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Mahboob Rizvi Law Associates & Industrial Relations Advisors

Mahboob Rizvi Law Associates & Industrial Relations AdvisorsMahboob Rizvi Law Associates & Industrial Relations AdvisorsMahboob Rizvi Law Associates & Industrial Relations Advisors

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Employment Contracts

Additional Information

Know everything about fixed-term employment contract and temporary contract law in Pakistan. An employment contract is an agreement between an employer and employee and is the basis of further employment relationship. A contract of employment regulates the terms and conditions of employment between employer and employees.

After completion of your (undergrad or grad) studies, you must be looking for employment. While you may have already received advice on interviewing, during your studies, you must also know how to examine your employment contract or appointment letter.

DO LABOUR LAWS IN PAKISTAN REQUIRE AN EMPLOYER TO PROVIDE EMPLOYMENT CONTRACT AT THE START OF EMPLOYMENT?

After you have applied for a job and in response to written test, interview, whatever the case may be, you may be offered employment in an organization. You must know that Constitution of Pakistan affords every one of us with the right to enter upon any lawful profession or occupation (Article 18). The relevant legislation on employment contracts is as follows: 

1. Industrial and Commercial Employment (Standing Orders) Ordinance 1968 (applicable in Balochistan, ICT and Punjab)

2. Khyber Pakhtunkhwa Industrial and Commercial Employment (Standing Orders) Act, 2013

3. Sindh Terms of Employment (Standing Orders) Act, 2015

The Standing Orders Ordinance1968 requires every employer to provide every worker an employment contract, showing terms and conditions of his/her service. Your employer is responsible to provide this contract at the time of your appointment, transfer or promotion. Similar provisions are found in the above referred provincial legislation of Khyber Pakhtunkhwa and Sindh. 

Your appointment letter (employment contract) must state the nature of your employment (permanent or temporary, nature of duties i.e. job description, terms and conditions of service etc.

WHAT ARE DIFFERENT TYPES OF EMPLOYMENT CONTRACT, AS SPECIFIED UNDER THE LABOR LAWS?

If you are working in an establishment, you will be classified in one of the following six categories.

  1. Permanent
  2. Probationers
  3. Badlis (Alternate)
  4. Temporary
  5. Apprentices
  6. Contract worker

You become permanent worker if you have been on work of permanent nature for the last 9 months and have satisfactorily completed the probationary period of three months.

You will be a probationer for the first three months of service, after provisionally employed for a permanent position.

You will be considered a “Badli” if you are appointed in the post of a permanent or probationer employee who is temporarily absent.

You should consider yourself a temporary employee if you are hired for a project ending within 9 months. 

An apprentice is a person undergoing training through the system of apprenticeship.

Lastly, you will be a contract worker if you are employed to work on piece rate basis for a specific period of time. You will not be given overtime for hours worked above the normal working hours.

Sindh legislation however defines a contract worker as "a worker who works on contract basis for a specific period mentioned in the contract, in any establishment but does not include the third party employment".

Khyber Pakhtunkhwa legislation also defines a contract worker as " a worker who works on contract basis for a specific period mentioned in the Letter of Contract". The legislation requires an employer to obtain a No Objection Certificate (NOC) from the Labour Department to contract out jobs of peripheral nature and not those which are related to core activity of the organization. Such NOC is issued only for a period of 6 months at a time and contains  certain conditions related to the job and employment of contract workers. 

WHAT SHOULD I LOOK FOR IN MY EMPLOYMENT CONTRACT?

 While examining your appointment letter, you must consider following factors. 

