A complete guide to managing payroll compliantly — covering salary structuring, tax withholding, EOBI contributions, and SESSI/PESSI obligations.
Payroll management in Pakistan goes far beyond simply paying salaries. Employers have legal obligations to withhold income tax, contribute to EOBI (Employees Old-Age Benefits Institution), register with social security institutions, and maintain detailed payroll records. Non-compliance exposes the business to penalties, employee disputes, and legal proceedings.
Salary Structuring
Proper salary structuring can legally minimize tax burden for both employer and employee. Components like basic salary, house rent allowance, medical allowance, conveyance allowance, and utility allowance each have different tax treatments. Understanding these nuances helps design compensation packages that are tax-efficient while remaining compliant with FBR regulations.
Income Tax Withholding on Salaries
Employers must calculate and deduct income tax from employee salaries monthly based on applicable slab rates. The calculation considers annual salary projections, allowable deductions (Zakat, approved pension contributions), and tax credits. A monthly withholding statement must be generated, and the tax deposited with FBR by the 7th of the following month.
EOBI Contributions
All establishments with 5 or more employees must register with EOBI. The employer contributes 6% of minimum wage per employee, and the employee contributes 1%. These contributions fund old-age pensions for employees. EOBI registration and timely contribution payments are mandatory — penalties for non-registration are severe.
Social Security (PESSI/SESSI)
Provincial social security institutions — PESSI (Punjab), SESSI (Sindh), KPESSI (KP) — provide healthcare and injury benefits to workers earning below a specified threshold. Employers must register and contribute a percentage (currently 6% in Punjab) of covered wages. These contributions are employer-only — no employee deduction is required.
Record Keeping Requirements
Employers must maintain payroll registers, salary slips, attendance records, leave records, and tax deduction certificates (Section 149 certificates). These records must be retained for at least 6 years and produced upon request by FBR, EOBI, or social security inspectors. Digital record-keeping through payroll software is increasingly preferred.
WeFile Payroll Solutions
Our payroll team handles complete payroll processing — salary calculations, tax withholding, EOBI contributions, social security filings, salary slip generation, and annual employer statements. We integrate with your existing HR systems to provide seamless, compliant payroll management.