Employer of Record Structuring & Employment Law in Pakistan
Legal structuring, contract drafting and compliance advice for foreign companies that employ people in Pakistan through an Employer of Record (EOR) rather than a local entity.
Employer of Record overview
A growing number of companies in the United Kingdom, the Gulf, Europe and North America have staff who live and work in Pakistan: software engineers, accountants, designers, coordinators and managers. Few of those companies want to register a branch or subsidiary for a handful of people. This is the problem the EOR structure solves: a company incorporated in Pakistan engages the individual under Pakistani law and makes their services available to the foreign client through a services contract. The model is lawful and increasingly common, but it only works if two documents are drafted to fit each other, the tax position is understood, and the client's intellectual property and confidential information are protected under Pakistani law rather than assumed to be protected by the client's home-country contract.
KBL & Associates advises foreign clients and Pakistani EOR providers on exactly that. We do not act as an employer of record ourselves; we structure the arrangement, draft and review the contracts and keep the client within the safe perimeter on permanent establishment, labour and data-protection law.
Our EOR and employment-law services
Structure selection
Written comparison of EOR, liaison office, branch office and private limited subsidiary for your headcount, revenue plans and timeline, with the filings, tax treatment and exit cost of each.
Service agreement
Drafting or review of the client–EOR service agreement: fees and pass-through costs, funding and late-payment terms, indemnities for employment claims, audit rights, data protection, IP, notice and governing law.
Employment contract
Pakistani-law appointment letter and contract for the EOR to issue: probation, duties, hours, leave, gratuity, present assignment of intellectual property to the client, confidentiality, data handling and lawful termination mechanics.
Tax and permanent establishment
Applying the Income Tax Ordinance 2001 together with the relevant tax treaty, we test whether the employee’s functions could give the foreign principal a taxable presence, and shape the role so they cannot.
Compliance review
Audit of an existing EOR or contractor arrangement: statutory contributions, leave and gratuity accruals, tax withholding, contract gaps and misclassification exposure, with a remediation plan.
Disputes and exits
Advice on notice, show-cause and inquiry procedure, final settlement, and representation before labour courts and the National Industrial Relations Commission if a termination is challenged.
The Pakistani law an EOR arrangement sits on
- Industrial and Commercial Employment (Standing Orders) Ordinance 1968 and its provincial successors: classification of workers, appointment letters, leave, gratuity and termination procedure.
- Provincial labour statutes (for example the Punjab Industrial Relations Act 2010 and Sindh Terms of Employment (Standing Orders) Act 2015): the forum and procedure for employment disputes.
- Income Tax Ordinance 2001, section 149: monthly withholding from salary by the employer; permanent-establishment and treaty provisions for the foreign client.
- Employees' Old-Age Benefits Act 1976 and the provincial Employees' Social Security Ordinances 1965: registration and contributions.
- Contract Act 1872, section 27: limits on restraint-of-trade clauses; the basis for drafting enforceable confidentiality and non-solicitation terms.
- Copyright Ordinance 1962 and related IP statutes: ownership of works created in employment and the need for express assignment to the client.
- Companies Act 2017 and Board of Investment rules: the alternative routes of branch, liaison office and subsidiary when an EOR is no longer the right fit.
Where EOR arrangements go wrong
- The client's home-country contractor agreement is reused, so Pakistani statutory benefits are missing and the contract is unenforceable locally.
- Intellectual property is assigned to the EOR by operation of law and never passed on to the client.
- The client's notice period in the service agreement is shorter than the employee's, leaving the EOR unfunded and the client exposed to an indemnity claim.
- The employee signs commercial contracts in the client's name, creating permanent-establishment risk.
- Gratuity and leave are not accrued monthly, producing a large unexpected liability at exit.
- Dismissal for misconduct is carried out without a show-cause notice and inquiry, and is set aside by the labour court.