  1. Job Description/ responsibilities - are these the same as were advertised and talked about during the interviews or job description has been expanded to include some other responsibilities
  2. Salary- what is your basic and gross salary? Your consolidated or gross salary must be equal or greater than Rs. 15,000 per month (in Punjab, KPK and Balochistan) or Rs. 14,000 ( in Sindh province). Your gross salary will include certain allowances like house rent allowance, conveyance/utility allowance.
  3. Probationary Period - what is the required probation period before your service is confirmed. In private sector, this probationary period is usually three to six months. While in public sector, the probationary period is one to two years. Another things to look for is that whether the probationary period is extendable or not. You must know that your services can be terminated during this time without any notice or without giving any reason. The probationary period under the above referred laws is only 3 months. 
  4. Termination of service - after confirmation of your service, on expiry of probation period, your services can be terminated by your employer at any time by giving you a 30-day notice or providing 30-day pay in lieu of that notice. You also have the right to resign from your service after giving 30-day notice or surrendering 30-day pay to your company.
  5. Transferability of services - whether your services can be transferred to other sections/departments of your organization. This can be both good and bad depending on your experience. Transferability of your services will give you diversified experience however you may not be able to specialize in your desired field.
  6. Confidentiality agreement - Your employer may require you not to associate, directly or indirectly, with a similar business during the course of your employment with the organization and that you would not divulge any information relating to the organization to its competitors (even after termination of your employment)
  7. Leaves, retirement benefits, medical facilities - you must check whether these provisions are in accordance with labor laws or company policy.

Other than the above mentioned factors, your employment contract/appointment letter must also clearly indicate whether your employment will be governed by general or some specific labor laws like mining labor code, newspaper employees act or road transport employees act. Moreover, if your employment contract is negotiated on terms different than those provided in labor laws, this will take precedence over the labor law. So, you must examine whether your employment contract is in accordance with the provisions in the labor laws or is different.


PROBATION PERIOD

In accordance with the Standing Orders Ordinance, probation period is of 3 months duration only. (S.O. 1 of Standing Orders Ordinance, 1968)

Similar provisions are found in the Khyber Pakhtunkhwa Industrial and Commercial Employment (Standing Order) Act 2013 (Standing Order 1) and the the Sindh Terms of Employment (Standing Orders) Act 2015 (Standing Order 1).


NOTICE REQUIREMENT

Labour law requires termination notice before terminating services of an employee. A permanent employee may be terminated after serving one month's notice or paying in lieu of notice. (S.O. 12 of Standing Orders Ordinance, 1968)

Similar provisions are found in the Khyber Pakhtunkhwa Industrial and Commercial Employment (Standing Order) Act 2013 (Standing Order 17) and the the Sindh Terms of Employment (Standing Orders) Act 2015 (Standing Order 16).



SEVERANCE PAY

There is a provision in the law regarding severance/redundancy pay however it is not provided when a worker is terminated on the ground of misconduct. A worker is entitled to severance payment amounting to 30 days' wages for each completed year of service.(S.O. 12 of Standing Orders Ordinance, 1968)

Similar provisions are found in the Khyber Pakhtunkhwa Industrial and Commercial Employment (Standing Order) Act 2013 (Standing Order 17) and the the Sindh Terms of Employment (Standing Orders) Act 2015 (Standing Order 16).



Gratuity is one of three prevalent retirement benefits in the private sector employment. The other two are “Pensions and Provident Fund”. It is a “lump-sum” amount of money payable to a worker on leaving service.


WHAT IS GRATUITY AND WHAT LAWS ARE GOVERNING GRATUITY IN PAKISTAN?


Gratuity is one of three prevalent retirement benefits in the private sector employment. The other two are "Pensions (approved Pensions Fund) and Provident Fund". It is a "lump-sum" amount of money payable to a worker on leaving service (through retirement, death or termination of service) based on salary (highest or the final salary) and period of service (over and above six months).


Gratuity is actually a benefit for services rendered in the past. It is a reward of good, efficient and faithful service for a substantial period of time. Before 1972, gratuity was paid by an employer either on voluntary basis or in consequence of an award by a labor court. However, the Labour Laws Amendments Ordinance, 1972 made payment of gratuity a legal obligation. Amendments were subsequently made in the Standing Order 12 of Industrial and Commercial Establishments (Standing Orders) Ordinance 1968. Gratuity is now a statutory right for workers who have worked at least twelve months in an organization. The relevant laws governing gratuity in private sector are:


Standing Orders Legislation


1. The Industrial and Commercial Establishments (Standing Orders) Ordinance, 1968 (applicable in ICT and Balochistan)

2. Industrial and Commercial Employment (Standing Orders) Ordinance, 1968 (adapted by the province of Punjab through Amendment Act of 2012)

3. The Khyber Pakhtunkhwa Industrial And Commercial Employment (Standing Orders) Act, 2013

4. The Sindh Terms of Employment (Standing Orders) Act, 2015

 


