Hiring someone takes weeks. Letting someone go can undo a good reputation in an afternoon. Every HR manager in Pakistan has seen it happen: a manager decides a team member isn’t working out, tells HR to prepare the paperwork by Friday, and the person is walked out the same day with a one-line letter. Three months later a notice arrives from the labour court. The employee claims they were never given notice, never told the reason in writing, and are still waiting for their final dues. Even if the company was right about the performance problem, it now has to defend how it handled the exit, and that is a much harder argument to win. The employee termination process Pakistan employers must follow isn’t hidden or obscure. It sits mostly in the standing orders that apply to the establishment, and it asks for a short list of things: the right notice, a written reason, a fair procedure when misconduct is involved, and prompt payment of everything the employee is owed. What makes it risky is the gap between what the law expects and what busy managers actually do in the moment. Skipped notice, vague termination letters, unpaid leave balances and forgotten gratuity are common triggers for disputes, and courts have set aside terminations in the past purely because the required procedure wasn’t followed. This guide walks through the notice period Pakistan employers need to observe, how termination for misconduct differs from termination without cause, what a proper full and final settlement includes, and how to keep a clean paper trail for every exit.
Which rules apply to your company
Termination is mainly governed by the standing orders. The Industrial and Commercial Employment (Standing Orders) Ordinance 1968 applies in establishments with twenty or more workers, and Sindh and Khyber Pakhtunkhwa have replaced it with their own Acts, the Sindh Terms of Employment (Standing Orders) Act 2015 and the KP Industrial and Commercial Employment (Standing Orders) Act 2013. The provisions on notice are similar across all of them. Smaller establishments fall under shops and establishments laws and their employment contracts, and senior managers are often governed mainly by their contracts, with the statutory rules acting as a floor. Always read the contract first. If it promises a longer notice period than the law requires, the contract is what you will be held to.
What notice is required
For a permanent worker, ending employment for any reason other than misconduct requires one month’s notice from either side, or one month’s wages in lieu of notice. The wages in lieu are calculated on average wages rather than on basic salary alone, and the 1968 Ordinance refers to the last three months. Notice runs in both directions, so an employee resigning without serving notice can also be asked to pay in lieu, depending on the terms of the contract.
Probationers are the exception. The standing orders say a probationer is not entitled to notice. That doesn’t remove the need for a written order, and probation itself has a limit under the law. Sindh’s definition of a permanent worker, for example, refers to a three month probation period. Keeping someone on extended probation to avoid notice obligations is a risky habit.
Without cause or for misconduct
These are two different paths, and mixing them up is where many employers go wrong.
Termination without cause, sometimes called termination simpliciter, rests on notice or pay in lieu and a written order stating the reason. Poor fit and performance concerns usually belong here, and they hold up far better when the file shows warnings, feedback and a chance to improve.
Termination for misconduct needs a proper procedure before anyone is removed. Under Sindh’s standing orders, the worker must be informed in writing of the alleged misconduct within one month of the incident or of the date it came to the employer’s notice. A workable sequence looks like this:
- Issue a written charge sheet describing the allegation.
- Give the employee reasonable time to reply in writing.
- Hold a fair inquiry and record what was said.
- Decide on the penalty in proportion to what was found.
- Issue a written termination order stating the reason.
Skipping steps because the misconduct seems obvious is the quickest way to lose the case later. The Sindh High Court has held a mass termination illegal where the notice requirement in Standing Order 16 was not followed.
Retrenchment and redundancy
When positions are cut for business reasons, the same notice or pay in lieu applies, and severance is commonly stated as 30 days’ wages for each completed year of service. Severance isn’t payable where termination is for misconduct. If the employer takes on new people within a year of retrenching workers, the retrenched workers can have a claim to re-employment. Sindh’s law adds restrictions on large scale terminations, so take legal advice before any major reduction in headcount.
What the full and final settlement includes
A clean settlement covers every amount owed in one statement.
- Salary up to the last working day
- Notice pay, where notice isn’t served
- Encashment of un-availed leave, which Sindh’s standing orders specifically mention
- Gratuity, if the employee qualifies
- Any bonus or incentive earned but not yet paid
- Deductions for loan or advance balances and unreturned company assets, supported by written agreement
Published guidance on the exact deadline for paying final dues varies, so ask your legal adviser which timeframe applies to your establishment. In practice, settle as early as you can and get the employee’s signed acknowledgement. Make sure the last EOBI contribution is deposited as well, and see our EOBI compliance guide for what that involves. Issue the experience or relieving letter promptly. Withholding it creates resentment for no benefit.
An exit checklist worth keeping
- Resignation or termination letter on file
- Notice period or pay in lieu agreed and recorded
- Handover completed and signed off
- Laptop, phone, ID card, SIM, vehicle and keys returned
- System, email and building access removed on the last day
- Leave balance, gratuity and loan balance calculated
- Final settlement paid and acknowledged in writing
- Experience letter issued
- Employee record closed with documents archived
Keeping exits clean with an HRMS
The trouble with exits is that the information sits in four places. Leave balances are in one sheet, loan recoveries in another, notice dates in an email, and gratuity in someone’s head. An HRMS brings them together. With the employee management record holding the joining date, probation status and documents, leave management showing the exact balance to encash, and payroll management producing the final settlement from the same data, nothing gets forgotten and every figure can be explained.
The bottom line
Most termination disputes are not about whether the company was right to let someone go. They’re about whether it followed the steps. Give the right notice, put the reason in writing, run a fair process when misconduct is involved, pay everything that is owed, and keep a record of each stage. Do that consistently and an exit stays a business decision instead of becoming a legal dispute. If your team is still building settlements from scratch each time, see how Radiant Workforce can pull the numbers together in one place.
FAQ’s
What is the notice period in Pakistan?
For a permanent worker, one month’s notice from either side, or one month’s wages in lieu. Your employment contract may set a longer period, and then the contract applies.
Does a probationer get a notice period?
The standing orders say a probationer isn’t entitled to notice, though a written order is still good practice and probation can’t be extended indefinitely.
Can an employee be terminated without a reason?
Termination without cause still needs notice or pay in lieu and a written order stating the reason. There is no at-will employment, and every termination should have a documented basis.
What must an employer pay at the time of termination?
Salary to the last day, notice pay if notice isn’t served, leave encashment, gratuity where eligible and any earned bonus, less documented recoveries. Confirm the payment deadline with your legal adviser.
What is the process for terminating an employee for misconduct?
A written charge within one month of the incident, a reasonable chance to respond, a fair inquiry and a written order stating the reason and the penalty.