Twelve clauses every Pakistan EOR service agreement should contain
Most disputes in EOR arrangements trace back to the service agreement between the foreign client and the Pakistani employer, not to the employment contract. When we review or draft one, we check for these twelve points.
- Identity of the employer. The agreement names the Pakistani entity that employs the worker and confirms there is no undisclosed sub-contractor or partner in between.
- Direction without employment. The client directs day-to-day work; hiring, discipline and termination decisions remain legally with the EOR, exercised on the client’s instruction.
- Cost pass-through. Salary, EOBI, provincial social security, gratuity and insurance are passed through at actual cost, with the management fee shown separately.
- Statutory changes. A clause allowing backdated minimum-wage or contribution changes to be invoiced as arrears, so neither side is surprised.
- End-of-service funding. How gratuity and final dues are funded: accrued monthly, covered by a deposit, or billed on exit.
- IP assignment chain. Employee to EOR, and EOR to client, both in writing, covering work created before and after signature.
- Confidentiality and data. What client data the employee may access, where it is stored, and what is returned or deleted at exit.
- Equipment. Who owns devices, who insures them, and how they are recovered.
- Termination cascade. If the client ends the service, how notice runs through to the employee under Pakistani law, and who bears notice pay.
- Indemnities. Balanced indemnities: the EOR for statutory compliance, the client for instructions it gives.
- Tax position of the client. Language that keeps the employee from concluding contracts in the client’s name, to manage permanent establishment risk.
- Governing law and forum. Employment matters stay with Pakistani labour forums; commercial disputes between client and EOR can go to agreed arbitration.
Permanent establishment, restrictive covenants and lawful exits
Permanent establishment
The Income Tax Ordinance, 2001 can treat a foreign company as having a taxable presence in Pakistan where a person there habitually concludes contracts on its behalf, or where it has a fixed place of business. An EOR reduces this risk but does not remove it. Keep sales authority, signing powers and any office lease out of the employee’s role unless you have taken advice.
Restrictive covenants
Because section 27 of the Contract Act, 1872 voids agreements that restrain a person from a lawful profession or trade, a covenant not to compete after employment will usually fail. Restrictions that apply during employment, confidentiality obligations and IP assignment are a sounder base, and we draft them to stand on their own.
Lawful exits
Whether the employee is a “workman” or holds a managerial or supervisory role decides which termination rules apply. For workmen, the Standing Orders law of the relevant province sets notice, the show-cause and inquiry procedure for misconduct, and gratuity where no provident fund exists. Punjab has enacted a Labour Code that will replace parts of this framework once its commencement is notified. A documented reason, the correct notice and a full and final settlement are what keep an exit out of the Labour Court.
Need the operational side as well? Payroll, contributions and HR under an EOR are run by our technology partner, TechKoders, while we handle the legal structure.
Employer of Record in Pakistan: legal FAQs
Is an Employer of Record arrangement legal in Pakistan?
Yes. Pakistani law does not prohibit a locally registered company from employing a person and placing that person at the disposal of a foreign client under a service agreement. The EOR is the employer for the purposes of the Industrial and Commercial Employment (Standing Orders) Ordinance 1968 and provincial labour statutes, the Income Tax Ordinance 2001, the EOBI Act 1976 and the provincial Employees' Social Security Ordinances. The arrangement must be documented correctly in two contracts: the employment contract and the client service agreement.
Does a foreign company create a permanent establishment in Pakistan by using an EOR?
Usually not, if the structure is properly drawn. The EOR is an independent Pakistani company bearing its own employment obligations and paid an arm's-length fee. Risk arises where the employee habitually concludes contracts in the foreign company's name or the foreign company exercises control that looks like a branch. We review the facts against the Income Tax Ordinance 2001 and the applicable double taxation treaty and advise on the safe perimeter.
EOR, branch office, liaison office or subsidiary: which should we choose?
