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  • Writer's pictureShweta Bharti

A business guide to the Social Security Code

The introduction of the Code on Social Security, 2020 (code), together with the Code on Occupational Safety, Health and Working Conditions, 2020, and the Code on Industrial Relations, 2020, marks the completion of the four-part reform of labour laws, which started with the passage of the 2019 Code on Wages. The code recently completed its passage through parliament. The purpose of the code is to enhance existing legal frameworks through amalgamation while introducing measures to afford protection with respect to their health care and income security of employees, workers who do not have the protection of unions or other organizations, gig workers, and digital platform economy workers.

Apart from the amalgamation of nine pieces of legislation into one comprehensive framework to bring about transparency and accountability in its implementation, the code focusses on social security offerings for non-organized workers to frame and notify welfare schemes encompassing life and disability cover, health and maternity benefits, old age protection, education; and any other benefits. State governments on the other hand shall frame and notify schemes relating to provident funds, employment injury benefits, housing, educational schemes for children, the upgrading of workers’ skills, funeral assistance, and old age homes.

The code enables the division of one or more funding sources for schemes, which may be either wholly funded by a concerned government or partly funded through contributions collected from the beneficiaries of the scheme or the employers through corporate social responsibility provisions under the Companies Act, 2013. The code seeks to establish social security schemes and provisions on the basis of thresholds, such as 20 or more employees of establishments under chapter III on employees’ provident funds, 10 or more employees of establishments carrying on hazardous or life-threatening occupations under chapter IV on the Employees’ State Insurance Corporation, and, under chapter V on gratuities, every employee of a factory, mine, oilfield, plantation, port and railway company and every employee of a shop or establishment that has had 10 or more employees on any day in the preceding 12 months.

The code also introduces options for establishments with employees’ provident funds (EPF) and employees’ state insurance (ESI), so that they may opt-in or opt-out of the provisions of chapters if they have the agreement of the majority of their employees and the approval of the competent authority.

Key features of the code include:

  1. A gratuity shall be payable to an employee on termination of employment when duration of service has been for not less than five years, or on the termination of the contract period under fixed-term employment.

  2. Compulsory insurance may be obtained by the employer from any insurance company regulated by the authority as defined under the Insurance Regulatory Development Authority Act, 1999.

  3. Maternity benefits bonus increased from ₹1,000 (US$13.7) to ₹3,500.

  4. Employers’ liabilities for compensation for the death of a worker and accidents are extended to commuting to or from the place of employment.

  5. Mandatory registration is required for non-organized workers’ social security.

  6. Private establishments with more than 20 employees have to report vacancies to employment exchanges or career centres.

The term employee is defined in clause 2 (26) of the code. However the provisos to the definition allow for variations in the scope of the term applicable to EPF and ESI related chapters in which “employee” shall mean (a) such employee drawing wages less than or equal to the wage ceiling notified by the government and includes such other persons or class of persons, as the government may by notification, specify to be an employee; and (b) for the purpose of counting of employees for inclusion of an establishment in EPF and ESI chapters, those employees whose wages are more than the wage ceiling so notified by the government shall also be taken into account.

The code introduces a much-needed change of regime that will bring about simplification, transparency and accountability in the labour and social security framework. While employees will gain from the enhanced benefits and simplification brought about by the code, employers will benefit by operating under a clearer regime that will enable better governance and compliance. Employers will as well have a better opportunity to apply CSR funds towards employee benefits. The finer details of the applicability of, and mechanisms under the code are still awaited, with the formulation of the rules expected to be revealed within the present calendar year.

This article was originally published by Indian Business Law Journal:

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