How to Run Payroll in Pakistan: Step-by-Step Guide for 2025-26

Running payroll in Pakistan is not simply a matter of transferring salaries at the end of the month. A compliant payroll cycle involves attendance reconciliation, statutory deduction calculations, tax withholding under FBR Section 149, EOBI contributions, provincial social security payments, payslip generation, bank disbursement, and a stack of monthly filings, all with hard deadlines that carry penalties if missed.

This pillar guide walks through every step of the monthly payroll cycle for fiscal year 2025-26, from pre-requisites to year-end tasks, with specific deadlines, rates, and common mistakes to avoid.

Pre-Requisites Before Running Your First Payroll

Before you process a single payslip, make sure these registrations and data collection tasks are complete:

• NTN registration: Your company must be registered with FBR and have an active National Tax Number. This is required to deposit withholding tax and file statements on the IRIS portal.
• Corporate bank account: Salaries must be disbursed from a documented corporate account. Most banks also require a salary disbursement agreement for bulk IBFT transfers.
• EOBI employer registration: Register with the Employees Old-Age Benefits Institution before the first employee completes 30 days of service. You will receive an employer code used on all EOBI returns.
• PESSI or SESSI registration: Depending on which province your employees work in, register with PESSI (Punjab), SESSI (Sindh), KPESSI (KP), or BESSI (Balochistan) for social security contributions.
• Employee data collection: Collect CNIC copies, NTN numbers (if available), bank account details, appointment letters, and completed tax declaration forms from every employee before their first payroll cycle.

Monthly Payroll Cycle Overview

Step 1: Attendance Capture

Attendance is the foundation of payroll accuracy. Errors at this stage cascade through every subsequent calculation.

• Biometric punch: ZKTeco and similar devices provide tamper-resistant records. Ensure device time is synced and data is exported before month close.
• Manual entry: For employees without device access, supervisors submit approved timesheets. These must be signed and archived.
• Remote agent: For work-from-home employees, a desktop tracking agent records active login hours, eliminating disputes about remote attendance.
• Leave deductions: Cross-reference attendance data against approved leave requests. Unauthorized absences reduce payable days. Half-day leaves must be tracked separately.

Net working days = Calendar days in month minus weekends, gazetted holidays, and approved leave taken. Salary for a partial month = (Monthly salary / Total working days in month) x Days worked.

Step 2: Compute Earnings

Total gross salary is the sum of all components:

• Basic salary: The contractual base amount before any allowances.
• House rent allowance (HRA): Typically 40-45% of basic salary. Taxable in full under FBR rules; no blanket exemption applies for private sector employees.
• Medical allowance: Up to 10% of basic salary is exempt from income tax under Clause 139 of the Second Schedule of the Income Tax Ordinance.
• Conveyance and fuel allowance: Taxable. Must be included in the annual salary figure used for Section 149 calculations.
• Overtime: Under the Factories Act, hours worked beyond 9 hours per day (or 48 hours per week) are payable at twice the ordinary rate. Overtime must be pre-authorized and documented.
• Bonuses: Eid bonus, performance bonus, and project completion bonuses are added to annual taxable income in the month they are paid and recalculate the monthly withholding for remaining months.

Step 3: Apply Statutory Deductions

FBR Section 149 Income Tax Withholding

Withholding tax is calculated using the average-rate method: project the employee's full-year taxable income, calculate annual tax liability using current slabs, and divide by remaining months in the fiscal year.

Tax slabs for FY 2025-26:

• Up to PKR 600,000: 0%
• PKR 600,001 to 1,200,000: 2.5% of amount above PKR 600,000
• PKR 1,200,001 to 2,200,000: PKR 15,000 + 11% of amount above PKR 1,200,000
• PKR 2,200,001 to 3,200,000: PKR 125,000 + 23% of amount above PKR 2,200,000
• PKR 3,200,001 to 4,100,000: PKR 355,000 + 30% of amount above PKR 3,200,000
• Above PKR 4,100,000: PKR 625,000 + 35% of amount above PKR 4,100,000

EOBI Contribution

The Employees Old-Age Benefits Institution requires:

• Employee contribution: 1% of the minimum wage (PKR 37,000 as of 2025), which equals PKR 370 per month regardless of actual salary.
• Employer contribution: 5% of the minimum wage, which equals PKR 1,850 per month per employee.

Both contributions are based on the statutory minimum wage, not the employee's actual salary. Contributions apply to all employees up to age 60 who have not yet claimed the pension.

PESSI or SESSI Contribution

Provincial social security contributions vary by province. Punjab employees (PESSI) and Sindh employees (SESSI) are subject to a combined employer-employee contribution rate. The employee portion is typically 1% of wages and the employer portion 6%, capped so that total employee contribution does not exceed PKR 1,500 per month. Check the current notification for your province as rates are updated periodically.

Provident Fund

If your company operates a recognized or approved provident fund, both employee and employer contributions (commonly 8.33% of basic salary each) are deducted and deposited into the PF trust account. Employer contributions to a recognized PF are deductible for corporate tax purposes.

