THE Companies Profits (Workers’ Participation) Act, 1968, was promulgated with the purpose of providing for participation of workers in the profits of companies. Under this act, every company is required to establish a workers’ participation fund as soon as the accounts for the year in which the scheme becomes applicable to it are finalised, and pay annually to the fund, no later than nine months after the close of that year, five per cent of its net profits during such year.
The fund is managed by a board of trustees comprising two representatives from the company’s workers and two persons nominated by management. Initially, the act was applicable to workers drawing a monthly gross salary of Rs500 and employed in the company for no less than six months. The share of eligible workers in annual allocation to the fund was disbursed to them in accordance with a formula prescribed under the act, based on three salary slabs prescribed in ascending order.
The share distribution formula was devised by legislators in a such a manner that only a fraction of the total amount allocated by a company on this account is disbursed to its workers and the remaining bulk amount goes to the government. The latter amount is transferred to the fund constituted under Section 3 of the Workers’ Welfare Fund Ordinance, 1971. Companies have to contribute annually an additional two per cent of their total income to this fund. The total amount — collected under the Companies Profits (Workers Participation) Act, 1968 and the Workers Welfare Fund Ordinance, 1971 — is supposed to be utilised on welfare schemes for workers and some other beneficiaries chosen by the government. Having a common pool of funds, both these laws are interlinked.
The ordinance states that money in the welfare fund shall be applied to the financing of housing projects for workers and other welfare measures including education, trainings, re-skilling and apprenticeships. A dilemma exists here, as the grant of these benefits is restricted to low-paid workers. Employees of companies contributing huge amounts to the welfare fund do not meet the eligibility criteria to apply as they draw competitive salaries.
In the Finance Bill, 2007, the then government made drastic amendments to the Companies Profits (Workers’ Participation) Act, 1968, with the purpose of not only increasing the workers’ share in the distribution of their company’s profit but also bringing more workers within the domain of this act. The wage ceiling of Rs10,000 prescribed for eligibility of workers to receive benefits under the act was removed by changing the definition of ‘worker’. Benefits were now extended to all those employees of the company who fell within the definition of ‘worker’ under the Industrial Relations Ordinance. It implied that all those employees who were not employed in managerial or administrative capacities were covered. The contractors’ workers serving in the company were also brought within ambit of the act.
The three wage slabs for eligibility were improved as follows; average monthly wages of workers not exceeding Rs7,500; exceeding Rs7,500 but not exceeding Rs15,000; and exceeding Rs15,000. The maximum allocation of profit sharing for workers was increased from three times the minimum wage to four times. However, due to a procedural lacuna this amendment brought about by the Finance Bill, 2007, was declared ultra vires by a double bench of the Sindh High Court (SHC) — vide its judgement dated Feb 26, 2011. Since then, companies’ and contractors’ workers have been deprived of the enhanced benefits.
Recently, the Sindh government has promulgated the Sindh Workers Welfare Fund Act, 2014 and the Sindh Companies Profits (Workers’ Participation) Act, 2015. Until now, the federal government has been administering both these acts and managing the funds collected from companies all over the country. No such legislation has been made in the other three provinces, and the federal government is displeased over the Sindh government’s self-propelled initiative.
In the act of 2015, the provincial government has restored all benefits discontinued on account of the SHC’s judgement. However, other provisions of the act have created total confusion among employers and workers of trans-provincial organisations and the other three provincial governments. The act offers the following definition: “a company 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 one province and has a common balance sheet”.
The majority of companies with huge investments have their registered offices in Karachi and some of them have factories in other provinces. It will be highly unfair if these companies pay the total share of their contribution only to the Sindh government, depriving their workers in other provinces of the benefits of the welfare fund. The federal government should therefore intervene immediately in order to prevent this usurpation of funds by one government.
The writer is an industrial relations professional.
Published in Dawn, August 3rd, 2016