Employees vs Independent Contractors
An Employer of Record Pakistan serves as the official employer of a worker in (Pakistan) the country and the Actual Employer (foreign Entity) must understand the difference of Employees vs Independent Contractors in order to make informed decision.
The following key difference between hiring an Employee through Employer of Record Pakistan and hiring independent contractors helps the Actual Employers to decide on hiring wisely.
Employment Laws
Employee: Governed by specific laws like West Pakistan Industrial and Commercial Employment (Standing Orders) Ordinance 1968, Shops and Establishments Ordinance 1969, and others which vary by province.
Independent Contractor: No specific laws that regulate the hiring of independent contractors in Pakistan.
Hiring Practice
Employee: Undergo a pre-employment medical check-up, present a clear criminal record, and adhere to the employment contract terms.
Independent Contractor: Hired directly or through intermediaries like staffing agencies or online platforms.
Tax Filing Documents
Employee: Subject to income tax deducted at source, and required to submit tax returns if salary exceeds PKR 600,000.
Independent Contractor: Contractors file their own taxes online or via the Regional Tax Office. Corporate taxes must be filed by 30 September for the previous year.
Payer Tax Withholding and Reporting Requirements
Employee: Employers withhold employees’ income tax and contribute to social security for employees with over five employees.
Independent Contractor: No specific additional requirements levied upon companies that hire contractors.
Other Tax Filing Requirements
Employee: Not applicable for employees.
Independent Contractor: Not applicable for independent contractors.
Remuneration
Employee: Paid according to the terms specified in their contract.
Independent Contractor: Payment terms defined in the contract.
Workers’ Rights
Employee: Governed by labor laws, including working hours, minimum wage, overtime, and leaves.
Independent Contractor: No statutory benefits for independent contractors.
Benefits
Employee: Entitled to statutory benefits like overtime pay and public holiday pay.
Independent Contractor: Benefits, if any, are defined in the contract.
When Paid
Employee: Paid on an hourly, weekly, monthly, or yearly basis.
Independent Contractor: Contractors typically submit invoices and require payment within the agreed timeframe.
Who classifies as Independent Contractor in Pakistan
Employee: Legal framework under-developed; individuals considered contractors if they have less control, provide their own equipment, and work on specific projects.
Independent Contractor: Self-employment is common, but no clear legal distinction between contractor and employee.
Contracting Models
Employee: Self-employed freelancer, LLC (Limited Liability Company), Non-LLC business.
Independent Contractor: Independent contractors operate under various models like sole proprietorship, partnerships, or limited companies.
Engagement Models
Employee: Direct engagement with contractors or through staffing agencies/umbrella companies.
Independent Contractor: Engage contractors directly or through third-party agencies or umbrella companies.
Contractor Payments
Employee: Preferably avoid paying through payroll system; payment method determined by contract.
Independent Contractor: No specific legal requirements regarding contractor payments in Pakistan.
Tax and Social Security
Employee: Employees taxed at source and required to submit tax returns if salary exceeds PKR 600,000.
Independent Contractor: Contractors file their own income taxes or business taxes if registered. Employers contribute to social security for employees.
