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Social Security Code, 2020: A Primer

The Code on Social Security 2020 (“Code”) along with the Codes concerning Industrial Relations and Occupational Health, Safety and Working Conditions will mark completion of the quadrilateral reform of Indian labour laws which commenced with the passage of the 2019 Code on Wages. The Code has been recently passed by the parliament. The ethos of the Code can be ascertained from the preamble along with the definition of “social security” (under Section 2(78)) as being to enhance the existing legal framework through amalgamation while directing measures to afford protections to (a) employees, (b) unorganized workers, (c) gig workers, and (d) platform workers; with respect to their health care and income security.

Apart from amalgamation of 9 (nine) legislations into one comprehensive framework to enable transparency and accountability in its implementation, the code focusses on social security offerings for the unorganized workers to frame and notify welfare schemes encompassing: (i) life and disability cover; (ii) health and maternity benefits; (iii) old age protection; (iv) education; and any other benefits; whereas the State Government shall frame and notify schemes relating to (i) provident fund; (ii) employment injury benefit; (iii) housing; (iv) educational schemes for children; (v) skill upgradation of workers; (vi) funeral assistance; and (vii) old age homes.

The code enables demarcation of one or more funding sources for schemes which may be either wholly funded by a concerned government or partly funded through contributions collected from beneficiaries of the scheme or the employers including as corporate social responsibility under the Companies Act, 2013, etc.. The code seeks to classify social security schemes and compliances on the basis of thresholds i.e Chapter III on Employees’ Provident Fund applicable on establishments with 20 or more employees, Chapter IV on Employees’ State Insurance Corporation is applicable for establishment having 10 or more employees or establishment carrying on hazardous or life-threatening occupations; and Chapter V for Gratuity will be applicable to every factory, mine, oilfield, plantation, port and railway company and every shop or establishment having 10 or more employees on any day of the preceding twelve months.

The Code also introduces an opt-in and opt-out options for establishments Employees’ Provident Funds (“EPF”) and Employees’ State Insurance (“ESI”) wherein an establishment can opt-in for or opt-out of the applicability of the Chapters if agreed with majority of employees and with approval of the competent authority.

The key features of the Code are as follows:

  • Gratuity shall be payable to an employee on the termination of employment after having rendered continuous service for not less than five years on termination of contract period under fixed-term employment.

  • Compulsory insurance can be obtained by the employer from any insurance company regulated by the Authority as defined under the IRDA Act, 1999.

  • Medical bonus towards maternity benefits enhanced from one thousand rupees to three thousand five hundred rupees.

  • Employers liability towards compensation for the death of a worker and accidents occurring while commuting from residence to place of employment or vice versa.

  • Mandatory registration for unorganised workers’ social security.

  • Reporting of vacancies to employment exchanges/career centers by private establishments with more than twenty employees.

It is pertinent to mention that the term “employee” has on one hand been defined in the Code at Clause 2 (26) however the provisos to the definition carve our variation in the scope of the term ‘employee’ applicable to EPF and ESI related chapters wherein the terms employee shall mean (a) such employee drawing wages less than or equal to the wage ceiling notified by the Central Government and includes such other persons or class of persons as the Central Government may by notification, specify to be an employee; and (b) for the purpose of counting of employees for the coverage of an establishment under the EPF and ESI chapters, the employees, whose wages are more than the wage ceiling so notified by the Central Government, shall also be taken into account.

The Code marks the much-needed change of regime to bring in simplification, transparency, and accountability in the labour and social security regime in India. While the employees seek to gain from the enhanced benefits and simplification, the employers benefit by a clearer regime enabling better governance and compliance as well as employers ability to better its effort towards employee benefits by use of CSR funds. The finer details of the applicability and modalities of the Code are still awaited with the formulation of the rules expected within this calendar year.

This article was originally published by AXFAIT:

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