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Part II – Labour Laws: The Code of Social Security, 2020

Legislation of the 3 (three) long awaited labour codes, namely (a) the Industrial Relations Code Bill, 2020; the Code on Social Security Bill, 2020; and the Occupational Safety, Health and Working Conditions Code Bill, 2020 by the Parliament of India on September 23, 2020, marks a major milestone in ushering reforms in the labour sector.

In Part I series of our Labour Laws update, we discussed some of the key changes and provisions introduced by the Industrial Relations Code Bill, 2020 (https://www.mondaq.com/article/995216).  Changes introduced through the Code on Social Security Bill, 2020 are discussed herein, in Part II of the Labour Code series.

Legislations Repealed

The Code on Social Security, 2020 (“SS Code”) will repeal the following legislations from the dates to be notified by the Central Government:

(i)            The Employee’s Compensation Act, 1923;

(ii)           The Employees’ State Insurance Act, 1948;

(iii)          The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952;

(iv)          The Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959;

(v)           The Maternity Benefit Act, 1961;

(vi)          The Payment of Gratuity Act, 1972;

(vii)         The Cine-Workers Welfare Fund Act, 1981;

(viii)        The Building and Other Construction Workers’ Welfare Cess Act, 1996; and

(ix)          The Unrecognised Workers Social Security Act, 2008.

Key Provisions

Some of the key provisions/changes under the SS Code are as follows:

I.          Wages:

The SS Code has sought to align the definition of the term ‘wages’ in line with the definition under the Code on Wages, 2019. The term ‘wages’ will mean all remuneration whether by way of salaries, allowances or otherwise, which would, if the terms of employment (express or implied) were fulfilled, be payable to a person employed in respect of his/her employment, and includes basic pay, dearness allowance and retaining allowance but doesn’t inter alia include any bonus, which doesn’t form part of the remuneration, value of any house accommodation, or the supply of light, water, medical attendance, any conveyance allowance, overtime allowance etc. A proviso to the definition however stipulates that in the event the excluded components under the definition, exceed fifty (50) percent of the entire remuneration paid, then the amount in excess of this fifty (50) percent, shall be deemed to construed within the ‘wages’, such that the wage proportion remains at fifty (50) percent.

II.          Social Security Schemes:

The SS Code empowers the Central Government to notify various social security schemes for the benefit of the workers, including:

(i)         Employees’ Provident Fund (EPF) Scheme: for which provident funds shall be established for employees or any class of employees and specify the establishments or class of establishments to which the scheme shall apply;

(ii)        Employees’ Pension Scheme (EPS): for the purpose of providing for superannuation pension, retiring pension or permanent total disablement to the employees, widow or widower’s pension, childrens’ pension or orphan pension, payable to beneficiaries and nominee pension; and

(iii)       Employees’ Deposit Linked Insurance (EPDLI) Scheme: for providing life insurance benefits to the employees of any establishment or class of establishments.

The Central Government may also frame any other scheme or schemes for the purpose of providing social security benefits to self-employed workers or any other class of persons.

In addition to the above, the Central Government may also frame schemes for unorganised workers, gig workers and platform workers and the members of their families for providing benefits admissible under the SS Code.

The Central Government, under the SS Code, may also notify: (i) an Employees’ State Insurance (ESI) Scheme to provide medical benefits to the insured persons and members of his family; (ii) gratuity to workers on completing five years of employment or less than five (5) years in certain cases such as for journalists and fixed term workers; (iii) maternity benefit 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.

  1. Payment of Medical Bonus:

The Maternity Benefit Act, 1961 provided for payment of medical bonus of upto INR 3,500/-, while further stipulating that the Central Government may increase the medical bonus to a maximum amount of INR 20,000/. The SS Code has removed the upper threshold of INR, 20,000/-.

IV.        Social Security Organisation:

The SS Code requires the constitution of certain bodies for administering various social security schemes as discussed above. These organisations shall include, (i) a Board of Trustees headed by the Central Provident Fund Commissioner to administer EPF, EPS and EDLI Schemes; (ii) an Employees State Insurance Corporation, headed by a chairperson appointed by the Central Government to administer ESI Scheme; (iii) National and State Social Security Boards, headed by the Central and State ministers for Labour and Employment, respectively, to administer schemes for unorganised workers, gig workers and platform workers; and (iv) State-level Building Workers’ Welfare Boards, headed by a chairperson nominated by the State Government to administer schemes for building workers.

