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All You Need To Know About Labor Laws in Pakistan

Employment Regulations/Labor Laws for Businesses, Sectors, and Enterprises in Pakistan

  • Understanding Employees Old Age Benefits Act, 1976 (EOB Act)

  • Scope of Application:

The scope of the EOB Act encompasses all industries and establishments with five or more individuals employed by the employer, either directly or through any other entity, within the preceding twelve months. This coverage persists even if the number of employed individuals falls below five after the EOB Act takes effect.”

  • Definition of an Employee:

Under the EOB Act, everyone working in an establishment or industry, regardless of their job status, role, salary, or professional background, is considered an “employee.” The only exception to this definition is the Director of a limited company or a corporation. This definition encompasses both part-time and full-time employees, irrespective of whether they are employed directly by the establishment or industry or through an independent contractor. Even workers engaged by independent contractors working on within an establishment’s premises fall under the broad definition of “workers.” A distinction is made between contractors procuring labor and those entrusted with specific functions for the establishment.

  • Registration of Employers and Insured Persons: 

Employers must inform the Employees Old Age Benefit Institution (EOBI) about their establishment and the insured individuals within 30 days of the EOB Act’s applicability. This information is submitted using “Form PR-01” for the establishment and “Form PE-01” for each insured person. An insured person can also submit their details using “Form PE-02.” Upon receiving the required details in “Forms PR-01” and “PE-01,” the Institution registers the establishment and insured persons, issuing a “Certificate of Registration” (Form PE-02) to the employer and a “Registration Card” (Form PI-03) to each insured person.

  • Contributions:

Once registered, establishments must contribute 5% of their employees’ wages to the Institution, while employees contribute 1% of their wages. Contributions are deposited into the Institution’s authorized bank accounts using EOBI Contribution payment slips (Form PR-03) as per Rule 3 (7) of the Employees Old Age Benefit (Contribution) Rules, 1976. In cases where an establishment fails to deduct or deposit an employee’s contribution, the registered employee can deposit their share using a Challan (Form PR-03A) and provide a copy of the paid Challan, along with their Pass Book, to the nearest Institution office for record entry. The office Incharge will acknowledge the receipt based on the paid challan, determine the establishment’s jurisdiction, and forward a copy of the Challan to the relevant Institution office for further action under the EOB Act.

  • Understanding the Provincial Employees Social Security Ordinance, 1965 (PESS)

  • Scope of Application: 

PESS applies to establishments specifically identified by Provincial Governments. In a notification issued by the Government of Punjab July 18, 2003, it was declared applicable to any organization, including industrial, commercial, agricultural, or others, with five or more employees.

  • Definition of Employees: 

All individuals earning wages not exceeding four hundred rupees per day or ten thousand rupees per month, whether employed directly or indirectly, are considered employees and entitled to PESS benefits. This applies regardless of their designation, status, or job nature. Wages are defined based on the minimum rates of wages declared under the Minimum Wages Ordinance, 1961, which is currently set at Rs. 32,000 per month by the Federal Govt… Establishments must pay a minimum of Rs. 32,000 in Punjab, KPK, and Balochistan and 25,000 in Sindh in wages per month to their employees if it’s less than the minimum wages figure per month. In this case, the establishment is still obligated to make security contributions on behalf of its employees. The establishment is responsible for contribution under PESS for contractor employees working within its premises, except for construction workers, where the building owner is responsible for ensuring contractor contributions.

  • Registration Process:

Establishments must complete and submit a registration application on Form R-1 to the Institution within ten days of the notification. After acceptance, the establishment must ensure each eligible employee submits a Secured Persons’ Registration Form (Form-R-2 and Form R-3) to the local Institution office within fifteen days of application acceptance. The Institution will issue each employee a Secured Person’s Registration Card (Form R-5). The establishment must distribute these cards to employees, ensuring the secured person’s signature or thumbprint is clear on the card. When a secured person leaves employment, the establishment must complete the employment record on the card and provide it to the secured person.

  • Contribution Mechanism:

Establishments can make contributions through the Normal or Self-Assessment Scheme. Under the Normal Scheme, establishments contribute 6% of employees’ wages. In the Self-Assessment Scheme, establishments pay 6% of the government-determined wage limit per secured employee monthly to the Institution, with no intervention from Social Security Officials or Inspectors for two years. Secured employees also contribute Rs. 40 per month, deducted from their wages by the establishment. Non-registration or non-payment of contributions by the establishment for non-secured employees will not affect their PESS benefits if they consistently pay their own Rs.40 contribution. Contribution details must be submitted to the Institution by the end of the following calendar month, and the total contribution amount must be paid to the local Institution office.

