This article is written by Amar Singh.

Introduction 

Some of the major countries in the world inherited the labour law system from the colonial period. In India, matters relating to labour are in the concurrent list. There were more than 40 central and around 100 state laws which governed the employer-employee relationship. The labour ministry decided to amalgamate 44 labour laws into four codes: on wages, industrial relations, social security, and safety, health and working conditions. This is being done in order to simplify the labour law regulations as a facilitator to encourage the growth of the industry in the country, in the purview of the ‘Make in India’ initiative of the Government of India and also to improvise the ease of doing business in India. 

The Code on Social Security, 2019 is one such code which proposes to simplify, amalgamate, rationalize and replace central labour legislation relating to social security of the employees. Once in place, it will merge nine existing labour laws including Employees’ Compensation Act, 1923; Employees’ State Insurance Act, 1948, Employees’ Provident Funds and Miscellaneous Provisions Act, 1952; Maternity Benefit Act, 1961; Payment of Gratuity Act, 1972; Cine Workers Welfare Fund Act, 1981; Employment Exchange Act, 1959; Building and Other Construction Workers Cess Act, 1996 and Unorganized Workers’ Social Security Act, 2008. The code has 163 clauses, divided into 14 chapters in addition to six schedules on the procedural aspects (see here).

The need for the Code

India has a very basic social security system composed of a number of schemes and programs spread throughout a variety of laws and regulations. However, the government-controlled social security system in India caters to a fairly small percentage of the country’s workforce. The Indian population in the unorganized sector, which are not legally covered by any form of social security, is disproportionately large. Retirement benefits aren’t much progressive to keep up with the increasing cost of living. Many of the earlier laws have become archaic which has been creating hurdles for the employers to create new employment opportunities. Even the workers find it very difficult to get efficient social security benefits on time. The current objective of the bill is to cover each and every worker within a robust social security net. If the Parliament gives approval to this Social Security Code Bill, roughly 50 crore employees would avail the benefit of this bill (see here). 

Major Highlights of the Code

Widened the scope of the definition of “Wages” 

The Social Security Bill has elaborately and specifically defined the term “wages” [Section 2(80)] to widen the scope of the term to a vast extent. The definition of wages has three parts to it – 

Inclusive in the definition: All remuneration expressed in monetary terms are wages and includes basic pay, dearness allowance and retaining allowance. 

Specific exclusions: Provided Fund, pension and gratuity, house rent and conveyance allowances etc. are not included in the term wages as long as it does not exceed the 50 per cent of the total remuneration being paid. 

Benefits in kind: These will be included to the extent of 15 percent of total wages. Overall this will ensure that wages for social security benefits will be at least 50 percent of overall compensation. 

The quantum of PF contributions may be impacted by the change in the definition of wages, but otherwise, the approach towards contributions, having a wage ceiling etc., are broadly in line with the current provisions. 

Under the existing payment of Gratuity Act, wages include basic salary and dearness allowance and does not include any other allowances. With the wider definition under the Code, clearly, employers will have a higher gratuity payout. On the other hand, from a maternity benefit perspective, the current definition of wages is much wider than what will be applicable under the Code on Social Security (see here).

Social Security Welfare Schemes 

Under the Code, the Central Government may notify various Social Security Schemes for the benefit of workers. These include an Employees’ Provident Fund (EPF) Scheme, an Employees’ Pension Scheme (EPS) and an Employees’ Deposit Linked Insurance (EDLI) Scheme which may provide for a provident fund, a pension fund, and an insurance scheme, respectively [Section 16].

The government may also notify: (i) an Employees’ State Insurance (ESI) Scheme to provide sickness, maternity, and other benefits, (ii) gratuity to workers on completing five years of employment (or lesser than five years in certain cases such as death), (iii) maternity benefits to women employees, (iv) cess for welfare of building and construction workers, and (v) compensation to employees and their dependants in the case of occupational injury or disease. 

Coverage and registration: The Code specifies different applicability thresholds for the schemes. For example, the EPF Scheme will apply to establishments with 20 or more employees. The ESI Scheme will apply to certain establishments with 10 or more employees, and to all establishments which carry out hazardous or life-threatening work notified by the central government [First Schedule]. These thresholds may be amended by the central government. All eligible establishments are required to register under the Code, unless they are already registered under any other labour law. 

