Introduction

The National Commission on Labour (NCL) vision has created the framework for the universal social security coverage for all workers in India. Labor-related matters are on the concurrent list in India. The employer-employee relationship was governed by more than 40 central laws and about 100 state laws. The Ministry of Labor decided to combine 44 labour regulations into four Codes: salaries, industrial relations, social security, and health and safety at work. The Code on Social Security, 2020 which proposes to simplify, amalgamate, rationalize, and replace central labour legislation relating to employee social security. The code contains 163 clauses divided into 14 chapters, in addition to six schedules on the procedural aspects.

The Code on Social Security was introduced on December 11, 2019, and was then referred to the Standing Committee of Labour, Ministry of Labour and Employment that consolidated suggestions and reviewed the provisions of the Social Security Code, and presented its report on July 31, 2020. The beginning of the global coronavirus pandemic, as well as the subsequent national lockdown enforced to combat the pandemic, pushed the country’s huge informal and migrant workers, who form the backbone of most businesses, to face the reality of their lack of social security coverage. This laid the groundwork for the Lok Sabha to introduce three labour Codes on September 19, 2020, including the updated Code on Social Security, 2020 (Social Security Code), which was based on the Standing Committee Report and passed by the Lok Sabha on September 22, 2020 and the Rajya Sabha on September 23, 2020. The President signed the Social Security Code on September 28, 2020, and it went into effect on September 28, 2020, as announced by the Central Government.

Background On The Social Security Policies In India

Taking into account India’s obligations under several international law instruments pertaining to labour rights, such as the International Covenant on Economic, Social, and Cultural Rights, 1976, and International Labour Organization conventions, and in accordance with the recommendations of the Second National Commission on Labour, the Ministry of Labour and Employment proposed the consolidation of these instruments.

In India, the concept of social security is not new but with the advancement of industrialization and progress, social security became a concern for the protection of the working class. Although the term “social security” is not directly mentioned in the Indian Constitution, but the right of citizens to enjoy social security is protected by the provision of the Fundamental Rights and Directive Principles of State policy.

The Social Security Code, 2020, which subsumes nine important social security laws in the country, intends to expand existing national security coverage for people in the economy:

1. The Employees’ Provident Fund Act, 1952 (EPF Act);
2. The Employees’ State Insurance Act, 1948 (ESI Act);
3. The Maternity Benefit Act, 1961;
4. The Payment of Gratuity Act, 1972 (Gratuity Act);
5. The Unorganised Workers’ Social Security Act, 2008;
6. The Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959;
7. The Cine Workers Welfare Fund Act, 1981; and
8. The Building and Other Construction Workers Welfare Cess Act, 1996 (BOCW Act).

The primary objective is to consolidate this social security legislation is to harmonise the provisions of existing labour laws that provides for the need of social security, assuring social security benefits to all types of workers and employers in both the organised and unorganised sectors.

Salient Features of the Social Security Code

Social Security is a system that provides basic support to those who are unable to work and make a livelihood for a variety of reasons. As a result, India brought Social Security policies to increase these people’s living standards and break the cycle of vulnerability.

The following are the key features of the Social Security Code,2020:

• For the purpose of EPF Scheme, the Code applies to every establishment in which 20 or more employees are employed
• For the purpose of ESI Scheme, the Code applies to every establishment in which 10 or more persons are employed other than a seasonal factory.
• The provisions of Gratuity apply to any factory, shop, or establishment with ten or more employees.
• The provisions pertaining to Maternity Benefit applies to every establishment being a factory and every shop or establishment in which 10 or more employees are employed.
• The provisions of Employees’ Compensation apply to the employers and employees to whom provisions of ESI Scheme are not applicable.
• The provision relating to Social Security and Cess in respect of Building and Other Construction Workers apply to every establishment, which falls in this category.
• The provisions pertaining to Social Security for unorganized workers apply to unorganized sector, unorganized workers, gig worker and platform worker.
• It provides for applicability of provisions relating to EPF/ ESI on voluntary basis even if the number of employees in an establishment is less than the threshold.

