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February 26, 2016

Devolution decisions


February 26, 2016

By virtue of the 18th Amendment, labour laws were omitted from the concurrent legislative list in the constitution and devolved to the provinces. It was stated that the process of devolution of the subjects on the list to the provinces should be completed by June 30, 2011. A total of 32 laws have been devolved to the provinces to date.

Prior to the induction of 18th Amendment, the federal government used to enact labour laws keeping in view the interests of stakeholders, ensuring that they are not jeopardised. They were generally based on rationality and efforts were made to facilitate the employers in the smooth operation of their establishments, while also protecting the rights of workers. Some of the essential laws that Pakistan inherited at the time of independence in 1947 provided a framework for legislators to base their amendments and new enactments on similar yardsticks. There was a sincere desire to meet the purpose for which a law was framed.

It is unfortunate that political considerations and the vested interests of provincial governments have crept into the sphere of labour legislation and the process of devolution has gone haywire. The Employers’ Federation of Pakistan (EFP) has carried out an analysis of the revised provisions of laws devolved to the provinces. The anomalies observed by the EFP among the provinces have created significant differences in the application of the same acts to organisations and the disbursement of benefits to workers.

As many as 14 anomalies have been noted in the Industrial Relations Act, which was devolved by the four provinces, the Islamabad capital and trans-provincial organisations. While private educational institutions and health centres have been included in the definition of commercial organisations in Khyber Pakhtunkhwa (KP), the other provinces do not consider them as such. Similarly, there are differences in the definitions of a trade union, the requirements for the registration of trade unions and the forums of works councils and management committees.

The amount of compensation payable to a worker in case of death or total disablement now varies from province to province. Among other changes, KP has made the appointment of a contract worker difficult for employers under the Industrial & Commercial Employment (Standing Orders) Act. By devolving the Employees’ Old-Age Benefits Act, 2014 and the Workers Welfare Fund Act, 2014 to the exclusion of other provinces, the Sindh government intends to collect huge funds from employers that will remain at its disposal. In the given situation, the federal government should constitute a central body to restrain the respective provinces from going astray and safeguard the interests of workers and employers all over Pakistan.

There is a workers’ welfare fund constituted by the centre under the Workers Welfare Fund Ordinance, 1971. The money collected from companies under this ordinance is to be spent by the government on housing schemes and other benefits for workers and their children. Organisations having more than Rs0.5 million as their income in an accounting year, have to pay to the fund in respect of that year a sum equal to two percent of its total income.

Furthermore, the companies pay five percent of their profit to the workers participation fund constituted under the Companies Profits (Workers Participation) Act, 1968. After distributing a nominal amount from this fund to the company’s workers, its bulk is transferred to the workers’ welfare fund established by the government. The ratios in which the federal government has been allocating this fund to the provinces are (i) Punjab 43 percent (ii) Sindh 42 percent (iii) KP 8 percent (iv) Balochistan 7 percent.

Following the enactment of the Sindh Workers’ Welfare Fund Act, 2014 a number of questions have arisen with regard to payment by the profit making companies to the fund and its modalities. There are a number of companies that are trans-provincial but prepare one balance sheet. Making payments to the Sindh Workers Welfare Fund on the basis of proportionate profit earned by a company from its industrial units in Sindh is one option; payment to the fund on account of the Sindh Companies Profits (Workers Participation) Act, 1915 (bill of law pending before the Sindh Assembly) may also be made on the same basis after the act has been promulgated.

A suit has been recently filed by one of the affected companies before the Sindh High Court seeking clarification whether the payment to be made to the Sindh Revenue Board under the above laws is to be considered a “fee” or a “tax”. The petitioner has quoted the judgements of the Lahore and Peshawar High Courts as well as that of a full bench of Sindh High Court. This payment has been considered a “fee” by the Lahore and Peshawar High Courts, according to which the companies can make payments to the province. However a full bench of the Sindh High Court has considered it a “tax”, which should only be deposited with the Federal Board of Revenue (FBR).

Companies located in Sindh have to follow the judgement of the Sindh High Court until it is reversed by the Supreme Court. If the Supreme Court upholds the Sindh High Court’s judgement, the Sindh Workers Welfare Fund Act, 2014 will lose its validity. In the latter situation, companies all over Pakistan will have to make both the payments for the welfare fund and the workers’ participation fund to the FBR.

The writer is an industrial relations professional.

Email: [email protected]



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