Code on Social Security, 2020: Salient Features & Compliance Changes

 

Madhu Damodaran
Simpliance COE

Biography

Animay Singh
Simpliance COE

Biography

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Code on Social Security 2020

Introduction

The Code on Social Security, 2020 was born out of the recommendations of the Second National Commission on Labour, which stated in its report that the current set of labour laws must be amalgamated based on subject-matter. The Code was introduced in December 2019 and the Parliamentary Standing Committee submitted its report on 31st July 2020. Thereafter, a fresh Bill was introduced, namely the current Code on Social Security, 2020 that aims to facilitate the implementation of labour laws, reduce the multiplicity of definitions, streamline the number of authorities under various laws and ensure basic concepts of welfare and benefits to workers are preserved. Another major objective of the Code is to promote technology for ensuring compliance and enforcement of the provisions thereunder is achieved with ease.

The Code on Social Security, 2020 amalgamates and rationalizes the provisions of the following nine Central labour laws:-

1.     The Employees’ Compensation Act, 1923

2.     The Employees’ State Insurance Act, 1948

3.     The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952

4.     The Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959

5.     The Maternity Benefit Act, 1961

6.     The Payment of Gratuity Act, 1972

7.     The Cine Workers Welfare Fund Act, 1961

8.     The Building and Other Construction Workers Welfare Cess Act, 1996

9.     The Unorganized Workers’ Social Security Act, 2008

Salient Features of the Code on Social Security, 2020

The key changes and features of the Code can be summarized as follows:

  • Introduces the definition of career centre as any office including employment exchange, place or portal established by the Central Government for providing career services. It aims to connect persons seeking employment with those who seek to employ by providing information about vacancies and giving vocational guidance.

  • Introduces the definition of aggregator which denotes a digital intermediary or marketplace for a buyer or user of a service to connect with the seller or the service provider. The introduction of this definition is linked to the ushering in of two more terms namely- platform worker and gig worker. The former refers to individuals engaged in platform work which is defined to mean a work arrangement outside of a traditional employer-employee relationship in which organisations/individuals use an online platform for problem-solving or to provide specific services. Whereas the latter is defined as a person who performs work or participates in a work arrangement and earns from such activities outside of a traditional employer-employee relationship.

  • The Code allows for an establishment to voluntarily submit to the coverage of the Employees’ Provident Fund (EPF) under Chapter-III and the Employees’ State Insurance Corporation (ESIC) under Chapter-IV, even if the number of employees in such an establishment are lower than the specified threshold.

  • The Code empowers the Central Government to frame social security schemes for unorganised workers, gig workers and platform workers as well as members of their families with respect to providing benefits under the ESIC. The Central Government is also empowered to frame schemes for providing social security benefits to self-employed workers and to any other class of persons it deems fit.

  • To this end, the Code also provides for registration of every unorganised worker, gig worker or platform worker based on a self-declaration provided either electronically or otherwise along with AADHAR number in a form and manner that shall be prescribed by the Central Government

  • The Code provides that in case of fixed term employees, the employer shall pay gratuity on a pro rata basis and not on the pre-existing requirement of continuous service of five years.

  • There is greater clarity provided with regards to common creche facilities under Chapter-VI of the Code on maternity benefits. The second proviso to Section-67 states that an establishment may avail a common creche facility of the Central Government, State Government, municipality or private entity or provided by an NGO or any other organisation.

  • The scheme of penalties and offences under the Code have also undergone certain changes. Section-137 allows employers an opportunity to correct non-compliance for any offence under the Act prior to the initiation of prosecution or proceedings. However, repeat offenders are given enhanced punishments under Section-134 and offences by companies are given stricter penalties that extend beyond the corporate veil.

Conclusion

The Code on Social Security, 2020 is drafted in a manner so as to cover the largest number of working individuals in the country. Its recognition of non-conventional forms of work outside the scope of the traditional employer-employee arrangement is encouraging as there is a global shift towards self-employment, gig, and platform work. Consequently, empowering the Central Government to not only provide social security benefits by framing schemes but also have accurate records of such workers through the self-declaration process ensures that there is a clearer view of the composition of our labour capital.