Step 4: Generate Payslips

A compliant payslip must show:

• Employee name, designation, employee ID, and CNIC
• Pay period (month and year)
• Gross earnings itemized by component (basic, HRA, medical, conveyance, etc.)
• Each deduction itemized: income tax, EOBI, PESSI, PF, loan installments
• Net pay in PKR
• Year-to-date cumulative earnings and deductions
• Company name and authorized signatory (for printed copies)

Payslips should be distributed securely. Email delivery with password protection is the minimum standard for digital payslips. Avoid unencrypted WhatsApp distribution of payslips containing CNIC numbers.

Step 5: Bank Disbursement

Pakistan's interbank payment infrastructure supports several disbursement methods:

• IBFT (Interbank Fund Transfer): The most common method. Upload a batch file of employee account numbers and net pay amounts to your internet banking portal. Banks typically require a specific CSV or Excel format.
• WPS (Wage Protection System): Required for employers with Gulf contracts or those operating in designated zones. Ensures salary payments are recorded and compliant with labor regulations.
• Cheque disbursement: Still used in some industries and for employees without bank accounts. Less efficient and harder to audit.

Keep bank confirmation receipts for every disbursement. These are essential during FBR audits and labor inspections.

Step 6: Deposit Taxes and Contributions

• FBR Section 149 tax: Deposit by the 7th of the following month via IRIS or an authorized bank using your NTN. Penalty: 12% per annum default surcharge plus 10% of unpaid tax.
• EOBI contributions: Deposit employer and employee contributions by the 15th of the following month. Late payment attracts a 3% surcharge per month.
• PESSI or SESSI contributions: Deposit by the 15th of the following month. Late payment attracts penalty and interest as specified in the provincial social security ordinance.

Step 7: Monthly Filings

• FBR Annex-A (Rule 44 statement): File via IRIS by the 15th listing every employee, total salary, and total tax deducted. This is a separate obligation from depositing the tax itself.
• EOBI monthly return: Submit Form 1 listing each employee's contribution for the month, along with payment proof, to the relevant EOBI regional office by the 15th.
• PESSI monthly statement: Submit the wages register and contribution statement to your provincial social security institution office by the 15th.

Year-End Tasks

At 30 June each year, the payroll cycle extends into several year-end obligations: reconciling annual withholding, issuing Form 149 certificates to all employees by 31 July, filing the annual Section 149 statement with FBR by 31 August, updating employee salary slabs for the new fiscal year's tax rates, and processing any outstanding gratuity calculations for departing employees. A dedicated year-end payroll checklist ensures nothing is missed.

Common Mistakes to Avoid

• Late EOBI deposit: A 3% surcharge per month compounds quickly. Set a calendar reminder for the 10th each month to process EOBI payment ahead of the 15th deadline.
• Incorrect FBR withholding: Using last month's withholding amount without recalculating when a salary change, bonus, or new allowance occurs leads to year-end shortfalls and potential FBR notices.
• Not issuing Form 149 certificates: Employees cannot properly file their income tax returns without the withholding certificate. Failure to issue certificates is an offense under the Income Tax Ordinance.
• Treating consultants and employees the same: Consultants are subject to Section 153 withholding (8% if filer, 15% if non-filer) rather than Section 149. Mixing them in the same payroll run creates incorrect tax treatment.

How Peoplifi Automates the Full Payroll Cycle

Peoplifi handles every step described in this guide automatically. Attendance syncs from ZKTeco biometric devices or the desktop agent. Gross earnings are computed from your configured salary structures. Section 149 withholding recalculates dynamically when salaries change. EOBI and PESSI deductions are applied at the correct rates. Payslips are generated and emailed securely. Bank disbursement batch files export in your bank's required format. Monthly FBR statements and EOBI returns generate with one click.

Stop running payroll on spreadsheets. Start your free Peoplifi trial and have your first automated payroll cycle running within the week.

Frequently Asked Questions

What is the deadline to deposit FBR Section 149 withholding tax in Pakistan?

The withholding tax deducted from employee salaries under Section 149 must be deposited with FBR by the 7th of the month following the payroll month. For example, tax deducted in June must be deposited by July 7th.

What is the current EOBI contribution rate in Pakistan?

The employer contributes 5% and the employee contributes 1% of the minimum wage (PKR 37,000 in 2025). This means the employer pays PKR 1,850 and the employee pays PKR 370 per month, regardless of the employee's actual salary.

Is overtime compulsory to pay in Pakistan?

Yes. Under the Factories Act, 1934 and the Companies (General Provisions and Forms) Ordinance, overtime work beyond the standard hours must be compensated at twice the ordinary rate of pay. Refusing to pay overtime is a violation of labor law.

Can an employee opt out of EOBI contributions?

No. EOBI contributions are mandatory for all employees under the age of 60 in establishments covered by the EOBI Act. Neither the employer nor the employee can opt out, and both are legally required to contribute.

What happens if you miss the PESSI deposit deadline?

Missing the 15th deadline for PESSI (or SESSI, KPESSI, BESSI) contributions results in a penalty and interest charge as prescribed in the relevant provincial ordinance. Repeated defaults can lead to prosecution and fines under the provincial social security law.

Keep reading — Pakistan HR & compliance

Hand-picked resources and tools related to this article.

Ready to automate your HR?

Peoplifi handles FBR Section 149, EOBI, biometric attendance, and payroll automatically — so your team can focus on people, not spreadsheets.