INTRODUCTION

Population wise we can consider the fact then India is one of the largest countries. One very
important fact that we can also consider is that India comes under the category of developing
countries and the benefits that are provided to the people working in the unorganised sector is
not even bare minimum in other words the social security provided to the people working in
the unorganised sector is very few.

When we talk about social security, it shall be taken in regards without the refence of the
sector people are working or employed in; as social security is very basic need in human life.
Social security is a necessity that shall be provided by the government to the people of its
country to help them to sustain their life in a dignified manner and cope with the various
eventualities that a person comes across in every walks of life.

One can easily point out that one of the major problems with labour legislations in India is
that unorganised sector is neither well defined nor it finds any type of specific identifications.
In casual terms we can say that unorganised sector is one which falls out of the purview of
the organised sector and hence proper identification and recognition is not accorded to it.

Why Social Security?

As a country where legislations in favour of labours have not been very helpful but more of
exploitative and where the economic situation has mostly been poverty ridden with maximum
number of workforces, the requirement for social security among the people who contribute
to the largest strata in the population was very much essential. The legislations of India in
many ways have proved beneficial for the upgradation of women, child and labour but also in
matters of social security labour legislations were most needed.

What is the context to bring the code?

The codification of labour laws was recommended by the 2nd National Commission on
Labour (2002) The labour ministry, accordingly, is in the process of amalgamation of labour
laws (Total 44 in number) into four codes namely code on wages, Code on industrial
relations, social security and safety code, and Code on health and working conditions.1

1
Report of the 2nd National Commission on Labour, Ministry of Labour and Employment, 2002
The Social Security Code, 2019 is one of the four labour codes approved by the Cabinet for
the reform. The initiative is said to bring much-needed reforms in the archaic regime.

The Code consolidates

(i) The Employees Compensation Act, 1923,

(ii) The Employees State Insurance Act, 1948,
(iii) The Employees Provident Fund and Miscellaneous Provisions Act, 1952,
(iv) The Employees Exchange (Compulsory Notification of Vacancies) Act, 1959,
(v) The Maternity Benefit Act, 1961,
(vi) The Payment of Gratuity Act, 1972,
(vii) The Cine Workers Welfare Fund Act, 1981,
(viii) The Building and Other Construction Workers Cess Act, 1996, and
(ix) The Unorganized Workers’ Social Security Act, 2008.

What is interesting here to note is, that the provisions under the new code i.e. the code on
social security has the provisions similar or in sync with the current legislations and not much
of drastic changes have been introduced but nonetheless several legislations have been
amalgamated into one we will have to see how effectively does it works. As the hard
conditions that the whole world is going through of the pandemic now the employers are
required to follow the instructions under various laws, with this we can keep a hope that the
code will have a positive impact on the labour workforce.

The effectiveness will mainly depend on how much willing are the employers coupled with
awareness, and when they come forward to abide by the code then the improvisation of the
labour force will take place and basic and necessary social security which are deserved by all
of them especially to the unorganised sector workers will be provided and hence a new ray of
hope which this code assures could be achieved.

Awareness of the key changes under the Code coupled with a willingness by empl0yers
to tailor their policies and infrastructure to comply with the revised legislation are
expected to provide basic social security to the hitherto neglected unorganised workers
while fostering business growth. 2

2
Raj Ramachandran and Ms Rakki K are Partners at J. Sagar Associates.
Key Changes (Additions & Deductions) in the Code.

WAGE

Existing definitions in the current/previous legislations:

Provident Fund
Includes – Basic, DA, Retaining Allowance and cash value of food concession
Excludes – HRA, overtime allowance, bonus, commission or any other similar
allowance. Test of universality specified by the Supreme Court in February 2019

ESI
Includes – All remuneration paid in cash
Excludes – Perquisites, Employer PF / ESI contributions, LTA, sum paid to defray
special expenses and gratuity

Maternity Benefit Act

Includes – Basic salary, dearness allowance, HRA, other cash allowances, incentive
bonus, value of food grains and other articles
Excludes – Other than incentive bonus, overtime wages, employer contribution to PF
and gratuity