The flexibility given to the Central Government with regards to the rates of contribution under Chapter-III pertaining to EPF and Chapter-IV relating to ESIC will allow the rates to be changed subject to the prevailing economic conditions and will thus not unnecessarily burden employees and employers alike. Any contributory national social security scheme must draw a balance between ensuring there is enough spending power with the working population. This must be done while providing enough in the form of contributions to cover those leaving the workforce and saving enough for those who are currently employed.

Whether the current Code on Social Security, 2020 can achieve this delicate balance remains to be seen. However, it is quite clearly a step in the right direction from an ease of compliance and universality perspective as it covers a large portion of our working population. Perhaps more can be done with regards to facilitating our workforce’s shift from informal to formal modes of work and it is quite possible that the Rules provide for the same, either directly or as a consequence of their net effect.

Therefore, while there is definitely room for a great deal of optimism, the same must be cautious as there still are a lot of aspects left to delegated legislation and executive rulemaking. It is only when these creases are ironed out and the Code is put into effect, can we conclusively comment on its efficacy and utility.

What provisions do you believe should have been included in the Code on Social Security, 2020? Are there any aspects of the Code that you find ambiguous? Do you feel that the Code covers India’s diverse working population?

Drop your thoughts and queries in the comments below.

Disclaimer: This blog is meant for informational purposes and discussion only. It contains only general information about legal matters. The information provided is not legal advice and should not be acted upon without seeking proper legal advice from a practicing attorney.
Simpliance makes no representations or warranties in relation to the information on this article.

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7 thoughts on “Code on Social Security, 2020: Salient Features & Compliance Changes”

  1. While government keeps on increasing the basic exemption limit for mandatory coverage under ESIC (And the same is on cards), Government is pathetically ignorant about the state of hospitals under the scheme. Leave aside the arrogance of the staff employed at these facilities.
    What happened to budget speech by former finance minister Late Shri Arun Jaytely? He had promised that he will give option to employees to buy private insurance in place of ESIC?

  2. Though it seems a good effort to cover maximum unorganized employees under Social Security code, the current threshold number of employees under PF / ESIC needs to be brought down so that existing employees in organised sectors will covered under the code.

  3. ‘The Code provides that in case of fixed term employees, the employer shall pay gratuity on a pro rata basis and not on the pre-existing requirement of continuous service of five years.” Applicable to all employees?

    1. No sir, the relaxation of continuous service period is applicable only in the case of fixed term employees

      Regards,
      Animay

  4. Query 1.
    whether the minimum wages act (state) applicable on a company incorporated under companies act 1956 aka New companies act 2013. Since it has been observed many times they’re disbursing consolidated salary of 8K /9K. pls clarify

    Query 2.
    If Consloidated wages of Rs. 10000/- for unskilled in J&K required component breakup, then what would be the minimum basic wages in conformity to the labour law for an unskilled…?

    Query 3.
    Whether a pvt company incorporated is bound to avail its employees AL/PL/EL apart to CL/ML and weekly off..? Under which section of Company Act justify annual leave is must..

  5. Keep a provision in code which compel all employers who have registered under various social security acts and obtained licenses to employ contract labour / part time or fixed term employees to submit monthly returns of their employees who left/retired/resigned/terminated regarding the full and final settlement/release of pension/compensation within a stipulated period. Though PF and ESI Acts contain a provision of monthly/yearly returns to be submitted, there is no compulsion to specify the eligible amounts paid details with proofs.

    It is so essential, as it is the general practice of private employers /contractors to avoid all or some benefits under the laws which now govt. wants to combine in the form Code of Social Security 2020. In future, if such provision is there, any aggrieved employee can approach the authority appointed under the code with proper documents for their rightful claims. Otherwise, an individual employee cannot fight with such erring employers and lose lot of their legal entitlements.

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