Payment of Wages Legislation


1. Payment of Wages Act, 1936 (applicable in ICT and Balochistan)

2. Payment of Wages Act, 1936 (adapted by the province of Punjab through Amendment Act of 2014)

3. The Khyber Pakhtunkhwa Payment of Wages Act, 2013

4. The Sindh Payment of Wages Act, 2015

 


Factories Legislation


1. The Factories Act, 1934

2. The Factories Act, 1934 (adapted by the province of Punjab through Amendment Act of 2012)

3. The Khyber Pakhtunkhwa Factories Act, 2013

4. The Sindh Factories Act, 2015

 


Shops and Establishments Legislation


1. The Shops and Establishments Ordinance, 1969

2. The Shops and Establishments Ordinance, 1969 (adapted by the province of Punjab through Amendment Act of 2014)

3. The Khyber Pakhtunkhwa Shops and Establishments Act, 2015

4. The Sindh Shops and Commercial Establishment Act, 2015

 


WHICH ORGANIZATIONS ARE LIABLE TO PAY GRATUITY TO THEIR WORKERS?

 


In accordance with section 1(4) of the Standing Orders Ordinance, 1968 (and its variant in Punjab), every commercial establishment (employing 20 or more workers) and industrial establishment (employing 50 or more workers) are required to pay gratuity to a worker once he/she has met the minimum criteria. The Khyber Pakhtunkhwa Act and the Sindh Terms of Employment (Standing Orders) Act, 2015 reduce the minimum number of workers in commercial establishments to 10 workers and in industrial establishments to 20 workers. The table below shows all the organizations liable to pay gratuity to their workers.


Commercial Establishments


Minimum Number of Workers


Industrial Establishments


Minimum Number of Workers


          The Industrial and Commercial Establishments (Standing Orders) Ordinance, 1968            (applicable in ICT, Balochistan and Punjab)


Advertising/commission/forwarding Agency, clerical department of a factory, joint stock company


 


At least 20 workers must have been employed by the organization for continuous 12 months


Factory


At least 50 workers must have been employed by the organization for continuous 12 months


Insurance company, banking company, bank, broker office, stock exchange


 


Railways


Club, hotel, restaurant


Establishment of a contractor


 


Cinema, theater,


Establishment in connection with construction industry


 


The Khyber Pakhtunkhwa Industrial And Commercial Employment (Standing Orders) Act, 2013


The Sindh Terms of Employment (Standing Orders) Act, 2015


Above establishments


At least 10 workers must have been employed by the organization for continuous 12 months


Above establishments


At least 20 workers must have been employed by the organization for continuous 12 months




tramway or motor omnibus service; dock, wharf or jetty; inland steam-vessel;


private health centres, clinical


laboratories,


mine, quarry, oil-field or gas-field;


 


private security agencies


plantation;


societies registered under the Societies Registration Act, 1860 (Act


No. XXI of 1860) and the Voluntary Social Welfare Originations (NGOs, NPOs)


workshop or other establishment in which articles are produced,


adapted or manufactured, with a view to their use, transport or sale


Other organizations as declared and notified by the government


 


WHAT ARE THE QUALIFYING CONDITIONS FOR A WORKER TO EARN GRATUITY?

A worker is entitled to gratuity if the following four conditions are satisfied.


1. Industrial and Commercial Establishments (Standing Orders) Ordinance 1968 (or any of its variants) is applicable to that establishment (whether commercial or industrial) i.e. it must have the minimum number of workers as mentioned above


2. A person has to be a workman as defined in Standing Orders Ordinance 1968. A workman is "any person employed in any industrial or commercial establishment to do any skilled or unskilled, manual or clerical work for hire or reward".


3. He/she must be a permanent workman. If a worker is temporary, badli, probationer or a contract worker, he/she is not eligible for gratuity under the law.


4. The minimum qualifying employment period is twelve months or above. However, if a worker has worked over six months in a specific year, he will be entitled to gratuity of one year. Thus, in essence, gratuity is payable for more than six months of employment. 


 WHAT ARE THE QUALIFYING EVENTS FOR PAYMENT OF GRATUITY TO A WORKER?