  • Understanding the Industrial And Commercial Employment (Standing Orders) Ordinance, 1968 (Standing Orders)

  • Scope of Application: 

The Standing Orders govern employment conditions for workmen in industrial and commercial establishments with twenty (20) or more workmen. This includes direct employment or employment through any other entity, regardless of whether it occurred at any time during the previous twelve months. In cases of contract employees, control over workers determines responsibility for following the Standing Orders. Control factors include (i) payment to employees, (ii) hiring and firing authority, and (iii) administrative control, as determined by the Superior Courts of Pakistan.

  • Definition of Workman:
  • A workman is any person employed in an establishment or commercial entity for skilled or unskilled, manual or clerical work in exchange for payment. The Standing Orders categorize workmen into six groups: i. Permanent ii. Probationers iii. Badlis iv. Temporary v. Apprentices vi. Contract Workers
  • A “permanent workman” is engaged in work of a permanent nature lasting over nine months and has completed a three-month probationary period in the same or another occupation, including breaks.
  • A “probationer” is provisionally employed to fill a permanent vacancy and hasn’t completed three months in the role.
  • A “badli” is appointed temporarily in place of a permanent workman or probationer who is temporarily absent.
  • A “temporary workman” is engaged for work of an essentially temporary nature, typically finished within nine months.
  • An “apprentice” follows the definition under the Apprenticeship Ordinance, 1962 (LVI of 1962).
  • A “contract worker” works on a contract basis for a specific period, with remuneration calculated on a piece-rate basis.
  • Rights Extended to Workmen:

  • Annual Holidays: Workers with twelve months of continuous service in a factory are entitled to fourteen days of holiday during the subsequent twelve months.
  • Festival Holidays: Workers are granted holidays with full pay on government-declared festival holidays. If required to work on a festival holiday, they receive a substituted and compensatory holiday.
  • Casual and Sick Leave: Workers have ten (10) days of casual leave with full pay and 16 days of sick leave on half-average pay annually.
  • Group Incentive Scheme: Industrial establishments with fifty (50) or more workers must introduce a group incentive scheme to reward higher production by groups of workers. The plan outlines how the performance of different groups will be evaluated, with incentives in the form of additional wages or leave.
  • Bonus: Employers making a profit must pay a premium to employees who have been continuously employed for at least ninety days in the year, with amounts determined by profit levels.
  • Gratuity: Employees receive compensation equal to 30 days’ wages for each completed year of service or part exceeding six months, except when a Provident Fund is established.
  • Provident Fund: Establishing a Provident Fund is optional, but if established with equal contributions from employers and employees, gratuity is not required.
  • Compulsory Group Insurance: Employers must insure permanent workmen against natural death, disability, and death or injury arising from contingencies not covered by other legislation.
  • Working Time and Late Coming: Employers must publish working times, and employees must be punctual, with wages subject to proportionate deductions for late attendance or absence.
  • Retrenchment: Junior-most workmen in a category are retrained first, and preference is given to retrained workmen for re-employment if the employer intends to hire within a year.
  • Termination of Employment: For permanent workmen, one month’s notice or payment in lieu is required for termination. Dismissal for misconduct requires informing the worker in writing and providing an opportunity to explain the charges. Temporary workmen and others do not require notice of termination or payment in lieu if they leave employment voluntarily.
  • Understanding the Workers Children (Education) Ordinance, 1972

  • Applicability:

The Workers’ Children (Education) Ordinance, 1972 (referred to as the “Ordinance”) applies to every employer of an establishment where the number of workers employed at any point during a year is ten (10) or more. The employer of such an establishment is required to pay an education cess of one hundred rupees per worker per annum to the Provincial Government.

  • Definition of Worker:

As defined under this Ordinance, a worker is any person engaged in any establishment to perform skilled or unskilled, manual or clerical work in exchange for wages, whether directly employed or hired through another entity. The monthly wages of such a worker should not exceed three thousand rupees. It’s worth noting that workers retain their status even if their monthly wages exceed three thousand rupees or if the number of persons employed in the establishment drops below ten.

  • Notification Requirement:

Every employer of an establishment must create and submit, or ensure the creation and submission, of a return to the officer designated by the Provincial Government. This return should indicate the number of workers employed in the establishment during the previous quarter, and the employer must sign a declaration verifying the accuracy of the information provided. The cess is levied based on the number of workers reported in the return submitted by the employer. The employer can assess and pay the cess at twenty-five rupees per worker per quarter, along with a pay order or cheque made payable to the Punjab Employees’ Social Security Institution (referred to as the “Institution”). The Institution is responsible for collecting the cess.

