Code on Wages, Code on Social Security To Increase Employer’s Financial Liability


The Code on Social Security, 2020 and the Code on  Wages, 2019 will result in an increase in the financial liability on the part of employers, experts say.

“Code on Wages would impact the employer largely as they will have to pay more to the workers with regard to what they were paying till now,” said Prashant Singh, Vice President and Business Head- Compliance and Payroll Outsourcing, TeamLease Services.

“The skewness of skilled and semi-skilled in a few developed states would dilute and business and labour uniformity would start happening which would ease the business continuity,” he adds.

The Code of Wages was passed in August 2019. It makes provisions for minimum and timely payment of wages to all the workers in India.  The Code introduces the concept of floor wages wherein the rates will be fixed by the central government by taking into account the minimum living standards of the workers.

Once the code is enacted, the minimum rates of wages fixed by the state government cannot be less than floor wages as determined by the central government. The Code applies to all the establishments irrespective of the number of employees working in the establishment. It also applies to all the employees employed in both the organised and the unorganised sector.

Commenting on the impact of Code on Social Security on employers, Singh remarked: “Inclusion of gig workers would surely help in providing them social security, stability and retention. However, employers will have to streamline their accounting system, payroll and statutory benefits which would put some stress to exchequer but would help in retaining right talent not moving to organised aggregators.”

The Code on Social Security, 2020 passed by the Narendra Modi-led NDA government in September 2020 has for the very first time extended the social security benefits like maternity leave, disability insurance, gratuity and health insurance and old age protection to the workers in the country’s booming gig economy sector.

The Code proposes for the creation of a social security fund for extending these benefits to the workers in the unorganised sector. The scheme for the social security fund envisages that the platforms and aggregators like Swiggy, Zomato, Ola, Uber, Urbanclap and others will make contributions to the fund which would be either 1-2 percent of the turnover or 5 percent of the worker’s wages. The central and state governments can also contribute to the social security fund.

Anshul Prakash, Partner, Employment Labour and Benefits, Khaitan & Co, explains, “While some claim that the definition of ‘wages’ under the codes will significantly increase certain costs such as social security contributions, the assessment ultimately depends upon the schemes and notifications that the central government would bring in under the codes, which may limit the liability by specifying ceilings on these payments. Likewise, introduction of the concept of floor wages need not necessarily increase costs, since the central government may specify different floor wages for different geographical locations keeping various factors including cost of living in the relevant region into account.”

“Of course, certain aspects such as contribution towards worker reskilling fund in case of retrenchment of a worker, contribution by aggregators towards social security schemes to be formulated for gig workers and platform workers, etc. may increase costs especially for the aggregators to a certain extent,” he added.

The Ministry of Labour and Employment has been holding tripartite (with employers, employees and government officials) meetings to discuss the draft rules for the proposed codes.

The draft rules on Code on Wages were floated by the government in July 2020 and the draft rules on Code on Social Security were released in November 2020.

These two are a part of the four codes which have merged 44 pre-existing labour laws governing occupational safety, social security and minimum wages. The codes are expected to be implemented by April 1, 2021.

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