Profit Sharing Labour Co Partnership

The profit sharing schemes of remuneration are gaining much popularity these days. In addition to the wages which the workers usually receive, a share is given to the workers in the profits of the firm. This enables the workers to work with greater interest and enthusiasm in the factory because there is a relation between their work and higher production leading to higher profits to the management, which in turn shall bring a greater share to them as additional remuneration. Workers these days also put their claims for a scheme of profit sharing as they are conscious of the fact that on account of their efforts, the production is increased and the reward of increased output goes entirely to the pockets of management.

Worker’s share in the net profits of the firm can be calculated on any of the following basis:

(i) A fixed percentage, say 1% of yearly net profits of the firm, may be allowed to workers employed in the factory at the end of accounting year. Interest on capital and the transfer to general and other reserves can be provided out of net profits before applying this percentage.

(ii) The profits earned by the factory may be given a fixed percentage share in the profits earned by that department.

(iii) Profits may be computed per unit of output and a part of profit may be allowed tp workers on this basis.

Worker’s share in profit may be dealt with in any of the following ways:

(i) It may be distributed in cash to the workers; or

(ii) It may be credited to the worker’s provident fund and pension fund – another alternative is to make a part of payment in cash and to credit a part to the provident fund account.

(iii) The workers may be given bonus shares for the profits earned by them. Issue of bonus shares shall entitle them for dividend also in future and they can participate as shareholders of the company in its various affairs and meetings. This form of profit sharing is often referred to as ‘Labour Co-partnership’. Here the workers have a say in the management since they have a voting power with them because of holding certain shares. This is a true representation of the employees in the company as they have a share in the profits, capital and control of business in which they are employed.

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