  • Insights into the Minimum Wages Ordinance, 1961 (The “Ordinance”)

  • Scope:

The Ordinance establishes a Minimum Wages Board, which recommends minimum wages for specific industries. The Board’s functions include conducting necessary inquiries and providing recommendations to the Provincial Government upon government references. The Provincial Government has the authority to declare the minimum wage rates for workers through official Gazette notifications as the Board recommends. Employers are prohibited from paying workers wages lower than the minimum rate declared under this Ordinance.

  • Applicability:

This Ordinance applies to any individual who employs, either directly or through another party, any person for whom a minimum wage rate may be declared under the Ordinance. This includes concerning a factory, a managing agent, or an individual with ultimate control over the factory’s affairs. In other cases, it includes individuals responsible for supervising and controlling workers or making wage payments.

  • Definition of Worker:

Per this Ordinance, a worker encompasses any person, including apprentices, engaged in any industry to perform skilled or unskilled, intellectual, technical, clerical, manual, or other work, including domestic work, in exchange for compensation.

  • Obligation:

Employers are obligated to pay the minimum wages stipulated under this Ordinance. Employers who fail to meet this obligation may face penalties, including imprisonment for up to six months, fines of up to five hundred Rupees, or both.

  • Payment Of Wages Act, 1936: Ensuring Fair Compensation

  • Applicability of the Act:

The Payment of Wages Act 1936 (the “Act”) governs the payment of wages for specific categories of employees in factories, industrial establishments, and commercial establishments. Employers, including contractors, are responsible for timely wage disbursements. The wage period should not exceed one month and be paid within ten days of its conclusion. In case of termination, earned wages must be settled within the second working day after employment termination. Wages should be disbursed in current coins, currency notes, or a combination.

  • Understanding Wages:

Wages encompass all monetary remunerations. Employers can deduct fines from wages for various reasons, including absenteeism, damage or loss of entrusted goods, or defaults in financial responsibilities. Deductions may also cover housing provided by the employer, approved amenities and services, advances, income tax, court-ordered payments, provident fund contributions, cooperative society dues, insurance schemes, and approved saving schemes for government securities.

  • Workmen’s Compensation Act, 1923: Safeguarding Injured Workers

  • Scope of the Act:

The Workmen Compensation Act 1923 (the “Act”) mandates employers to compensate workers for injuries or deaths occurring during work-related activities.

  • Defining Employer and Liability:

As per the Act’s definitions of employer and managing agent, liability rests with the entity or person for whom the worker was employed at the time of injury or death. The Act excludes individuals subordinate to an employer from the definition of managing agent. A managing agent represents another person in carrying out their trade or business.

  • Compensation Criteria:

  • The Act holds employers liable to provide compensation if a work-related injury occurs. However, there are exceptions:
  • Injuries do not result in total or partial disablement for more than four days.
  • Injuries not causing death, directly linked to the workman being under the influence of alcohol or drugs, willful disobedience of safety orders, or deliberate removal or disregard of safety devices.
  • Employers must follow the Act’s attached Schedule to determine compensation. As per the Act’s provisions, compensation payments are made to the Commissioner of Workmen’s Compensation rather than directly to the worker or their dependents.
  • A Closer Look at the Factories Act, 1934

  • Scope of Application:

The Factories Act 1934 (the “Act”) applies to factories where ten or more workers are working or have worked within the past twelve months.

  • Definition of Worker:

A worker is employed directly or through an agency, whether paid or not, in any manufacturing process, cleaning machinery or premises used in manufacturing, or any related work. However, this definition excludes individuals solely employed in clerical roles in areas without manufacturing.

  • Defining a Factory:

A factory refers to any premises, including its surroundings, where ten or more workers have worked daily in the previous twelve months. Manufacturing processes must occur in any part of the factory, with or without power. Additionally, Provincial Governments can declare that the Act’s provisions for factories apply to places where manufacturing processes occur with five or more workers, with or without power. Furthermore, different departments or branches of a factory can be treated as separate factories under specific conditions.

  • Regulation of Working Hours:

The Act outlines working hour regulations for adult workmen. Adult workmen are limited to nine hours per day and forty-eight hours per week. These hours can be extended to ten hours per day and fifty hours per week for seasonal factories. In factories with continuous work, an adult worker can work up to fifty-six hours per week. Ongoing employment is defined with six- or five-hour intervals, followed by one- or half-hour breaks. The total working time, including gaps, should be at most twelve hours per day unless permitted by the Provincial Government. Workers exceeding these limits are entitled to double pay. The Act also prohibits work on a weekly holiday, but exceptions apply, and workers deprived of weekly holidays are compensated.

