Code on Social Security, 2020

Today we deep dive into the Code on Social Security, 2020 to understand what the future holds for the  employers and employees.

Keeping it Simple

The Code on Social Security, 2020 (SS Code) repeals and replaces the following nine national labour laws:

• The Employees’ Provident Fund and Miscellaneous Provisions Act, 1952
• The Employees’ State Insurance Act, 1948
• The Employees’ Compensation Act, 1923
• The Maternity Benefits Act, 1961
• The Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959
• The Cine Workers Welfare Fund Act, 1981
• The Payment of Gratuity Act, 1972
• The Unorganized Workers’ Social Security Act, 2008
• The Building and Other Construction Workers’ Welfare Cess Act, 1996

The Objective

As per the International Labour Organization, almost 83 % of the Indian workforce is occupied in the informal/unorganized sector. Not just that, the remaining 17% also consists of 9.8% informal workers in the organised sectors which indicates the level of outsourcing. Moreover, these informal economy workers have little or no access to basic social security coverage.

For the first time  in the history of labour codes, every category of worker is clearly defined in the new code. It clearly sets clear definitions of gig workers, platform workers, home-based workers, self-employed workers etc. Thus, it emcompasses every kind of employment leaving minimal opportunity for ambiguity.  It is the first legislation to formally recognize the gig economy and extend social security coverage to them. 

With the new code, the government is moving away from the idea of job security and moving towards the idea of  social security. The new code seeks to extend social security to all the employees and workers both, in the organised and unorganised sector.

Changes in EPF Scheme

• Just like the ESIC, a limitation on the period of enquiries has been set. The limit is set to 5 years for initiation and 2 years for concluding enquiries.
• Earlier only the establishments which were included in the schedule came under the purview of EPF. This has been done away with. Now, all establishments that have 20 or more workers will have to register for EPF.
• Aadhar based registration becomes essential.
• Establishments that have a smaller number of employees than the prescribed threshold for coverage under the provisions of the EPF and the EESI, have the option to avail of voluntary coverage under the same and subsequently can opt out of such voluntary coverage not before 5 years and further with a condition that no dues are outstanding.
• Systems have been defined to cover the category of the category of self-employed or any other category under the purview of the EPF scheme.

ESIC Reforms

• Now gig workers and workers in the unorganised sector will also be able to link with ESIC as the system has now been designed to cover the category of self-employed or any other category under the purview of ESI Scheme.
• Even plantation workers will now fall under the purview of ESIC.
• If the employer and majority employees agree then voluntary registration has been allowed under the court.
• The government deems fir, it can extend the ESI scheme to any hazards occupation as well even if a single employee is employed.
• During the insolvency proceedings the amount due to ESIC by an employer, shall be treated as a charge on the assets of which shall be paid in priority. Priority will be given to payment of contributions over other debts.

Changes in Gratuity

• Permanent employees would continue to be eligible for gratuity after the completion of 5 years as presently exists under the act.
• However,  the fixed employees will have no such criteria such employees will be paid on the basis of the tenure of employment with one organisation and it will be calculated on a pro rata basis.
• The threshold gratuity period for working journalists has been reduced from 5 years to 3 years.
• The Payment of Gratuity is required to be paid through a demand draft or by it bank account transfer. An intimation of the same is also to be required to be sent to the competent authority of the area.
• The code further states that in the case of fixed term employment employees will pay gratuity on a Pro Rata basis. 

• However, the Industrial Relations Code,2020 while defining fixed term workers, States those workers will be eligible for gratuity only if they complete one year of contract.
• Therefore, the two codes contain different provisions on gratuity for fixed term workers and it is not clear whether fixed term employment the contract of lesser than 1 year will be entitled to gratuity under the CSS, 2020.

Changes in Employee Compensation 

• The social security code is silent on the minimum limit of compensation in case of death and monthly wage for computation of compensation. 
• The central government will notify the amount of minimum compensation, the amount of compensation in case of death and amount of monthly wages for computation of compensation.
• An accident occurring to an employee while commuting from his residence to the place of employment for duty aur from the place of employment to his residence after performing the duty shall be deemed to have arisen out of and in the course of employment, if the connection between the circumstances, time and place in which the accident occurred and his employment is established.