Change in amount of Contributions: The EPF, EPS, EDLI, and ESI Schemes will be financed through a combination of contributions from the employer and employee. For example, in the case of the EPF Scheme, the employer and employee will each make matching contributions of 10% of wages, or such other rate as notified by the government. All contributions towards payment of gratuity, maternity benefit, cess for building workers, and employee compensation will be borne by the employer. Schemes for gig workers, platform workers, and unorganised workers may be financed through a combination of contributions from the employer, employee, and the appropriate government [Section 29].

The bill provides for an option of reducing provident fund contribution (currently at 12% of basic salary) and therefore increases workers take-home pay. The rationale for allowing lower employee PF contribution is that higher take-home pay may boost consumption and consequently, economic growth. The Bill, however, retains employers’ PF contribution at 12%.

Social security for unorganized workers 

The Bill proposes setting up a social security fund using corpus available under corporate social responsibility. This fund will provide welfare benefits such as a pension, medical cover, death and disablement benefits to all workers, including gig workers, platform workers, and unorganised workers. 

The draft code says the “Central Government shall formulate and notify, from time to time, suitable welfare schemes for unorganised workers on matters relating to life and disability cover; health and maternity benefits; old age protection; and any other benefit as may be determined by the central government” [Section 109].

Unorganised workers include home-based and self-employed workers. While framing of schemes, the draft says the states may also formulate and notify suitable initiatives for unorganized workers, including schemes relating to provident fund, employment injury benefit, housing, educational scheme for their children, old age and funeral assistance. 

Bulk of India’s labour force is in the informal sector and a move looks forward looking but most of the key initiatives it suggests may be the decision of the states with little contribution from the centre. There may be unorganized sector social security boards at the centre and state levels. Ensuring that such employees are covered under the social security regime, is noteworthy as otherwise this population may end up without coverage. 

Benefits for Gig workers

Millions of the gig workforce in India, often referred to as lonely in the workplace, may soon get life and disability insurance, health and maternity benefits among others. Gig workers refer to workers outside of the traditional employer-employee relationship (e.g., freelancers). Platform workers are workers who access other organisations or individuals using online platforms and earn money by providing them with specific services, including the Ola and Uber drivers. Though the exact number of gig workers are unknown as they are still figuring out whether they are formal workers or informal workers or independent entrepreneurs, a 2017 study by consulting firm EY has said that nearly one out four gig workers in the world are from India (see here).

As per the draft social security code, the “Central Government may formulate and notify, from time to time, suitable social security schemes for gig workers and platform workers” and such schemes would encompass issues like “life and disability cover”, “health and maternity benefits” , “old age protection” and “any other benefit as may be determined by the Central Government” [Section 114].

Corporatization of Social Security Organisations 

The Code provides for the establishment of several bodies to administer the social security schemes. These include: 

1. A Central Board of Trustees, headed by the Central Provident Fund Commissioner, to administer the EPF, EPS and EDLI Schemes,
2. An Employees State Insurance Corporation, headed by a Chairperson appointed by the central government, to administer the ESI Scheme,
3. National and State-level Social Security Boards, headed by the central and state Ministers for Labour and Employment, respectively, to administer schemes for unorganised workers, and
4. State-level Building Workers’ Welfare Boards, headed by a Chairperson nominated by the state government, to administer schemes for building workers. 

The pension, insurance and retirement saving bodies including Employees’ Provident Fund Organisation (EPFO) and Employee State Insurance Corporation (ESIC) will be body corporate. The word ‘body corporate’ has been added [Section 5] in the draft and may bring in a departure from the current autonomous body status of such an organization. The draft also talks about appointment of chief executive officers (CEOs) in these organizations indicating that the labour minister, labour secretary, the central PF commissioner and Director General of ESIC may not be by default the head of such organizations. It means the EPFO may become a more structured national body with its entire Rs. 11 trillion corpus under the responsibility of a central government-appointed chairman. Currently EPF is headed by the labour minister chaired by the central board of trustees. The Central Government shall also appoint a Financial Advisor and Chief Accounts Officer to assist the Chief Executive Officer in the discharge of his duties.

Maternity Benefit 

The draft says subject to the other provisions of this Code, every woman shall be entitled to, and her employer shall be liable for, the payment of maternity benefit at the rate of the average daily wage for the period of her actual absence, that is to say, the period immediately preceding the day of her delivery, and any period immediately following that day [Section 60].

For the purposes of this subsection, ―the average daily wage means the average of the woman’s wages payable to her for the days on which she has worked during the period of three calendar months immediately preceding the date from which she absents herself on account of maternity, subject to the minimum rate of wage fixed or revised under the Code on Wages, 2019. 

