Share in profit
BY P A R V E Z R A H I M
2025-04-05
THANKs to the devolution of labour laws to the provinces, by virtue of the 18th Amendment, some prominent labour welfare laws were adversely affected. As a result, the benefits intended for workers under these laws have not fulfilled their objectives as originally envisioned by the legislature. These laws include the Provincial Employees` Social Security Ordinance, 1965; the Companies Profits (Workers` Participation) Act, 1968; the Workers` Welfare Fund Ordinance, 1971; and the Employees` Old-age Benefits Act, 1976.
Prior to devolution, the rate of monthly contribution and the salary threshold for employee coverage under the Social Security Ordinance of 1965 were centrally determined by the federal government.
The provinces would then issue their own notifications in line with this directive, ensuring uniformity across the country.
After devolution, however, a dispute arose between employers and the social security institutions over the rate of contribution.
This issue was eventually settled through a Supreme Court judgement dated March 11, 2021, which ruled that contributions shouldbebasedonapercentage oftheprevailing minimum wage.
Currently, the rate of monthly social security contribution is uniform across all provinces six per cent of the existing minimum wage of Rs37,000 per covered employee.
The Companies Profits (Workers` Participation) Act, 1968 popularly known as WPPF or Workers` Profit Participation Fund mandates the disbursement of a share in company profits to workers within prescribed limits. Under this Act, a company posting a profit in its financial year must allocate 5pc of its net profit to the fund. Workers lightly referred to the law as the `5pc`.
Once the stipulated amounts are distributed to the three categories of eligible workers, according to the prescribed formula, any remaining funds must be transferred to the Workers` Welfare Fund, established under the 1971 ordinance. A worker`s share in the fund is capped at four times the minimum wage for unskilled workers ie, Rs37,000 X 4 = Rs148,000.
Following devolution in April 2010, the Sindh government enacted the Sindh Companies Profits (Workers` Participation) Act, 2014. Punjab followed with its own law in 2018, and Balochistan in 2022. Prior to these provincial enactments, confusion reigned among employers with regard to both the disbursement of profits to workers and the transfer of the residual amount to the government.
Another issue emerged in relation totrans-provincial companies, which continued to be governed by the federal Act of 1968. A `trans-provincial` establishment refers to any company with branches in more than one province. While the definition of `worker` in the provincial laws covers a wider pool of employees, the federal Act of 1968 remains applicable only to workers earning a monthly salary not exceeding Rs5,000. This outdated threshold was never amended after devolution.
Under the Sindh law, a `worker` is defined as a company employee including those employed by or through contractors who falls within the definition set out in Section 2 of the Industrial Relations Act, 2013, and has been in service,for at least six months. The Punjab and Balochistan laws adopt a similar definition.
In contrast, the federal Act still defines a `worker` as one whose average monthly emoluments do not exceed Rs5,000 and who has been employed for not less than six months despite the minimum wage now standing at Rs37,000.The definition of `company` in the Sindh law also diverges from thoseinotherprovinces.
The Sindh Act defines a company as one `whose registered office is situated in the province of Sindh and has its office, department and branches in Islamabad, the capital territory or falling in more than oneprovince and has a common balance sheet`.
Meanwhile, the other provinces define a company as `a company within the meaning of [the Companies Act, 2017]... .
In defining `company` in this way, the Sindh legislature arguably encroaches on the domain of the National Assembly, which holds the constitutional authority to legislate on matters pertaining to transprovincial organisations. The provisions of the federal profit participation law of 1968 including its outdated definition of `worker` need to be harmonised with provincial laws so that workers of transprovincial companies can enjoy the same rights and benefits.
This issue, along with appeals concerning the rate of monthly employer contributions under the Employees` Old-age Benefits Act, 1976, is pending before the Supreme Court.
If these issues are decided by the court urgently, they will provide relief to all three stakeholders: the employers, the EOBI, and most importantly, the workers. The wnter is a consultant in human resources at the Aga Khan University Hospital.