How to pay and manage Pakistani contractors: A practical guide
Complete guide to paying contractors in Pakistan: Wise vs PayPal fees, FBR tax requirements, currency considerations (USD vs PKR), and contractor management tools.
If you're paying independent contractors in Pakistan, you need to handle payment, understand currency preferences, and ensure proper contractor classification. The payment part is straightforward once you know the right method. The compliance part—avoiding employee misclassification and keeping proper records—is where most international businesses make mistakes.
This guide walks through what you actually need to do. Then we'll show you where Kontrable helps organize the work.
The main things you need to do
1. Use Wise for payments. It's the cheapest and most reliable way to pay Pakistani contractors. Wise costs $3-8 per transfer with real mid-market exchange rates. PayPal costs $5-15 and has worse exchange rates. Traditional bank transfers cost $15-40 and take 3-7 days. Use Wise.
2. Ask about currency preference. Most Pakistani contractors prefer USD because it protects them from PKR devaluation. But always ask before setting up payments. Some may prefer PKR for local operations. Make the currency decision together.
3. Use a written contract. Document the contractor relationship with a clear service agreement covering scope, deliverables, payment terms, IP ownership, confidentiality, and explicit statement that they're an independent contractor (not an employee).
4. Ensure proper contractor classification. The contractor must control how they work, use their own tools, work for multiple clients, and be project-based. Don't set their hours, provide equipment, or require exclusive work.
5. Keep payment records. Maintain documentation of all payments made. As a foreign company, you typically don't withhold Pakistani taxes, but you need records for your own country's tax compliance.
That's the foundation. Everything else builds on these five things.
Payment methods: What actually works
For paying Pakistani contractors:
Use Wise. It's the cheapest, fastest, and most transparent way to pay contractors in Pakistan.
Why Wise is best: It charges $3-8 per transfer with real mid-market exchange rates—no markup. PayPal charges $5-15 and has worse exchange rates. Traditional bank transfers cost $15-40 and take 3-7 days. For regular payments, Wise saves you money and time.
How to set up: Create a Wise business account (free). Get the contractor's bank details (IBAN or account number). Send USD or PKR to their account. Wise converts at mid-market rate if needed. The contractor receives money in 1-2 business days.
What about PayPal?
PayPal is widely accepted in Pakistan and offers instant transfers, but it charges $5-15 per transaction with worse exchange rates than Wise. For small one-time payments or if the contractor specifically prefers it, PayPal works. For regular payments, use Wise.
What about Payoneer?
Payoneer is popular with Pakistani freelancers and charges $5-10 per transfer with 1-3 day delivery. It's useful if the contractor already has an account and prefers it. But Wise is still cheaper and faster.
What about traditional bank transfers?
Avoid them. They cost $15-40 per transaction and take 3-7 days. Use Wise or PayPal instead.
Currency: USD or PKR?
This is one of the most important decisions when paying Pakistani contractors. Most prefer USD because the Pakistani rupee (PKR) devalues over time. Paying in USD protects them from currency risk and makes it easier to compare rates with other clients.
But don't assume. Ask your contractor which currency they prefer before setting up payments. Some may prefer PKR for local tax purposes or because they have local expenses. Agree on a currency upfront so both sides know exactly what's being paid.
Tax and compliance requirements
When hiring contractors in Pakistan, tax obligations are straightforward: the contractor is responsible for their own taxes with the Federal Board of Revenue (FBR). You don't withhold taxes or file anything with Pakistani tax authorities.
Your responsibilities: Ensure the worker is truly an independent contractor, not an employee. Have a clear written service contract outlining scope, deliverables, and payment terms. Keep documentation of all payments made. Don't withhold Pakistani taxes—the contractor handles this.
Contractor's responsibilities: They must register with the Federal Board of Revenue if earning above the threshold, file annual tax returns, obtain an NTN (National Tax Number) for tax purposes, and keep records of income and expenses.
Important note: As a foreign company paying a Pakistani contractor, you typically don't have tax withholding obligations in Pakistan. However, you may need to report the payment in your own country. Consult with a tax professional in your country for your specific situation.
