Employee Benefits in Pakistan – Laws & Importance

Employees are the valuable assets of any company. The non-wage compensation given to employees and their salaries is a part of employee benefits. The purpose of providing these benefits is to ensure the employees’ retention, engagement, and satisfaction. These are a part of their compensation package. Before accepting the job offer, employees also evaluate the perks and benefits being offered to them.

In Pakistan, there are laws which have been particularly formulated to ensure the employees’ rewards. Most businesses have recognized the significance of employee satisfaction to stand out in the market. Benefits motivate employees and enhance their work performance. Following are the two broad categories of employee benefits in Pakistan:

  • Statutory benefits (Social Security, Worker’s compensation, Gratuity, Provident fund, Life insurance)
  • Discretionary benefits (Health insurance, Employee training and development, Flexible working hours)

Employee Benefits Laws in Pakistan

Following is a list of laws along with their application for employee benefits in Pakistan:

Workmen’s Compensation Act, 1923

Workmen’s Compensation Act, 1923

  • Applicable to commercial businesses and industries
  • Companies with ten or more than ten employees (railways, road transport services, mining companies)

Provincial Employees Social Security Ordinance, 1965

  • Applicable to full-time employees, daily wagers, contract-based employees
  • All industrial and commercial businesses with five or more than five workers
  • Workers’ wages should be up to PKR 15,000 (PKR 18,000 for Punjab)

This ordinance is not applicable for:

  • Individuals in the State service (Armed Forces, Police Force, Railway employees, Defense Organization or Railway Administration, Local Council, Municipal Committee, Cantonment Board, and Other Local Authorities)
  • Individuals in the service of immediate relatives (Father, Mother, Wife, Husband, Son, Daughter)
  • Workers with wages of more than PKR 15,000 monthly

The Standing Orders Ordinance, 1968

The Standing Orders Ordinance, 1968

  • Applicable to all industries and commercial businesses
  • Fifty or more employees working for the previous 12 months.

Social Security Law

  • Applicable for loss of earning capacity by 67% or more
  • 75% earnings replacement in all provinces
  • 100% earning replacement in Punjab

Employee Social Security (Benefit) Regulations, 1967 (Disablement Pension)

  • Applicable in case of earning capacity loss up to 66%
  • Replacement earning are provided until the death of the receiver or after the disablement get treated partially or fully

Pakistan Compensation Laws

  • A minimum wage for unskilled employees has been set at PKR 25,000 since 2022
  • No minimum wage set for the skilled employees
  • Businesses and industries with 20 or more workers should pay profit bonuses to individuals who have worked for a minimum of 90 days continuously
  • Bonus on profit declaration
  • One bonus if profit is greater than 1-month salaries
  • 30% bonus if profit is equal to 1-month salaries
  • 15% bonus if profit is less than 1-month salaries

Type of Employee Benefits in Pakistan

Type of Employee Benefits in Pakistan

Injuries and Disabilities

Employees should be compensated in case of any injuries caused at the workplace. Initially, the amount of compensation was related to the employee’s earnings, and those employees were eligible to get this compensation whose earning was less than PKR 6,000. Amendments were made to the laws in 2007, after which these benefits were allotted to all employees.

Suppose any severe disability or death of an employee occurs. In that case, the employer should give compensation of PKR 200,000 to the dependents of an employee, but the compensation amount is increased as follows:

  • KPK (PKR 300,000)
  • Punjab (PKR 400,000)
  • Sindh (PKR 500,000)

In case of temporary disablement, the business employer has to provide the following benefits:

  • Half monthly salary for 1 year
  • One-third of monthly salary for 5 years (in case of chronic lungs problem)

Compensation is given to the permanent employees under their insurance plan as follows:

  • KPK (PKR 300,000)
  • Punjab (PKR 400,000)
  • Sindh (PKR 500,000)


An employee who has insurance and has contributed for 90 days in the previous 6 months is eligible to get sickness benefits as follows:

  • 100% salary for 1 year in case of Tuberculosis and Cancer
  • 50% salary for 1 year in case of Tuberculosis and Cancer (KPK and Balochistan)
  • 75% salary for 121 days in case of any other disease
  • 50% salary for 121 days in case of any other disease (KPK and Baluchistan)


A woman employee who has insurance and has contributed for a minimum of 180 days in the past 1 year will get her full salary for 12 weeks of maternity leave.


If an injured worker with an insurance plan and sickness benefits dies, his survivors will receive the intended benefits. The grant amount is given by multiplying the daily sickness rate by 30. This amount is also referred to as funeral expenses; its minimum amount is PKR 1500. If the husband of an insured woman dies, iddat benefits are also specified under which she is given leave for her iddat and her salaries are paid by the employer during 4 months and 10 days.


The employer has to pay employees for sickness and maternity as their medical benefits such as medicine, hospitals, etc. Medical benefits are provided to dependents for 1 year after the employee’s death who has served the business for at least 1 year. For seasonal employees, medical benefits are given to dependents for 6 months.

Benefits to Survivors

If a worker dies due to any workplace injury, then the maximum rate of disablement pension is paid to the dependents in the following percentage:

  • Widow (60%)
  • Orphans below the age of 21 (20%)
  • No age limit for unmarried orphan daughters
  • Parents (20%), in case of no widow or children

This survivor pension ends after the survivor’s death, remarriage of a widow, or son becoming older than 21 years.

Guaranteed Benefits

Following are some of the guaranteed benefits which companies in Pakistan should offer:

  • Holidays time off
  • Paid vacations
  • 11 national and religious holidays
  • 14 consecutive off days for employees who have worked continuously for a minimum 1 year
  • Remaining annual leaves added in the next year’s annual leaves
  • Casual leave for 10 days
  • Medical leave for 16 days with 50% of regular salary (medical certificate required)
  • 3 months of maternity leave
  • 7 to 10 days of paternity leave

Calculating Employee Benefits

According to Pakistan’s labor laws, the following are the criteria for calculating employee benefits:

  • Annual vacations leaves, holiday leaves, casual leaves (Full payment)
  • Sick leaves (50% payment)
  • Old age benefits (5% payment)
  • Social Security benefits (7% payment)

Taxation of Employee Benefits

All monetary and non-monetary employee benefits are taxed unless an exemption is made by law. According to the tax scale of Pakistan, tax increases according to salary and ranges from 0 to 35% tax. The taxation rate thus depends on the income of employees.

Importance of Providing Employee Benefits

Importance of Providing Employee Benefits

In Pakistan, businesses need to provide employee benefits according to the law. For this purpose, consider employees’ requirements and your company’s policies. It would be best to get regularly updated regarding the changes made in employee benefits laws. Providing employee benefits has the following advantages:

  • Business expansion by hiring and retaining more employees
  • Providing value to the employees
  • Improved productivity of employees
  • Fulfillment of social responsibilities