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A way to reduce economic disparity between employees and workers

Profit Participation Fund and Welfare Fund

Published : Thursday, 4 January, 2018 at 12:00 AM Count : 142

Profit sharing is a new sort of incentive called total system incentive which gives employees a sense of ownership in the company and links all of the employees of a company to the pursuit of organizational goals. Sharing of profit with the employees is a great way to reduce economic disparity between employers and employees. It helps to reduce "poverty cycle" of the employees. In profit sharing plan employees receive a share in the profits of the company in addition to employees' regular salary and bonuses. David Wray, the president of the Plan Sponsor Council of America, once said that the purpose of profit-sharing plans is "to generate goodwill and a feeling of partnership" between employer and employee. For a business owner, profit sharing may be a way to attract high-calibre employees.
Profit sharing is effective to make progress in reversing economic inequality, enhancing living standards, and eradicating poverty. It checks the inclination of taking all profits of a company by the owners of that company and their investors. The tendency of grabbing all profits by the owners compels the workers and employees to remain disadvantageous section of the society continuously. This practice increases the economic discrimination in the society and concentrates the most of the wealth among the small section of the society.  We should know that gross income inequality causes less participation in all forms of social, cultural, and civic participation among the less wealthy. According to Erik Olin Wright "income inequality  fractures community generates envy and resentment, and makes social solidarity more precarious". Income inequality may damage confidence and cohesion of owners and employees which leads conflicts among them. It ultimately causes low production, discourages investment, and leads to a suboptimal use of human resources.
Profit sharing scheme varies from country to country. In Bangladesh, the Bangladesh Labour Act, 2006 ("the Act") provides the provision of participation of the workers in the profit of the company by establishing "Profit Participation Fund" and "Welfare Fund" (later referred as the funds) under Chapter XV of the Act. The Act makes it compulsory to establish the funds for certain company. The rationality of making obligatory to establish the funds by the company is to address economic challenges which Bangladesh faces: enhancing income growth for wage earners, checking or reversing the rise of income inequality, reducing paucity, aiding asset-building and retirement security and above all to fulfil sustainable development goals (SDGs). It is binding for the company to pay 5% of its net profit of the previous year at the proportion of 80:10:10 to respectively the Participatory Fund, Welfare Fund and Workers Welfare Foundation Fund (established under section 14 of the Bangladesh Workers Welfare Foundation Act, 2006). However, the Government shall, in the cases of hundred percent export-oriented industrial sectors or hundred percent foreign exchange investing sectors, make, by rules, the provisions for constitution of a fund, constitution of the fund management board, determination of the amount of grant and manner of its collection and utilization of the fund and the necessary provisions for other ancillary matters, centrally in each such sector, consisting of the buyers and employers, for the beneficiaries working in the respective sectors.  In order to be eligible to get benefit from the funds of a company, a worker is required to service more than 6 (six) months in that company during a year of account. The Act elaborately describes the management of the funds and utilization of the funds. The benefit from the funds payable shall be in addition to, and not in derogation or substitution of, any other benefit to which the worker is entitled under any other law, contract, terms and conditions of employment or otherwise. However, it is a matter of great regret that the owners of the companies usually reluctant to establish "Profit Participation Fund" and "Welfare Fund". The concerned authority of the government also has no visible efforts to make the employers bound to establish the funds accordingly. For the utmost benefit of workers proper and effective measures should be taken to establish the funds under the Act.

Shahnewaj an Advocate and Research Assistant (Law) at Bangladesh Institute of Law and International Affairs (BILIA)

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