V.          Applicability and Registration:

All establishments to which the SS Code applies are mandatorily required to be registered under the SS Code, unless they are already registered under any other central labour laws for the time being in force.

The SS Code specifies different applicability threshold for different schemes and other social benefits, for example:

(i)         EPF, EPS and EPDLI Schemes are applicable to every establishment in which twenty (20) or more employees are employed;

(ii)        ESI Scheme is applicable to every establishment in which ten or more persons are employed and to all establishments which carry out hazardous or life-threatening work notified by the Central Government;

(iii)       Payment of gratuity is mandatory for every factory, mine, oilfield, plantation, port and railway company and every shop or establishment in which ten or more employees are employed, or were employed, on any day of the preceding twelve months or such shops or establishments as may be notified by the appropriate Government from time to time; etc.

VI.        Contributions:

The various schemes under the Social Security Code, viz. EPF, EPS, EDLI and ESI Schemes will be financed through a combination of contributions from the employers and employee, for example:

(i)         In case of EPF Scheme, the employer and employee will each make matching contribution of ten (10) per cent of wages or such other rate as may be notified by the Government;

(ii)        In case of EPS Scheme, the employer’ will make a contribution not exceeding eight and one-third percent of the EPF contribution;

(iii)       In case of EDLI Scheme, the employer shall contribute such sum not exceeding one (1) per cent of the wages or such percentage of the wages as may be notified by the Central Government.

All contributions towards payment of gratuity, maternity benefit, cess for building workers, and employee compensation will be borne by the employer. All contributions under schemes for gig workers, unorganised workers and platform workers may be financed wholly by Central Government or partially by the Central Government and partially by the State Government or wholly by aggregators or through a combination of all the above.

VII.      Offences and Penalties:

The SS Code prescribes penalties for various offences such as failure to make contribution, failure to pay gratuity or other obligations under the SS Code with imprisonment or with fine or with both, depending on the offence committed.

The SS Code also imposes stringent penalties in case of a contravention of any provision under any of the legislations sought to be repealed by the SS Code. Further, in respect of a subsequent offence of failure to pay contributions, charges, cess, maternity benefit, gratuity or compensation committed by an employer, the employer is punishable with a minimum imprisonment of two (2) years which may extend to five (5) years and also a fine of INR 3,00,000/-.

VIII.    Provision for Compounding of Offences:

The SS Code provides for an option of compounding of any offence which is punishable with fine only or with imprisonment for a term which is not more than one (1) year, and also fine. An application for compounding can be made before or after the initiation of prosecution in relation to the offence committed. However, an opportunity for compounding is not available to an employer for a second  (2nd) time or thereafter within a period of three (3) years from the date of either (i) commission of a similar offence which was earlier compounded; or (ii) commission of a similar offence for which such person was earlier convicted.

Key Differences Against the Social Security Code, 2019 (“Previous SS Code”)

a.      The Previous SS Code empowered the Central Government to set up social security for unorganised workers, gig workers and platform workers. The SS Code mandates that the Central Government shall set up social security fund and frame schemes thereunder for unorganised workers, gig workers and platform workers. In effect, the SS Code has widened the coverage of social security for unorganised workers, gig workers and platform workers and migrant workers. The SS Code also makes provisions for registration of all aforesaid categories of workers. The SS Code clarifies that the schemes for the unorganised workers, gig workers and platform workers may be financed through a combination of contributions from the Central Government, State Government, aggregators and other sources.

b.      The new definition of ‘wages’ has been brought in which will require the employers to re-assess and re-structure the provident fund contributions required on the basis of inclusions and exclusions provided under the definition of ‘wages’ under the SS Code.

c.      The SS Code brings changes in definition of certain terms such as (i) definition of ‘employee’ has been expanded to include workers employed through contractors; (ii) definition of ‘inter-state migrant workers’ has been expanded to include self-employed workers from another state; (iii) definition of  ‘platform worker’ has been provided to include additional categories of services (such as online ecommerce services) or activities as may be notified by the government, etc.

d.      Under the Previous SS Code, gratuity was payable on the termination of employment of such employee who has completed five (5) years of service in an organisation. The SS Code has reduced the gratuity period from five (5) years to three (3) years for working journalists and other fixed term workers.

e.      The SS Code also focuses on digitisation of records and returns to assist in easier exchange of information among various constituents and schemes set up by the Government.

Considering the wider coverage and change in many definitions including ‘wages’, it is advisable for establishments to assess the implications of the SS Code, make revisions to the existing employment handbooks and employee polices  to ensure continued compliance under the SS Code.