  • Working Conditions and Safety:

The Act sets minimum standards for working conditions, health, and safety, including keeping factories clean and free from nuisances, proper waste disposal, ventilation, temperature control, and regulation of dust and fumes. It also mandates adequate facilities like drinking water, latrines, urinals, and spittoons. The Act enforces compulsory vaccination and immunization for workers and provides a “Hygiene Card” after medical examinations. Welfare Officers must be employed in factories with at least five hundred workers as prescribed.

  • Child Labor Prohibition:

The Act strictly prohibits the employment of children under the age of fourteen. Workers must obtain a fitness certificate from a certifying surgeon before working in a factory.

  • The Punjab Shops And Establishments Ordinance, 1969: A Comprehensive Overview

  • Scope of Application:

The Punjab Shops And Establishments Ordinance, 1969, commonly referred to as “The Ordinance,” applies to commercial and industrial establishments, including factories. This legislation mandates that every employer must maintain specific records and registers. A retail establishment encompasses businesses, trades, professions, and activities connected or incidental to these. This definition includes clerical departments of factories and industrial or commercial undertakings but excludes actual factories.

An industrial establishment refers to any workshop or facility engaged in manufacturing, altering, repairing, finishing, or packing items for use, sale, transport, delivery, or disposal. It also covers services provided to customers. The government can declare other types of establishments through official Gazette notifications, but factories still need to be included.

  • Rights Granted to Employees:

The Ordinance provides several privileges and benefits to employees:

  • Weekly Holidays: Employees are entitled to one weekly holiday, and no wage deductions can be made due to holidays. Daily wage employees receive their regular daily wages for holidays, while piece-rate workers receive an average weekly compensation.
  • Casual and Sick Leave: Employees receive ten days of casual leave with full wages and eight days of sick leave with total wages per calendar year. Unused leave can be carried forward up to a maximum of sixteen days.
  • Festival Holidays: Employees are allowed ten festival holidays with total wages annually. The employer must inform employees of these days at the beginning of the year.
  • Opening and Closing Hours: Establishments must not remain open past 8:00 p.m. Special provisions allow serving customers already present during a 30-minute window beyond closing hours. Employers must display the establishment’s opening and closing hours prominently. Employees can work continuously for up to six hours (adults) or three and a half hours (young persons) with at least a one-hour rest or meal break. With government permission, women and young persons can only be employed between 9:00 a.m. and 7:00 p.m..
  • Daily and Weekly Hours, Overtime: Adults cannot work for more than nine hours a day and forty-eight hours a week, while young persons cannot work more than seven hours a day and forty-two hours a week.
  • Overtime Wages: Overtime work requires employers to pay double the ordinary wage rate.
  • Spread-over: Adult and young employees’ work periods, including rest or meal breaks, cannot exceed twelve hours for adults and nine hours for young persons. The weekly work limit is sixty hours for adults and fifty hours for young persons.
  • Payment of Wages: Employers must set wage payment periods that do not exceed one month. Wages must be paid on a working day within seven days after the wage period ends.
  • Annual Leave: After twelve months of continuous employment, employees are eligible for fourteen days of paid leave. Unused leave can be accumulated for up to thirty days. Alternatively, employees can request payment for unused leave.
  • Termination of Employment: Permanent employees require one month’s written notice for termination or one month’s wages in place of notice. Temporary employees are not entitled to notice or pay in lieu unless terminated as punishment, with an opportunity to explain charges.
  • Prohibition of Child Labor: The Ordinance strictly prohibits the employment of children in any establishment.
  • Registration Requirements:

Every establishment must register with the Deputy Chief Inspector for its respective area. Employers should submit a registration application (Form ‘A’) along with a Treasury Challan.

  • Companies Profits (Workers Participation) Act, 1968:

  • Scope of Application:

The Companies Profits (Workers Participation) Act, 1968 (the “Act”) applies to companies engaged in industrial undertakings with fifty or more workers during any year. It also covers companies with a paid-up capital of Rs. 5.00 Million or more or fixed assets worth Rs. 20.00 Million or more at the end of their accounting year. An industrial undertaking involves energy-driven machinery and is primarily engaged in manufacturing.

  • Obligations:

Companies subject to the Act must establish a Workers’ Participation Fund (the “Fund”) as soon as their annual accounts are finalized but no later than nine months after the year-end. Companies must contribute 5% of their profits to the Fund within nine months after the accounting year ends. A Board of Trustees must be formed within two months of the Fund’s establishment, consisting of two worker-elected members and two management-nominated members, including one from the accounts branch.

The allocated Fund amount can be used for business operations. The company may request the Board to invest the amount in approved securities.

