In Pakistan’s labor market, contract employment is a very common workforce strategy across all industries. While contract labor provides businesses with flexibility and cost savings, it also presents significant challenges for industrial relations and human resource management.
From legal ambiguity to workforce dissatisfaction, managing contract labor requires strategic oversight, robust policies, and ethical practices.
Understanding Contract Labor in the Pakistani Context
Contract labor refers to any employee who is hired for a fixed duration or specific project and is usually not directly employed by the principal employer. In Pakistan, this form of employment is common in sectors such as manufacturing, banking, logistics, construction, telecommunications, and even IT services.
While the flexibility of hiring temporary labor helps manage workforce fluctuations and operational costs, it also raises complex questions about key HR issues like employee rights, legal compliance, as well as long-term workforce engagement.
Key Challenges in Managing Contract Labor
1. Legal and Regulatory Ambiguity
The Punjab Industrial Relations Act 2010, Sindh Terms of Employment (Standing Orders) Act 2015, and other provincial laws have created frameworks for employer-employee relationships. However, their application to contract workers often remains unclear, open to misinterpretation and it is also inconsistently enforced.
Challenge:
Employers often face legal uncertainty regarding the classification of workers, especially when contract employees perform the same duties as permanent staff. Misclassification can lead to disputes, legal penalties, or workforce unrest.
HR Insight:
An experienced HR team must stay updated with labor laws and ensure that contracts are drafted in compliance with provincial regulations. Partnering with legal advisors for periodic contract audits can reduce future liabilities.
2. Lack of Benefits and Job Security
Most contract workers in Pakistan are not eligible to receive social security, health insurance, or provident fund contributions. This creates income and rights disparity within the same organization and can result in employee disengagement.
Challenge:
The absence of benefits and security often results in lower motivation, increased attrition, and a weakened sense of belonging among contract employees.
HR Insight:
Progressive organizations are choosing to extend partial benefits such as group health insurance and accident coverage to their contractual workforce. To know about the basic benefits every business should provide, read 5 Employee Benefits every Business should give in Pakistan
3. Industrial Relations and Worker Dissatisfaction
Contract labor can become a challenge in employer-employee relations, especially in manufacturing businesses. Cases of unfair termination, wage delays, or exclusion from welfare programs can lead to labor strikes, protests, or litigation.
Challenge:
HR departments may struggle to maintain industrial harmony when there is a growing divide between permanent and contractual employees.
HR Insight:
Establishing clear processes for handling worker grievances and including contractor representatives in labor discussions can help in reducing conflict. A unified code of conduct, applicable across different workforce types, can ensure consistency in workplace behavior and expectations.
4. Lack of Training and Skill Development
Since contract workers are perceived as temporary, they are usually excluded from formal training or development programs. This limits their effectiveness and can result in safety incidents in labor-intensive roles.
Challenge:
A poorly trained workforce increases operational risk and reduces overall productivity.
HR Insight:
Smart HR professionals are integrating short-term contract staff into basic training programs—especially on workplace safety, compliance, and technical skills. Even limited access to upskilling can improve performance and morale while reducing HR liabilities.
To learn more about the importance of skill development, visit our blog Reskilling And Upskilling Existing Staff Effectively In Pakistan and to get tips on how to go about it, read How Can Companies Enhance Skills In Their Workforce?
Strategic HR Solutions for Managing Contract Labor
1. Policy Standardization
Organizations should implement a contract labor policy that defines worker categories, role duration, job descriptions, benefits, and engagement rules. This policy must follow all applicable labor laws and be shared with all stakeholders, including contractors.
A standardized policy eliminates ambiguity and ensures that line managers follow consistent procedures while hiring or managing contract staff.
2. Inclusive Benefits Framework
Forward-thinking HR leaders are introducing tiered benefit structures, where even contract staff get access to core welfare elements such as:
- Group health insurance
- On-site medical facilities
- Transportation
- Basic bonuses
This not only enhances brand perception as a fair employer but also reduces turnover and improves contract staff engagement.
3. Robust Contractor Vetting and Oversight
Employers must ensure that their third-party contractors are following all the applicable ethics and compliance standards. This includes:
- Background checks on agencies
- Ensuring timely payments to contract staff
- Enforcing workplace safety standards
- Regular compliance audits
This approach minimizes reputational risk and maintains industrial peace.
4. Technology-Driven Contract Workforce Management
Implementing digital HRMS solutions can usually improve efficiency in contract staff tracking, automate wage processing, and support transparent communication. Technology will help HR teams manage large contractual workforces with clarity and accuracy, improving workplace productivity as well as compliance.
5. Fostering Industrial Harmony Through Dialogue
The essence of good industrial relations lies in continuous dialogue. HR must play a proactive role in:
- Organizing feedback forums
- Addressing grievances promptly
- Recognizing exceptional contract employees
- Offering pathways to permanent employment (where possible)
Such practices build trust and reduce the probability of conflict escalation.
Looking Ahead: The Future of Contract Labor in Pakistan
Pakistan’s workforce demographics are shifting and with the rise in digitalization, contract labor will remain an integral part of business strategy. However, to avail the maximum benefits of contract labor, employers must move beyond short-term cost savings and invest in ethical, compliant, and human-centered labor practices specifically to support their contract workforce.
HR professionals have a crucial role to play in designing systems that ensure fairness, reduce legal exposure, and promote long-term organizational harmony.
Conclusion: Responsible HR Practices Are Key to Industrial Peace
When managed poorly, contract labor can disrupt industrial harmony and expose businesses to serious legal and reputational risks. However, with structured HR policies, inclusive benefits, and a people-first approach, organizations in Pakistan can unlock the full potential of a flexible workforce.
Sadia Zaheer holds a Masters in Business Administration from IBA, Karachi. After working in several financial institutions in Client Management, Corporate Lending, Islamic Banking and Product Management she jumped careers to pursue a career in writing.
She is a Finance, Business and HR Development writer with four years of experience. She reads a lot and takes care of her multiple cats to remain calm.
