Code On Social Security, 2020: Impacts On Wages And Benefits Of Employees


An essential step to reforming workplaces is the coming of the code on social security in India. Social security is usually understood as some form of monetary support that the government provides to those who are either incapable of being employed or are inadequately employed. In the Indian context, social security has a different meaning altogether. In India, our social security has spanned over a multiplicity of labour laws that our state and central governments have implemented over the course of many years. These regulate wages and worker benefits, address occupational safety and also set rules for labour and industrial relations.

Consolidating laws

Complying with multiple laws at both the state and centre levels has been no less than a nightmare for many businesses, posing a very real and practical hindrance to the ease of doing business in India. Therefore, the new social security code is a welcome change. The Code on Social Security, 2020, subsumes eight existing central labour laws. These laws are the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952; Payment of Gratuity Act, 1972; Employees’ Compensation Act, 1923; Maternity Benefit Act, 1961; Employees’ State Insurance Act, 1948; Workers Cess Act, 1996; Cine Workers Welfare Fund Act, 1981; Building and Other Construction and Unorganised Workers’ Social Security Act, 2008.

The Code on Social Security, 2020 consists of new rules for contribution to social security and payment of employee benefits, including retirement benefits. The Code has been passed by the Parliament and awaits the nod of the President. The Government is considering implementing the Code by December 2020, along with other three labour codes, viz., The Industrial Relations Code, 2020, Code on wages, 2019 and The Occupational Safety, Health and Working Conditions Code, 2020.

New-age businesses that thrive on e-commerce have created new types of jobs. Some of the workers in these new businesses were not covered under any of the existing laws. The new Social Security Code expands the scope of social security by providing for registration of all types of workers including gig workers, unorganised workers and platform workers. Therefore, in terms of coverage the scope has been expanded. Gig workers will now become eligible for life and disability coverage, maternity benefits, pension etc.

Taking care of the retirals

The law also expands scope to cover fixed-term contract workers who will now be eligible for gratuity; whereas earlier only employees which were permanent were covered. Under the Code, gratuity becomes due to an employee upon their termination from employment after a continuous service period of at least five years, which is the same as before.

The events giving rise to gratuity are superannuation, retirement, resignation, death or disablement due to accident or disease or termination of a contract under fixed-term employment or on the happening of any event notified by the central government. However, the completion of five years of continuous service is not necessary in the case of termination of employment due to death or disablement or expiration of fixed-term employment or happening of any such event as may be notified by the Central Government. In the case of death of an employee, the gratuity would be due to their nominee or legal heir. With the inclusion of ‘expiration of fixed term employment’, fixed term contract workers will become eligible for gratuity and this is a welcome move.

A social security fund will be created for paying these benefits to workers and it will be funded by central and state governments and also through CSR funding. Aggregators who are digital intermediaries employing gig workers will have to set aside at least around 1-2 per cent of their annual turnover (amount not exceeding 5 per cent of the amount payable to the workers) for the purpose of this social security fund. Hopefully, related rules may be announced in the coming days so that more clarity will be available as to how employers will estimate the total amount payable to the workers to set aside an appropriate amount. The law also states that the central government may provide for self-assessment of contribution by aggregators, leaving scope for regulation.

As per existing laws, employers in certain businesses with at least 100 workers need prior government approval to carry out layoffs and retrenchment. This limit has now been increased to 300. This change puts power back in the hand of businesses, workers may be more prone to be at the receiving end of arbitrary dismissal.

The Code also provides for the setting up of a ‘National Social Security Board’. The functions of the Board include recommending schemes to the central government and also monitoring the schemes for the different types of workers, advising the Government on the matters relating to the administration of the Code amongst others. A regulatory authority to separately administer the code would be beneficial to monitor the welfare of workers and it can better track the efficacy of schemes. The Code contains penal provisions in the case of failure to pay gratuity to employees or a failure to pay the contributions. Also, the Code prioritizes employees’ dues under the Insolvency and Bankruptcy Code, 2016.

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