An employee is entitled to gratuity when:


He resigns from his service (voluntary retirement or voluntary redundancy in exchange for financial benefits like golden handshake schemes)

His organizations terminates his services due to reasons other than misconduct

He dies while in service of his employer (it is not necessary that employee should be on duty at the time of death)

He reaches the superannuation age and retires

 


However, if an employee's services were terminated on account of misconduct (like harassment, theft etc.), gratuity would no longer be admissible to him.


In case of death of a workman, gratuity is payable to the legal dependents of a workman. As mentioned above, death may not necessarily occur on duty but the worker should be in continuous service at that time. The amount of gratuity, in this case, is transferred to "Workmen Compensation Commissioner" who will then allocate this amount to the dependents of a worker. The dependents of a deceased worker include "his widowed mother, his own widow, minor son and unmarried daughter".


WHAT IS THE RATE OF GRATUITY AND HOW IS IT CALCULATED?

In accordance with the provisions of law, rate of gratuity is "thirty (30) days wages for every completed year of service or any period in excess of six months". Any employment period exceeding six months will be considered as one year. Originally, gratuity was set at 15 days' wages for every completed year of service. In 1973, the rate was revised to 20 days' wages. In 1994, it was further revised to 30 days' wages for every completed year of service or any period in excess of six months. 


The basis for calculation of wages is "wages admissible to a fixed-rate worker in the last month of his service" or "the highest drawn pay by a piece-rate worker during the preceding twelve months". Wages for gratuity calculation are the "gross wages" including all permanent and regular allowances (like house rent allowance, cost of living allowance and conveyance allowance), however, these don't include any such contingent or unpredictable payments like temporary relief to workers (e.g. flood relief) or bonus provided by the employer. Other than wage rate, the second determining factor in gratuity calculation is the time period a worker has served with an establishment/organization. Any length of service higher than six months over the number of years of service is considered as one year for the purpose of gratuity calculation. Whereas any length of service less than six months is not included in the course of calculating gratuity.


Date of joining/first appointment in an establishment 01st September, 1989


Date of voluntary retirement/resignation 30th April, 2015


Gross salary paid in 2015 Rs. 30,000


Temporary relief (flood relief) 5,000


Bonus (at the end of year indicating profitable situation for firm) 10,000


Total length of service 25 years and 8 months


Admissible period for calculation of gratuity 26 years


To calculate gratuity, Last drawn monthly gross pay Rs. 30,000


Pay per day 30,000/26(working days)=1153.85


One year gratuity (pay per day*30) 1153.85*30=34615.4


Gratuity for the whole period served i.e. 26 year 26*34,615.4=Rs. 900,000.4



Note: If the employment period in above example was 25 years and 4 months, gratuity would be payable only for 25 years. 


 Wages for workers are determined on a 26-day month basis as defined in the Minimum Wages for Unskilled Workers Ordinance, 1969. Minimum wage notifications, issued by the provincial governments, also determine wages for unskilled, semi-skilled and skilled workers on a 26-day basis.


Gratuity is calculated on the basis of gross wages including all those allowances and fringe benefits which are of permanent, regular and non-contingent in nature. The irregular and non-contingent payments (bonus, profit, payment for annual leave etc.) are not part of wages for the purpose of calculating gratuity. In the case of fixed-rated workers, gratuity is calculated on the basis of wages payable to a workers in the last month of service. In the case of piece-rated workers, gratuity is calculated on the highest pay drawn during the last 12 months. 


WHAT IS THE DIFFERENCE BETWEEN GRATUITY, PROVIDENT FUND, AND PENSION FUND?

As mentioned before, gratuity and provident fund are two different retirement benefits under the Standing Orders Ordinance 1968. Workers don't have legal right to both of these benefits. It is rests with an employer's discretion to decide as to whether he wants to set up provident fund or provide gratuity at the end of employment or grant both of these benefits voluntarily. The law can't force an employer to provide either of these benefits or both the benefits simultaneously.