Contractor vs employee classification
One mistake businesses make is treating contractors like employees. Pakistan has labor laws that distinguish between the two, and misclassification can create legal risk.
A proper independent contractor relationship means they control how work is done, use their own tools and equipment, work for multiple clients, and are engaged on a project basis with defined deliverables. They shouldn't have set working hours, provided equipment, exclusive work requirements, or ongoing employment-like arrangements.
Document the relationship carefully with a written contract that explicitly states independent contractor status.
Common mistakes and how to avoid them
Mistake 1: Using expensive bank transfers. Traditional international wire transfers cost $15-40 per transaction with poor exchange rates. Over a year, paying a single contractor, this costs thousands extra.
Solution: Use Wise ($3-8) or PayPal ($5-15). You save 60-80% on transfer fees.
Mistake 2: Not asking currency preference. You assume PKR is preferred, but the contractor wants USD to avoid currency risk. This creates frustration.
Solution: Always ask your contractor which currency they prefer before setting up payments. Have the conversation upfront.
Mistake 3: No written contract. Verbal agreements lead to disputes about scope, deliverables, and payment terms. Without documentation, there's no clarity when disagreements arise.
Solution: Always have a written service agreement before starting work. Cover scope, deliverables, payment terms, currency, IP ownership, confidentiality, and termination terms.
Mistake 4: Ignoring time zone differences. Pakistan is UTC+5, which can create communication challenges with US/EU teams. You expect real-time responses and coordination.
Solution: Establish clear communication windows upfront. Use async tools (Slack, email, project management software). Pakistani contractors are often flexible with hours for international work.
Mistake 5: Misclassifying employees as contractors. You treat a contractor like an employee—setting hours, providing equipment, requiring exclusive work. This creates legal risk.
Solution: Ensure true contractor relationship. They control how work is done, use their own tools, work for multiple clients. Document this in the contract.
Frequently asked questions
Q: Do I need an EOR platform like Deel for Pakistani contractors? A: No. EOR (Employer of Record) is for hiring employees internationally. Pakistani contractors handle their own taxes and compliance. You just need a good payment method (Wise) and contractor management tool to organize invoices and contracts.
Q: Should I pay in USD or PKR? A: Most Pakistani contractors prefer USD because it protects them from PKR devaluation. Always ask your contractor which currency they prefer before setting up payments.
Q: What's the best payment method for Pakistan? A: Wise offers the lowest fees ($3-8) and best exchange rates. PayPal is also popular but has higher fees ($5-15). Avoid traditional bank transfers ($15-40).
Q: Do I need to withhold Pakistani taxes? A: No. As a foreign company paying a Pakistani contractor, you typically don't withhold Pakistani taxes. The contractor is responsible for their own FBR tax compliance.
Q: How long do payments take to reach Pakistan? A: Wise takes 1-2 business days, PayPal is instant (though contractors may need time to withdraw to their bank), Payoneer takes 1-3 days, and traditional bank transfers take 3-7 days.
Q: What should be in a contractor agreement for Pakistan? A: Include scope of work, deliverables, payment terms, currency, independent contractor status, IP ownership, confidentiality, and termination terms. A simple written agreement protects both sides.
Q: Do I need a local presence or business registration in Pakistan? A: No. You're paying independent contractors for services. You don't need a Pakistani business entity, registration, or tax ID. The contractor handles their own compliance.
Getting started
If you're paying Pakistani contractors, here's the process:
- Set up Wise business account
- Ask contractor for currency preference (USD or PKR)
- Get contractor's bank details or Wise account
- Create written service agreement
- Agree on payment schedule
- Keep records for your tax purposes
- Maintain contractor contact and documentation
Kontrable helps with steps 3, 4, 5, 6, and 7 by organizing contractor information, tracking payments, managing contracts, and storing invoices. You stay in control of your payment method and use Wise directly.
If you're managing a few contractors, a spreadsheet works. If you're managing dozens or coordinating across a team, Kontrable saves time and keeps contractor data organized.
Ready to get organized?
[Start a free trial of Kontrable] – Get invoice workflows, payment tracking, and contract storage. Try it free.
