Most employment disputes we see at ADL start the same way — an employee or a small business owner genuinely didn't know what the law actually says about leave, termination or gratuity, and found out the hard way. This guide covers the core rights and duties on both sides of the employment relationship in Pakistan, with a focus on Punjab, drawn directly from the governing statutes: the Industrial and Commercial Employment (Standing Orders) Ordinance, 1968 (as amended for Punjab), the Factories Act, 1934, the West Pakistan Maternity Benefit Ordinance, 1958, and the laws governing EOBI and PESSI.
⚖️ Coverage note
The Standing Orders Ordinance applies to industrial and commercial establishments employing 20 or more workers (fewer in some notified categories). Smaller shops and establishments are separately governed by the Punjab Shops and Establishments Ordinance, 1969, which has its own — often less generous — provisions. If you're unsure which law covers your workplace, that's the first thing to establish before relying on any of the figures below.
Employee Rights
- Timely, full payment of wages on a fixed pay day — before the 7th day after the wage period ends if the establishment employs 1,000 or fewer workers, or the 10th day if it employs more.
- Paid leave — annual, casual and sick leave as set out in the Leave Entitlements section below, plus paid festival holidays.
- Written notice or pay in lieu before termination (permanent workers only), and written reasons for any termination, retrenchment or dismissal.
- Gratuity or provident fund benefits on leaving service, covered in detail under Termination, Notice & Gratuity.
- A fair inquiry before dismissal for misconduct — you cannot lawfully be dismissed on an unproven allegation.
- Maternity protection — twelve weeks of paid leave for women with four months' prior service, and protection from dismissal during pregnancy in most circumstances.
- Social security coverage — registration with EOBI and, in Punjab, PESSI, where the employer and establishment meet the coverage thresholds.
- Access to grievance redress through the Labour Court or Punjab Industrial Relations Act mechanisms if any of the above is denied.
Employee Duties
Rights run alongside obligations. Standing Order 15 lists the acts that constitute misconduct — and by extension, what an employee is expected to avoid:
- Following lawful and reasonable instructions from a supervisor.
- Regular attendance — habitual absence without leave, or any single absence exceeding ten days without leave, is treated as misconduct.
- Honest and careful handling of the employer's property, funds and business information.
- Avoiding theft, fraud, bribery, wilful damage to property, or riotous/disorderly conduct at the workplace.
- Giving proper notice (or the required pay in lieu) if resigning, in line with the employment contract or Standing Order 12.
- Complying with the establishment's applicable rules, including safety rules, in good faith.
Employer Rights & Duties
An employer's rights and duties are largely two sides of the same coin — the law gives employers real authority to run their business and discipline staff, but conditions that authority on following a fair, documented process.
| Employer Rights | Employer Duties |
|---|---|
| Issue lawful, reasonable work instructions | Pay full wages on time, on a fixed pay day |
| Discipline or fine for listed misconduct, within Payment of Wages Act limits | Grant the leave, holidays and maternity benefits the law requires |
| Terminate a permanent worker with notice/pay in lieu, for reasons other than misconduct | Give termination in writing, stating reasons, and pay dues within 2 working days |
| Dismiss for proven misconduct following Standing Order 15 | Hold an independent inquiry before any dismissal for misconduct |
| Require reasonable notice from a resigning employee | Pay gratuity or maintain an approved provident/pension fund |
| Retrench workers per Standing Order 13 procedure when genuinely necessary | Register eligible workers with EOBI, and PESSI where applicable |
Leave Entitlements
Once a worker completes twelve months of continuous service, the Factories Act, 1934 (Chapter IV-A) — applied through Standing Order 8 — sets out four categories of paid leave:
| Leave Type | Entitlement | Pay |
|---|---|---|
| Annual leave | 14 consecutive days per year (after 12 months' continuous service); up to 14 unused days may carry forward | Full pay, based on the average daily wage over the preceding three months; half the leave pay is due in advance |
| Casual leave | 10 days per year | Full pay |
| Sick leave | 16 days per year | Half average pay |
| Festival holidays | All days notified by the Provincial Government | Full pay; a compensatory holiday is due if the worker is required to work on one |
| Maternity leave | 12 weeks (6 before, 6 after delivery); requires 4 months' prior service | Full pay |
Source: Factories Act, 1934, ss. 49B–49I; West Pakistan Maternity Benefit Ordinance, 1958.
Working Hours & Overtime
- Standard hours: no more than 9 hours a day or 48 hours a week for adult workers (seasonal factories: up to 50 hours a week).
- Overtime rate: twice the ordinary rate of pay for hours worked beyond the standard limit.
- Absolute cap: total hours including overtime may not exceed 60 in any week, and annual overtime is capped at 624 hours.
- Weekly holiday: every adult worker is entitled to at least one full rest day each week (Factories Act, s. 35).
Termination, Notice & Gratuity
Standing Order 12 governs how employment ends for a permanent worker, for any reason other than misconduct:
- Notice: one month's written notice by either employer or employee, or one month's wages (based on the average of the last three months) paid in lieu.