Social Security for Unorganised Workers, Gig Workers and Platform Workers

• The code mandates the central government and state governments to frame schemes for every aspect of social security for these unorganised workers take workers and platform workers need to be registered employees. Right from health,  maternity, old age, diabetes to upskilling,  housing education etc.
• Every unorganised worker, gig worker or platform worker shall be required to be registered by submitting an application for registration or a self -declaration electronically or otherwise in a prescribed form of manner along with his or her Aadhaar number. After such registration he or she will be assigned a distinguishable number to his application.
• The system of electronic registration maintained by the appropriate government shall not just give rights to employers but also provide an opportunity for self-registration by any worker.

Reforms in Employment Information & Monitoring 

• The concept of Employment Exchange has undergone a change. The concept of Career Centres have been introduced wherein, career counselling services and Vocational counselling services will  be provided in addition to employment guidance.
• There is no more compulsion on the employers to recruit or vacancies through the career centres.
• However, the establishment needs to register with these Career Centres and file certain returns on the Career Centre portals.

Changes in Legal Aspects: Audits, Compliance and Recovery

• The designation of Inspector is renamed as Inspector cum facilitator This change in name emphasizes on the role he/she would play in the assessment process. The inspector is expected to supply information and give advice to employers and workers about the most effective means of complying with the provisions of the proposed code.
• The code puts a limit on the initiation of enquiries of five years from the date of the alleged amount in due under the Employees Provident Fund Scheme and a maximum 2 years of period for concluding such enquiries.
• The establishment can challenge the order/enquiry before the Tribunal in case of EPF and incase of ESO it can be challenged against the appellant authority, only after depositing 25% of the determined amount. Such appeals have to be disposed off within one year from the date of appeal.

Changes in Offences and Penalties

• Penalty amount increased from Rs.10000 to 1,00,000 and imprisonment of one to three years on deduction of employee contribution from salary and non depositing.
• Subsequent failure to pay for contributions would attract imprisonment of two to three years and a fine of 3, 00,000 rupees.
• The code also provides for compounding of any offence which is not punishable with imprisonment only/ imprisonment and fine. 
• The opportunity for compounding is not available to the employer for a second offence.
•  An application for compounding can be made before or after the initiation of prosecution in relation to the offence committed.

Special Powers

• The code empowers the central government to defer the application of the provisions of the code for a period of three months in the event of a national disaster come a pandemic or endemic.
• Further, the state or the central government has the power to exempt any industrial establishment or class of industries from the provisions of the code.

How will code impact employees?

• Employees stand to gain valuable social benefits of insurance, gratuity etc.
• Contract employees will also get the same benefits.
• Once the code comes into effect, the revised definition of wages will lead to less in hand salary. However, it would ensure higher minimum wages, statutory bonus, provident fund, retrenchment compensation etc.
• The standardisation of the wage would further reduce the disparity of wages across various companies. 

How will the code impact employers?

• All establishments having over 300 workers must prepare standing orders on matters such as – classification of workers, termination of employment, work hours, grievance redressal etc.
• Common wayouts like hiring on contract to save the cost will not work anymore.
• The financial impact on businesses will be higher as now the hiring cost for new employees will be significantly more than before as they would be entitled to benefits like PF, ESI and Gratuity. 
• However, it would save the time and resources that the businesses had to employ to get clarity from the labour department.

Important Reads

• https://labour.gov.in/sites/default/files/SS_Code_Gazette.pdf
• https://www.natlawreview.com/article/india-consolidates-and-codifies-its-national-level-labour-laws

• https://prsindia.org/billtrack/the-code-on-social-security-2020
• https://www.lawrbit.com/article/code-on-social-security/

Bonus: We have made a  detailed video on the Four Labour Codes expected to be implemented by July. Click here to watch the video.