Gratuity for fixed-term contract workers 

Currently, workers are not entitled to gratuity before completing five years of continuous service. The bill says that fixed-term contract workers will be eligible for gratuity on a pro-rata basis. It proposes to offer gratuity to fixed term employees after one year of service on a pro-rata basis as against the current practice of five years [Section 55]. 

Penal provisions 

The code intends to provide penalties, and the severity of the same will be based on the nature of the offence. For e.g. failure to pay employees’ contributions attracts a fine of Rs 50,000 (in the first instance) and a prison term that could extend to six months. However, if the contributions have been deducted from employees’ wages and not remitted, this is viewed more seriously. Here the fine is double the amount (Rs 100,000) coupled with a minimum imprisonment period of one year and could range up to three years. Falsification of reports is punishable with imprisonment of up to six months [Section 135].

The messaging clearly seems to be that the benefit to employees should not be compromised and acts as a deterrent to the employer from any non-compliance. 

Inspections and appeals 

The appropriate government may appoint Inspector-cum-facilitators to inspect establishments covered by the Code, and advise employers and employees on compliance with the Code. Administrative authorities may be appointed under the various schemes to hear appeals under the Code. For instance, the appropriate government may notify an appellate authority to hear appeals against the order of the Inspector-cum-facilitator for non-payment of maternity benefits. The Code also specifies judicial bodies which may hear appeals from the orders of the administrative authorities [Section 122]. 

Exemption 

It will empower the central government to exempt select establishments from all or any of the provisions of the code [Section 144] and makes Aadhaar mandatory for availing benefits under various social security schemes [Section 143].

Advantages 

Larger coverage

The ambit of this social security code is truly large as it covers not only the number of employees which an organization has but the workers involved in hazardous nature of work will also be covered under the act. The social safety-related laws had indeed become outdated in today’s environment. For example, online platform workers such as Ola, Uber etc. were not covered in the previous laws. The Social security code Bill, 2019 covers all those workers.

Maintains fragmentation

The labour market, both geographically and employment wise, is fragmented. But the code still leaves some of the fragmentation intact. It has two different versions for organized and unorganized workers separately. There is a high level of distinction intact. 

Removes complexity

There is general apathy towards labour laws. Employers are so allergic to labour rules and regulations laws that many a times they resist from setting a new enterprise. Idea behind the new codes are to create more and more employment so a proper conducive environment is created. Implementation was difficult in earlier 44 laws. The code is simpler, removes contradictions in definition, tends to give protection, welfare, benefits and incentives to workers. 

Criticism 

Few terms still ambiguous

There is no uniform definition of “social security”, nor is there a central fund. The corpus is proposed to be split into numerous small funds creating a multiplicity of authorities and confusion. Crucial categories such as “workers”; “principal-agent” in a contractual situation; and “organised-unorganised” sectors have not been clearly defined. This will continue to impede the extension of key social security benefits such as PF, gratuity, maternity benefits, and healthcare to all sections of workers.

Detailed outlines of schemes not provided

Though it proposed to extend the coverage of provident fund and ESI to temporary workers, it did not outline a comprehensive scheme that would provide social security cover to all. There is no commitment on the government’s part to contribute to the listed social security measures, even as the Code is clear about employee and employer contributions. 

The Bill welcomes aboard large sections of the workforce — “gig workers” such as those working in taxi aggregate companies like Uber and Ola. But how exactly the government proposes to facilitate their access to PF or medical care is not clear. What’s more, in these cases, the nature of the relationship between the company and the working staff, and hence the obligations, is not defined.

Conclusion 

The Social Security Bill has introduced several new aspects for the welfare of those working in the unorganized as well as the organized sectors of the Economy. It aims to introduce several new aspects that are currently missing in the labour legislation in force in India. The Social Security Bill has taken the concept of ‘labour legislations to be welfare legislation to another level and once implemented, it shall definitely improvise the social and economic standing of those impacted by this Bill. However, there are certain loopholes which should be removed. 

In advance of the Social Security Bill being passed, employers must be aware of the key changes and ensure that their internal policies and infrastructure are compliant. Further, companies dealing with gig workers, platform workers, and unorganised workers should assess whether, and if so, how, the Social Security Bill will impact their businesses. In the event that this proposed legislation gets the approval of both the houses of the Parliament and becomes an Act, it will beneficially impact both the modern day employer as well as the worker up to a large magnitude.

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