For one to ten employees and no local revenue, an EOR is the fastest and cheapest route and carries no SECP or Board of Investment filing. A liaison office cannot earn revenue; a branch office needs Board of Investment permission and is taxed as a non-resident; a private limited subsidiary under the Companies Act 2017 is right once you have local customers or a larger team. We prepare a comparison for your case and handle incorporation when you are ready.
Who owns the intellectual property the employee creates?
Under Pakistani law, work created in the course of employment generally belongs to the employer, which in an EOR structure is the EOR company. The employment contract must therefore contain an express present assignment of IP to the foreign client, and the service agreement must contain a matching onward assignment and licence back. We draft both so that title rests with you, together with confidentiality and data-protection terms.
Are non-compete and non-solicitation clauses enforceable in Pakistan?
Save in narrow cases, a covenant not to compete after termination will not be enforced, by reason of section 27 of the Contract Act 1872. Confidentiality and non-solicitation of clients and staff can be drafted to be enforceable, and garden leave and notice provisions provide practical protection. We advise on what will actually hold up before a Pakistani court.
Which statutory benefits must the EOR provide?
The employer’s statutory duties include income tax deduction under section 149 of the Income Tax Ordinance 2001; contributions to EOBI and to provincial social security; annual, casual and sick leave and gazetted holidays; gratuity, where the Standing Orders Ordinance applies, at thirty days’ wages per completed year; a written appointment letter; and lawful notice, or wages in lieu, on termination. Group medical insurance is customary and we recommend it be made contractual.
How is an EOR employee lawfully terminated?
Termination must follow the contract and the applicable Standing Orders: written notice (normally one month) or wages in lieu, payment of accrued leave and gratuity, and, in the case of misconduct, a show-cause notice and inquiry before dismissal. The client's service agreement should align its own notice period with the employment contract so that the EOR is never left carrying an employee with no funding.
Can KBL act as the Employer of Record itself?
No. A law firm does not employ staff on behalf of clients. We structure the arrangement, draft and negotiate the contracts, advise on tax and permanent-establishment risk and review the EOR provider's documentation. Where you need a provider, we can introduce a licensed Pakistani EOR company we have reviewed.
What does the service agreement with the EOR need to cover?
Scope of services, fee and pass-through costs, funding timetable and consequences of late payment, employee selection and replacement, data protection, intellectual property, confidentiality, indemnities for employment claims, insurance, audit rights, governing law and dispute resolution, and a notice period that matches the employment contract. We review provider templates against this list and negotiate the gaps.
How do you work with a client in the UK, Gulf or North America?
Entirely remotely. Instructions by email or video call, documents exchanged electronically, fee quoted in advance in USD, GBP, EUR or AED, and execution of Pakistani documents arranged locally where wet-ink signature or attestation is required.
Can a foreign company enforce a non-compete against a Pakistani employee?
Generally not after employment ends. The Contract Act, 1872, at section 27, treats restraint-of-trade agreements as void. Confidentiality, IP assignment and restrictions during employment are the enforceable tools.
Does using an Employer of Record remove permanent establishment risk in Pakistan?
It reduces the risk but does not remove it. If the employee habitually concludes contracts for the foreign company, or works from a fixed place it controls, a taxable presence can still arise. We review the role and the service agreement together.
Who decides to terminate an employee employed through an EOR?
Legally, the EOR as employer, normally on the client’s instruction. The service agreement should set out how notice and costs pass through, and the EOR must follow the Pakistani termination procedure that applies to the employee.
What should an EOR service agreement say about gratuity?
It should say how gratuity is calculated, whether it is accrued monthly, secured by a deposit or billed at exit, and who pays if the service ends early.
Related: Corporate & Commercial · Tax · Branch office vs subsidiary in Pakistan · EOR or branch office: legal comparison · Permanent establishment and remote employees · International clients. For a provider, clients may consider TechKoders, a Lahore EOR and remote-staffing company whose documentation we have reviewed.