How are statutory contributions calculated in Pakistan?

Statutory contributions in Pakistan refer to mandatory payments made by both employers and employees towards various social security and welfare funds. These contributions are regulated by law and are intended to provide benefits such as pensions, healthcare, and insurance to workers. Here’s a breakdown of the key statutory contributions in Pakistan:

1. Employees' Old-Age Benefits Institution (EOBI)

• Purpose: Provides pensions to employees after retirement, as well as survivors' pensions and invalidity benefits.
• Employer Contribution: Employers are required to contribute 5% of the minimum wage per employee to the EOBI fund.
• Employee Contribution: Employees contribute 1% of the minimum wage. However, this contribution is often made by the employer on behalf of the employee.
• Benefit: Provides old-age pensions, survivors' pensions, and invalidity pensions to eligible employees.

2. Social Security Contribution

• Purpose: Provides medical care, sickness benefits, maternity benefits, and injury compensation to workers.
• Employer Contribution: Employers contribute around 6% of the employee’s wages to the provincial Social Security Institution (SSI). The exact rate may vary by province.
• Employee Contribution: Generally, there is no direct contribution from employees, but this may vary depending on the region or specific agreements.
• Benefit: Covers medical treatment, hospitalization, sickness benefits, maternity benefits, and employment injury benefits.

3. Workers' Welfare Fund (WWF)

• Purpose: Provides funding for housing, education, and welfare projects for industrial workers.
• Employer Contribution: Companies with a total income of PKR 500,000 or more are required to contribute 2% of their total income to the Workers' Welfare Fund.
• Employee Contribution: There is no contribution from employees directly.
• Benefit: Supports housing schemes, educational scholarships, and welfare programs for workers and their families.

4. Workers' Participation Fund (WPF)

• Purpose: Distributes a portion of the company's profits among workers.
• Employer Contribution: Companies are required to contribute 5% of their annual profits to the Workers' Participation Fund, which is then distributed to eligible workers.
• Employee Contribution: No direct contribution from employees.
• Benefit: Provides a share of profits to eligible workers, enhancing their income and participation in the company’s success.

5. Group Life Insurance

• Purpose: Provides life insurance coverage to employees in case of death.
• Employer Contribution: Employers are typically required to arrange group life insurance for their employees, with the premium often paid by the employer.
• Employee Contribution: Generally, there is no direct contribution from employees, but it depends on the specific company policy.
• Benefit: Provides financial support to the employee’s family in case of death, with a lump sum payment.

6. Provident Fund (Optional)

• Purpose: Provides a lump sum payment to employees upon retirement or resignation.
• Employer Contribution: Typically, the employer contributes an amount equal to the employee's contribution, usually around 10% of the basic salary.
• Employee Contribution: Employees contribute a fixed percentage of their basic salary, often around 10%.
• Benefit: The accumulated contributions plus interest are paid to the employee upon retirement, resignation, or death.

7. Income Tax Withholding

• Purpose: Collection of income tax on behalf of the government.
• Employer Contribution: Employers are responsible for deducting and remitting income tax from employees' salaries based on the applicable tax slabs.
• Employee Contribution: Employees pay income tax through deductions from their salaries.
• Benefit: Compliance with tax laws and contribution to national revenue.

Key Points to Remember

• Mandatory vs. Optional: Some contributions, like EOBI and Social Security, are mandatory, while others, like Provident Fund, may be optional depending on company policy.
• Provincial Variations: Contribution rates and regulations may vary by province, especially for Social Security and Workers' Welfare Fund.
• Compliance: Non-compliance with statutory contribution requirements can result in penalties for employers, including fines and legal action.

These statutory contributions are essential for ensuring that workers in Pakistan receive financial protection and benefits during and after their employment.