Gratuity is usually awarded in addition to other benefits payable to an employee. However gratuity is not payable during the period an employer has set up a provident fund in his establishment with at least 50% of the contribution by the employer and the remaining by employee. The sum of both of these contributions would be payable to a workman even if he resigns or is dismissed from service for any reason including misconduct (remember gratuity is not admissible in case of misconduct). However, the law does not stop an employer to provide both gratuity and provident fund to its employees. What is provided in the law is the minimum legal protection i.e. floor and not the ceiling. Both the Khyber Pakhtunkhwa and Sindh Standing Orders Acts further provide that the amount paid to the worker under provident fund must not be less than the amount of gratuity admissible to such worker.


It must be emphasized here though that after a 2007 amendment, there is also a provisions for an Approved Pension Fund. If, agreed through collective bargaining, an employer offers and contributes to an “Approved Pension Fund” as defined in the Income Tax Ordinance, 2001 (XLIX of 2001), and where the contribution of the employer is at least 50% of the limit prescribed in the aforesaid Ordinance, and to which the workman is also a contributor for the remaining 50% or less, no gratuity is payable for the period during which such contributions has been made. The Pension Fund option is not provided under the Khyber Pakhtunkhwa and Sindh Standing Orders Acts.


It is interesting to note however that in the case of misconduct, an employer is not required to pay gratuity however if a Provident Fund is maintained, the workman is entitled to receive the amount standing to his credit in the provident fund, including the contributions of the employer to such fund, even if he resigns or is dismissed from service.


IF AN EMPLOYER REFUSES TO PAY GRATUITY OR IS PAYING LESS THAN THE DUE AMOUNT, WHAT SHOULD A WORKER (OR HIS DEPENDENTS) DO?

The first step to get gratuity is to apply to the employer for payment of the due amount. If there are delays on the employer side or employer is paying less than the due amount, the aggrieved party (worker or his dependents, in case of his death) can file a claim to the Commissioner appointed under section 15 of the Payment of Wages Act 1936. The complaint to the Workmen Compensation Commissioner's office can be filed within three years of the incidence of the act. A Workmen Compensation Commissioner is the officer of directorate of labor welfare and every district has a designated Commissioner for labor related matters.


HOW IS GRATUITY PAID TO THE WORKER'S DEPENDENTS IN THE CASE OF WORKER'S DEATH?

In the event of a worker's death, gratuity is payable to the legal dependents of a worker. The amount of gratuity, as calculated above, is transferred to the Workmen Compensation Commissioner, appointed under the Workmen Compensation Act 1923. The Commissioner then allocates the amount to the worker's dependents who are defined as the widow, minor son (under 18 years), and unmarried daughter, or a widowed mother. The amount of gratuity is allocated among the dependents in accordance with the provisions of section 8 of the Workmen’s Compensation Act, 1923 (or its provincial variants).


SOME POINTS TO REMEMBER 


1. Gratuity is payable on completion of 12 months of service after first day of employment. It is not related to calendar year (January to December) or fiscal or financial year (July to June) or any other arbitrary period.


2.  Gratuity is payable for more more than six months of employment. If the period of employment is less than 6 months, no gratuity is payable. 


3. As stated above, employer is required to provide only one benefit: Gratuity or Provident Fund or Pension Fund. However, under a collective agreement/memorandum of understanding, the employer may provide multiple benefits or the rate of gratuity may be raised from 30 days' wages to 40-45 days' wages. 


4. Unlike Bonus or workers' participation in profits, gratuity has no connection with the financial position of the employer. It must be paid to an eligible worker at the end of service, whether by superannuation or resignation or death or termination (for any reason other than misconduct).  


MATERNITY LEAVE

Female employees are entitled to a maximum of twelve weeks (or 3 months) of maternity leave with full pay. The six-week post natal leave is compulsory. (Section 4 of West Pakistan Maternity Benefit Ordinance, 1958). The maternity leave in public sector is also 90 days (3 months) and during this time, wages are paid in full.


INCOME

The maternity leave is awarded with full pay. The qualifying condition is that the women must be working in enterprise at least four months prior to the date of delivery of her child.(Section 4 of West Pakistan Maternity Benefit Ordinance, 1958)


FREE MEDICAL CARE

In accordance with section 38 of The Provincial Employees Social Security Ordinance, 1965, a woman is entitled to entitled to prenatal confinement and post-natal medical care, if she is entitled to maternity benefit under section 36.


BREASTFEEDING

No provisions could be located in the law requiring employers to provide nursing breaks for new mothers.




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