social security: In provinces with mandatory schemes
- Voluntary deductions: Loan recoveries, insurance, and employee savings
Maintain a clear breakdown of each deduction for every pay period. Employees have a right to understand exactly what is being deducted from their salary.
Record-Keeping and Compliance
The FBR and provincial authorities expect businesses to maintain payroll records for several years. Your files should include:
- Monthly payroll summaries
- Employee attendance and leave records
- Proof of tax and contribution deposits
- Salary slips issued to employees
Missing or incomplete records invite scrutiny during audits. Digital payroll systems make it easier to generate these records on demand and demonstrate compliance to authorities.
Practical Tips for Your Business
Start by confirming your FBR registration status and understanding which tax regime applies to your organisation. If you have employees, verify their salary bands and which pension scheme they fall under. Create a simple payroll calendar—marking tax deposit deadlines, year-end reporting dates, and annual renewal notices.
If your payroll is currently manual, consider migrating to a cloud-based payroll platform. Systems like PayTime automate calculations, generate compliant payslips, and flag upcoming deadlines, so your HR team can focus on employee matters rather than spreadsheet errors.
Payroll compliance is not optional, and small oversights can compound. By establishing clear processes now, you protect your business and ensure every employee receives accurate, timely salary payments with full transparency.
