Payroll in Pakistan, 2026-27: what an employer has to get right

Pakistan’s tax year for salaried employees runs from 1 July to 30 June, and each year’s Finance Act sets the rates for it. Tax year 2026-27 runs from 2026-07-01 to 2027-06-30 under the Finance Act, 2026. A payroll calendar that runs January to December still has to split its tax calculation at the end of June.

Salaried individuals — people whose salary is more than 75% of their taxable income — are taxed on a slab table in the First Schedule to the Income Tax Ordinance, 2001. In 2026-27 the first Rs 600,000 of annual taxable income is not taxed, and the marginal rate rises through 7 slabs to 35% above Rs 7 million.

The Finance Act, 2026 kept the bottom three slabs from 2025-26, lowered the rates from Rs 2.2 million upwards, and removed the surcharge on salaried individuals, which had been 9% of the tax above Rs 10 million.

A salary of Rs 150,000 a month is Rs 1,800,000 a year. That falls in the slab from Rs 1.2 million to Rs 2.2 million, so the tax is the slab’s fixed Rs 6,000 plus 11% of the Rs 600,000 above its lower limit: Rs 72,000 for the year, or Rs 6,000 a month, an effective rate of 4%.

PwC’s published example for 2026-27 takes taxable income of Rs 5,350,000. It falls in the slab from Rs 4.1 million to Rs 5.6 million: Rs 541,000 for the income up to Rs 4.1 million, plus 29% of the remaining Rs 1,250,000, which is Rs 362,500 — Rs 903,500 in total. Under the 2025-26 table the same income would have paid Rs 1,053,500.

Section 149 of the Ordinance requires whoever pays a salary to deduct tax at the time of payment, at the employee’s average rate on the estimated salary income for the whole tax year. That makes withholding a projection, not a fixed twelfth: the payroll estimates the year’s salary from what has been paid and what is still to come, works out the tax on that estimate, subtracts what has already been withheld, and spreads the rest over the months left.

The projection is why a raise, a bonus or a mid-year start changes the deduction from that month onwards, and why section 149 lets the employer adjust for tax credits such as those for approved donations and pension contributions once the employee gives documentary evidence.

The Employees’ Old-Age Benefits Institution runs the old-age pension scheme under the Employees’ Old-Age Benefits Act, 1976. An industrial or commercial establishment with five or more employees must register, and a smaller one may join voluntarily.

Contributions are charged on the minimum wage, not on what each person earns: the employer pays 5% of the minimum wage and the employee 1%, for each insured person every month. The Act ties “wages” to the rates declared under the Minimum Wages for Unskilled Workers Ordinance, 1969, and the figure has changed with each notification — confirm the current amount with EOBI before a payroll run that depends on it.

Health and injury cover for workers is run by each province’s social security institution — PESSI in Punjab, SESSI in Sindh, and their counterparts in Khyber Pakhtunkhwa and Balochistan — and the employer pays the contribution. PESSI states that the Provincial Employees Social Security Ordinance, 1965 requires employers to contribute 6% of their employees’ wages.

Which employees are covered, the wage ceiling and the rate are set by each province’s law and notifications, and Punjab published a Punjab Labour Code in 2026. Check the current rules with the institution for the province where the staff work before setting a scheme up.

When someone leaves, the payroll closes their account: salary for days worked since the last run, unused leave where the policy or the law pays it out, gratuity or provident-fund dues, and any bonus owed, less loans and advances, notice not served and tax. Gratuity and leave encashment are set by provincial standing-orders law and by the employment contract, so they are inputs to the settlement rather than one national rule.

Ledgr, the payroll tool in Orbiz, builds the salary sheet from attendance and leave already recorded in AMS. A tax regime in Ledgr is a slab table with an annual-projection method, and statutory schemes such as EOBI are a percentage of a base with a floor and a cap — so this year’s figures are settings your finance team edits, not code. Every line on the sheet shows how it was computed, and payslips, loans, claims and final settlements stay on the same record.