Prime Minister Imran Khan revealed at the start of April that 80 percent of labour force in Pakistan is not registered with any social protection institution and the state has no data for these workers. The minister for planning, Asad Umar, also voiced similar concerns last week, saying that 76 percent of the workforce in Pakistan is undocumented.

The Economic Coordination Committee has approved an allocation of Rs 75 billion for providing support to the daily wage workers who have lost employment due to the pandemic. However, the state has no reliable data on these workers. Hence, it is becoming difficult to identify and support the workers who have been negatively impacted by Covid-19 pandemic.

Is this the reality? Before we delve into further discussion, let’s consider some basic facts: Pakistan has a population of around 206.67 million people. The estimated labour force is 65.50 million, which makes it the ninth largest workforce in the world. A majority of the labour force comes from the rural areas (65.51 percent or 42.91 million). Women constitute only 22.53 percent (14.76 million) of the overall labour force.

Those employed (61.71 million) fall broadly into agriculture (38.5 percent) and non-agriculture (61.5 percent) sectors. The non-agriculture sector is further categorised into formal and informal sectors engaging 28 percent (10.63 million) and 72 percent (27.32 million) of the workers, respectively. The agricultural sector thus continues to be the dominant employer.

What is the informal sector? Pakistan Bureau of Statistics defines it as all the enterprises employing less than 10 workers each and not registered under the law.

Interestingly, a country has the option to set a specific threshold under a specific legislation. While Factories Act is applicable where ten or more workers are employed, Shops and Establishments legislation is applicable even where a single worker is working. Similarly, the Employees’ Old Age Benefits Act (EOBI) is applicable only to enterprises wherein five or more workers are engaged while Employees Social Security legislation is applicable to even a single worker.

Taking into account the threshold of five persons, as set under the EOBI law, we recalculated the strength of formal sector. The number of workers in the sector increased from 0.63 million (28 percent) to 12.45 million (32.8 percent). However, this also shows that a large part (67 percent or 25.5 million) of the non-agricultural labour force is still engaged in the informal sector where social protection legislation is usually not applicable.

Now consider these facts:

There are nearly 4.47 million public sector workers in Pakistan who have access to various social protection benefits. Even if the threshold of 10 workers is taken, it means there are 6.16 million formal private sector workers;

The unprotected sector (a mix of agriculture and informal sector) is composed of 51 million workers

Only 1.8 million workers are registered with the social security institutions (PESSIs);

Employees Old Age Benefits Institution (EOBI) has only 2.65 million active contributors in 2020 although it has registered more than 8 million workers since its inception in 1976;

Informal sector is an enterprise-based concept (whether certain enterprises come under legal jurisdiction), however informal employment is a job-based concept and covers also those who are working in the so-called formal sector but have informal jobs. It includes all those formal sector employees who are not registered with the EOBI/ESSIs and have no access to various employment security benefits, i.e., advance notice, severance pay/gratuity etc.

Considering the public sector (4.47 million) and private sector workers registered with the EOBI who are active contributors (2.65 million in 2020), the protected workforce is only 7.12 million (11 percent of 65.5 million). The remaining 58 million (89 percent) are toiling in unprotected employment without any access to social protection.

Social protection for private sector workers is not something new in Pakistan. The first social security scheme was launched more than 50 years ago. Provincial employees’ social security institutions, established under 1965 legislation, provide healthcare services and cash benefits in the event of injury, disablement, sickness, death, maternity, and death of husband (iddat). Employees Old-Age Benefits Institution provides old age pension, invalid pension, survivor’s pension and old age cash grant under a 1976 law. Workers’ Welfare Fund, established under a 1971 law, provides cash benefits, such as marriage grant, death grant, educational scholarships as well as support in kind such as housing facilities and educational facilities.

Despite the existence of all these institutions, the civilian protected workforce with social protection cover is no more than 11 percent. A large majority of workers in the formal sector do not receive statutory appointment letters/employment contracts from their employers on their appointment. This prevents workers from claiming and proving their identity as workers and get access to various workplace rights including registration with labour welfare schemes like social security (PESSIs), EOBI, and Workers’ Welfare Fund.

A country has the option to set a specific threshold under a specific legislation. While Factories Act is applicable where ten or more workers are employed, Shops and Establishments legislation is applicable even where a single worker is working.

The current provision merely requires an employer to provide an appointment letter to a worker on his/her appointment, transfer or promotion without stetting any limit on the number of days. One way would be to set a limit within which the contract must be provided to the worker. The limit cannot be greater than one wage period, i.e., maximum one month. If a worker is not given his contract within the period, his employment should be presumed as permanent employment.

Currently, workers are registered with the social protection institutions by the employer. If workers are allowed to self-register, it will make the registration process speedier and a majority of workers will be covered. Employees’ Old Age Benefits Act already allows insured persons to communicate their particulars directly to the Institutions. Similar provisions can be added to the social security legislation as well. Directorate of Workers’ Education must be engaged in training workers on self-registration mechanisms.

Here is how the social protection can be extended to the unprotected and undocumented workers.

Ensure that every worker, irrespective of nature of contract and wage payment status, gets an employment contract and is registered with social insurance institutions. To ensure compliance, raise the penalties;

Allow workers to register themselves with the social insurance institutions. Once the worker is registered, employer must be registered within a month (in such cases where the establishment is not registered or where the worker was not registered by the employer with the social insurance institution);

Worker’s contribution is quite minimal under the current system. It must be raised gradually from 1 percent to 5 percent over the next five years under the EOBI. As for PESSIs, worker’s contribution must be raised to at least 3 percent by 2023. Currently, workers pay nothing to the PESSIs. Similarly, government has no contribution to the EOBI and the PESSIs.

Employers’ contribution must also be raised to a level comparable with other countries in the region. Employers currently contribute only 11 percent to the EOBI and the PESSSIs. In neighboring countries, the ratio is more than 20 percent.

Linking registration with social insurance institutions with CNIC (B form) and covering every worker irrespective of his work status (permanent, temporary, contract, etc.). (FBR and BISP/Ehsaas are already using CNIC data from NADRA for collecting taxes and giving cash transfers respectively).

National legislation allows adolescents (above 14 years/15 years in the Punjab but under 18 years) to engage in employment however they are not registered with any social insurance institution until they have a CNIC (18 years of age). Interestingly, their employment is based on B form which already has their CNIC number. They must be registered with social insurance institutions on the basis of this B form and their contributions should be paid. The case of the apprentices is similar.

The benefits to the informal economy workers must be provided through PESSIs in a phased manner. The first step should be provision of healthcare services. In the second phase, flat rate sickness, maternity and employment injury benefits can be provided.

In order to make the EOBI sustainable, the minimum years of contributions for old age pension must be raised from the current 15 years to at least 25 years over the next 15 years (by 2035). Moreover, pensions increases must not be carried out without actuarial evaluations.

By law, formal sector workers in Pakistan are already covered for 7 of the 9 benefits, proposed under ILO Convention 102. Those missing are unemployment benefits and family and child benefits. The Sustainable Development Goals (SDGs) adopted in 2015 require the signatory countries to “implement nationally appropriate social protection systems for all, including floors” for reducing and preventing poverty (SDG 1.3). Covid-19 can be used as a catalyst to provide social protection to nearly 90 percent of the unprotected labour force in Pakistan.