Incorporation of limitation period of 5 years for initiation of proceedings under EPF & ESI from the date on which dispute is alleged to have arisen and 2 years for concluding enquiries

Laws relating to social security policies and the Code on Social Security, 2020

This Code has expanded coverage, made the benefit available to all workers in the organised and unorganised sectors, introduced concepts of providing maximum benefits with minimal governance, and reflects consistency in approach across the legislation that provisions impacted employees positively are as follows:

• Widened the scope of the definition of “WAGE”

The term “wages” is defined in the Social Security Code in such a way that it encompasses a wide range of activities in these three following aspects:

• Inclusive in the definition: All remuneration expressed in monetary terms is considered wages, which includes basic pay, dearness allowance, and retaining allowance.
• Specific Exclusions: Provided Fund, pension and gratuity, house rent and conveyance allowances, and etc., are not included in the term wages if they do not exceed 50% of the total remuneration paid.
• Benefits in kind: These will be included to the extent of 15% of total wages. Overall, this will ensure that social security benefits wages are at least 50% of total compensation.
• Social Security Welfare Scheme

Under the Section 16 of the Code, the Central Government may notify various Social Security Schemes for the benefit of workers and included various EPF, EPS and EDLI schemes.

• Change in amount of Contributions

The EPF, EPS, EDLI, and ESI Schemes will be financed through a combination of contributions from the employer and employee where they both make contributions of 10% of wages, or such other rate as notified by the government. The employer

will bear all contributions for gratuity, maternity benefit, building workers’ cess, and employee compensation.

• Social Security for unorganized workers

The Code proposes that the “Central Government shall formulate and notify, from time to time, suitable welfare schemes for unorganised workers on matters relating to life and disability cover; health and maternity benefits; old age protection; and any other benefit as may be determined by the central government” for unorganised workers, gig workers, and platform workers.”

• Corporatization of Social Security Organisations

The Code requires the establishment of several bodies to supervise the various social security schemes. These include:

• • A Central Board of Trustees, led by the Central Provident Fund Commissioner, to oversee the administration of the EPF, EPS, and EDLI Schemes,
  • An Employees State Insurance Corporation to administer the ESI Scheme, led by a Chairperson appointed by the central government.
  • National and state-level Social Security Boards, chaired by the central and state Ministers for Labour and Employment, respectively, to administer schemes for unorganised workers; and
  • State-level Building Workers’ Welfare Boards, chaired by a chairperson nominated by the state government, to administer schemes for construction workers.
• Maternity Benefit

According to the draft, “subject to the other provisions of this Code, every woman shall be entitled to, and her employer shall be liable for, the payment of maternity benefit at the rate of the average daily wage for the period of her actual absence, that is, the period immediately preceding and any period immediately following the day of her delivery.

• Gratuity for fixed-term contract workers

Currently, employees are not entitled to a gratuity until they have completed five years of continuous service. According to the Code, fixed-term contract workers are eligible for gratuity on a pro-rata basis. It proposes that fixed-term employees receive a pro-rata gratuity after one year of service, rather than the current practise of five years.

• Penal Provisions

The Code intends to impose penalties, whose severity will be determined by the nature of the offence. Failure to pay employee contributions carries a fine of Rs 50,000 and a six-month prison sentence. If the contributions were deducted from employees’ wages but not remitted, the fine is doubled (Rs 1,00,000), with a minimum of one year in prison and a maximum of three years in prison. Misrepresentation of reports is subject to punishment by up to six months in prison

• Inspection and appeals

Inspector-cum-facilitators may be appointed by the appropriate government to inspect establishments covered by the Code and advise employers and employees on Code compliance. Administrative authorities may be appointed to hear appeals under the Code under the various schemes. The Code also specifies the judicial bodies that can hear appeals from administrative authority orders.

• Exemption

It will empower the central government to exempt select establishments from all or any of the provisions of the Code and makes Aadhaar mandatory for availing benefits under various social security schemes

Criticism

• Mandatory Linking of Aadhaar

The Code requires an employee or worker (including an unorganised worker) to provide his Aadhaar number in order to receive social security benefits which could be in violation of the Supreme Court’s decision in the Puttaswamy case^[1] where it was held that the Aadhaar number could only be made mandatory for spending on a subsidy, benefit, or service from the Consolidated Fund of India. But these certain entitlements, such as gratuity and provident fund (PF), are funded by employers and employees rather than the Consolidated Fund of India, making Aadhaar mandatory for receiving such benefits may be in violation of the ruling.

• Few terms still ambigious

There is no unified definition of “social security,” and key categories such as “workers,” “principal-agent” in a contractual situation, and “organized-unorganized” sectors are not clearly defined, which only adds to the confusion.

Conclusion

The Social Security Code has decided to expand the welfare of those employed in both the unorganised and organised sectors of the economy. The Social Security Code has taken the concept of “labour legislation as welfare legislation” to a new level and once implemented, it will undoubtedly improve the social and economic standing of those who are affected by it. There are, however, some gaps that need to be filled. The country is still awaiting the implementation of the new legislation.