- No notice required for temporary workers, probationers or badlis — from either side.
- In writing, with reasons: no termination, retrenchment, discharge or dismissal is valid unless it is in writing and explicitly states the reason.
- Final settlement: all wages and dues, including payment for unavailed leave, must be paid within two working days of termination.
- Grievance route: a worker who believes their termination was unfair can raise it under Section 33 of the Punjab Industrial Relations Act, 2010.
Gratuity is a separate, additional entitlement on leaving service (whether by resignation or employer-initiated termination, other than misconduct dismissal): 30 days' wages for every completed year of service, or any part-year exceeding six months, calculated on the wages admissible in the last month of service. In everyday terms, this is commonly treated as one month's last-drawn salary per year of service.
Gratuity is not payable for any period during which the employer maintains an approved provident fund (with an employer contribution at least equal to the employee's) or an approved pension fund meeting the statutory contribution split — the worker instead draws from that fund.
Gratuity Calculator
Estimate your gratuity under Standing Order 12(6). This is a general estimate, not a legal opinion — actual entitlement depends on your specific employment terms.
Based on Standing Order 12(6) of the Industrial and Commercial Employment (Standing Orders) Ordinance, 1968: 30 days' wages per completed year of service (any part-year over 6 months counts as a full year), on the last month's wage. Actual payroll practice on the daily-wage divisor can vary — confirm with your HR department or with us before relying on this figure for a claim or settlement.
Misconduct & Dismissal
Standing Order 15 defines misconduct narrowly and requires a specific process before dismissal — an employer cannot simply decide someone is guilty and act on it. Recognised misconduct includes wilful insubordination, theft or fraud, wilful damage to property, bribery, habitual absence exceeding ten days, habitual late attendance, riotous behaviour, habitual negligence, and inciting an illegal strike.
- The employee must be informed in writing of the specific allegation, within one month of the employer learning of it.
- The employee must be given an opportunity to explain, and an independent inquiry must be held.
- The employee may nominate a co-worker to assist during the inquiry, without loss of pay for time spent in it.
- Pending inquiry, suspension is capped at 4 days at a time and 4 weeks in total (except where a case is pending before a Labour Court, Tribunal or Conciliator).
- Penalties on a finding of misconduct range from a fine or withheld increment to dismissal without compensation — the punishment must fit what was actually proven.
Social Security: EOBI & PESSI
| EOBI | PESSI (Punjab) | |
|---|---|---|
| Contribution | Employer 5% + employee 1%, of the notified minimum wage | Employer 6% of wages; employees contribute nothing |
| What it provides | Old-age pension, invalidity pension, old-age grant, survivor's pension | Free medical treatment, sickness/maternity/disability cash benefits, funeral grant |
| Pension eligibility | Age 60 (men) / 55 (women), with 15 years of insured service | Coverage-linked benefits while contributions are current |
| Governing law | Employees' Old-Age Benefits Act, 1976 | Provincial Employees' Social Security Ordinance, 1965 |
Registration with both institutions is a legal obligation for covered employers, not an optional benefit — and both are enforceable independently of anything agreed in an individual employment contract.
📌 On the Punjab minimum wage
The Punjab Labour & Human Resource Department's current notification sets the minimum wage for unskilled workers at Rs. 40,000 per month. This figure is revised periodically by government notification — always check the current notification before using it for payroll or EOBI/PESSI contribution calculations.
Not sure where your specific situation stands?
Whether you're an employee facing an unfair termination, or a business owner setting up compliant HR policies, we handle labor law matters end to end — from a single consultation to representation before the Labour Court.
Frequently Asked Questions
For a permanent worker terminated for a reason other than misconduct, one month's written notice or one month's wages in lieu, under Standing Order 12. Temporary workers, probationers and badlis are not entitled to notice.
Thirty days' wages for every completed year of service (any part-year over six months counts as a full year), based on the last month's wage — commonly treated as one month's salary per year of service. Not payable where an approved provident or pension fund is in place on qualifying terms.
After 12 months of continuous service: 14 days annual leave, 10 days casual leave on full pay, and 16 days sick leave on half average pay, plus paid festival holidays — under Chapter IV-A of the Factories Act, 1934.
Twelve weeks of fully paid leave (six before and six after delivery), provided you have at least four months of service before delivery, under the West Pakistan Maternity Benefit Ordinance, 1958.
EOBI provides old-age, invalidity and survivor's pensions (5% employer + 1% employee contribution on the minimum wage). PESSI (Punjab) provides free medical treatment and cash benefits during sickness, maternity, disability or death (6% employer contribution, no employee contribution). Registration is mandatory for covered employers.
No. Standing Order 15 requires written notice of the specific allegation, an opportunity to explain, and an independent inquiry before any dismissal for misconduct.
⚠️ General information, not legal advice
This guide summarises the general position under Pakistani and Punjab labor law as of July 2026. Your actual entitlements can depend on your specific employment contract, sector, province, and the size of your establishment, and the underlying laws and notified rates change over time. For a matter with real money or your job on the line, speak to us before acting on anything above.