  • Payment to Workers:

All workers are eligible for Fund benefits, provided they have been employed in the establishment for at least four months. Workers’ share in the annual allocation is determined based on a unit system. The distribution of Fund benefits includes various scenarios like voluntary departure, retirement, or death while employed.

  • West Pakistan Maternity Benefit Ordinance, 1962: A Comprehensive Overview

  • Scope of Application:

The West Pakistan Maternity Benefit Ordinance, 1962, applies to all types of establishments, whether industrial, commercial, or otherwise.

  • Obligations:

Women employed in establishments are entitled to a maximum of twelve weeks of fully paid maternity leave, with the rate based on their last six weeks’ wages. To qualify, women must have worked at the establishment for at least four months.

Factories employing women must maintain a muster roll (Form A) with information on pregnant or recently delivered women workers.

  • Understanding the Apprenticeship Ordinance, 1962

  • Scope of Application:

The Apprenticeship Ordinance 1962 applies to undertakings as notified by the Provincial Government in the official Gazette. An undertaking is defined as any establishment employing fifty or more individuals.

  • Obligations:

Notified undertakings must establish and operate an apprenticeship program, registering it with the competent authority. This program should train apprentices, accounting for at least twenty percent of the total employees in apprentice-able trades.

  • Apprentice Selection Process:

Employers should follow these steps for apprentice selection: i. Advertise vacancies in prominent newspapers. ii. Notify the nearest Employment Exchange about vacancies. iii. Conduct a written test. iv. Conduct a viva voice test for qualified candidates. v. Administer an aptitude test if deemed feasible.

The minimum age for apprentices is 15 to 20 years, with varying educational qualifications. Apprenticeship contracts are signed between employers and apprentices.

  • Apprenticeship Duration:

The duration is determined by considering trade nature, skill levels, practical training, related instruction, and minimum educational qualifications. Each apprentice undergoes a three-month probation period, and either party can terminate the apprenticeship with written notice. Employment after completion is not obligatory for either party.

  • Stipend:

Employers must pay apprentices a stipend, at least a specified percentage of skilled worker wages based on apprenticeship duration.

  • Supervision and Testing:

Employers ensure adequate supervision, direction, and control of apprentices and their training. Periodic tests are conducted to track progress. A designated Board organizes a final in-plant examination/test. Successful apprentices receive certificates.

  • Insights into the Disabled Persons (Employment And Rehabilitation) Ordinance, 1981

The Disabled Persons (Employment and Rehabilitation) Ordinance, 1981, applies to industrial establishments with at least one hundred workers annually. Employers must employ at least one percent of disabled persons among their workforce or pay into the fund as if they had employed a disabled person.

  • Deciphering the Workers’ Welfare Fund Ordinance, 1971 (WWF Ordinance)

  • Scope:

The WWF Ordinance establishes a Workers’ Welfare Fund (the “Fund”) for providing residential accommodations and other worker facilities.

  • Application: 

Industrial establishments with an annual income of at least five lakh rupees must contribute two percent of their total income to the Fund. This includes establishments using various forms of energy for production. The Federal Government may determine additional amounts.

  • Payment Mode:

Section 4 of the Ordinance outlines industrial establishments’ payment and recovery process involving the Taxation Officer responsible for the Income Tax Ordinance, 2001.

  • Navigating the Punjab Industrial Relations Act, 2010

Scope:

The Punjab Industrial Relations Act 2010 applies to all establishments and industries in Punjab.

Worker Definition:

A worker encompasses anyone employed in an establishment or industry, including supervisors and apprentices, for hire or reward directly or through a contractor.

Trade Unions:

The Act outlines requirements and mechanisms for establishing trade unions in establishments, ensuring the rights of workers and employers to create and join trade unions.

Unfair Labor Practices:

The Act enumerates unfair labor practices by workers, trade unions, and employers.

Collective Bargaining Agent:

A registered trade union with over one-third of the total workmen can be certified as a collective bargaining agent. In cases with multiple unions, a secret ballot determines the collective bargaining agent.

Workers Participation:

  • Shop Steward: In establishments with fifty or more workmen, shop stewards are nominated or elected to assist workers and employers in addressing workplace issues. 
  • Works Council: Establishments with fifty or more workmen must form a Works Council of at least six members, with over 50% being worker representatives.
  • Exploring the Industrial Relations Act, 2012

The Industrial Relations Act, 2012 applies to establishments or industries in Islamabad Capital Territory or those operating in multiple provinces, except certain employment categories. Legislative changes transferred labor and trade union matters to provincial governments. The Act reflects this transition from federal to provincial authority.

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