Purpose: Guided by institutional theory, this empirical paper examines variations in the adoption of HRM practices among SMEs in three different business sectors (services, manufacturing and trade). Design/methodology/approach: Data from 300 owners/managers representing three business sectors were collected through a survey method. Findings: The results suggest that service SMEs use more formal HRM practices than manufacturing and trade SMEs. Manufacturing SMEs are more formal than trade firms. Results are not affected by firm age. Research limitations/implications: Social desirability bias may have influenced respondents into portraying a positive image of the organization by inflating HRM sophistication. A further limitation is that the performance of the firms was not measured. As such, it is not possible to judge whether greater HRM formality correlated with improved organizational performance. Practical implications: This study shows how the business sector shapes HRM practices in Pakistani SMEs. Findings help to inform Pakistan's Small and Medium Enterprise Development Authority (SMEDA) in dealings with manufacturing and trade firms in terms of improving HRM practices. Originality/value: Given the important role of SMEs in economic development, comparative research on HRM in SME contexts is scarce. Since SMEs are vital for Pakistan's economy, an improved understanding of the sector's approach to human resource development is important. The findings extend the boundaries of prior comparative HRM literature in SMEs by addressing sector influences while controlling for contextual factors.