Gratuity
Includes – Basic salary and Dearness Allowance
Excludes – Bonus, Commission, HRA, overtime wages and any other allowances

Employee Compensation Act

Includes – Any privilege or benefit which is capable of being estimated in money
Excludes – Travelling allowance or value of any travelling concession, employer PF
contributions and sum paid to workman to cover special expenses

Additions: This term under the code on social security has got a widened view and object.
Wage: Means all remuneration whether by way of salaries, allowances or otherwise,
expressed in terms of money or capable of being so expressed which, in terms of
employment, express or implied, where fulfilled, be payable to a person employed in
respect of his employment, and includes 3
• Basic pay;
• Dearness allowance; and
• Retaining allowance, if any.

A significant change in the definition of 'wages' is the inclusion of a proviso which

essentially provides that if the excluded components (other than retirement benefits such
as gratuity) exceed 50% of all remuneration paid, then the amount in excess of this 50%
will be deemed to be 'wages' so that the wage portion remains at the 50% level. 4

“Deductions/Exclusions : Value of house accommodation and utilities (such as light,

water, medical attendance, etc.);
• Employer contribution to provident fund / pension together with accretions;
• Conveyance allowance or value of travelling concession;
• Sum paid to defray special expenses due to nature 0f work;
• House rent allowance;
• Remuneration payable under any award settlement;
• Any overtime allowance;
• Any commission payable;
• Any gratuity payable on termination;
• Any retrenchment comp/ benefit payable or ex gratia payment made 5”

Value of remuneration in kind, where an employee is given remuneration in kind

• in lieu of either the whole or part of the wages payable t0 him

3
Mahendra Kumawat, B.Sc., LLB, https://taxguru.in/corporate-law/payment-wages-lock-down-workmen-legal-
analysis.html
4
India: Consolidation or Reform, You Decide – Government Introduces Code on Social Security, 2019 In
Parliament, 17 December 2019 by Anshul Prakash and Deeksha Malik.
5
Code on Social Security and allied laws December 2019, Tapati Ghose Saraswathi Kasturirangan Radhika
Viswanathan
• value of such remuneration as does not exceed 15% of t0tal wages payable to him.
Shall be deemed to form part of wages of such employee.”

Employer

Current provisions:

PF: Employer does not include contractor;

ESl: Separate definitions for principal and immediate (contract) employer – employed
on the work of or connected to the work of, reference to place work is performed.

Employer is basically a person who employs directly or through any person or on behalf
of any person one or more employees in his establishment.

Addition : And under the new code the term employer now included a Contractor as
well. However, it does not define who is a contractor or who can be a contractor but
nonetheless now contractor is also covered under the meaning of an employer which
will result in benefitting the employees employed by him. 6

Employee
Addition : Under the said code now Contract Labour also finds a mention under the
meaning of the term employee. Which means that now even contract labours will also
be considered as employees and hence the benefits will be extended to them also.

Deduction : the definitions of employee has n express exclusion of Apprentice. The code
makes a specific mention and very particular bout it that now apprentice shall not be
included within the ambit of an employee.

Well several deliberations were made with respect of such exclusion that if the
apprentices are also included in the term employee then it would go on and increase the

6
The Code on Social Security, 2020, https://www.prsindia.org/billtrack/code-social-security-2020
burden on the employer, with that the object of the Apprentices Act, would also be
digressed.

In close observation we could notice that in the apprentice act itself it is clearly
mentioned that apprentice shall be taken as trainees and not workers so how could the
code include them within the meaning and hence any provisions relating to employees
shall not be applicable on apprentice.

2019 code did not include contract labours but 2020 code does, establishments which w0uld
otherwise not meet the threshold for the application of various chapters of Code 2020
may now do so if they have engaged contract labour, for say, ancillary activities such as
housekeeping and security. Second, while provisions relating to employees' provident
fund contribution (Clause 17), employees' state insurance fund contributi0n (Clause 31),
and employees' compensation (Clause 85) allow the entity engaging contract labour t0
recover any payments incurred in respect of such workers from the contractor
employing them, the chapter relating to gratuity does not have a similar provision,
hence being a cause of worry f0r the industry. 7

Fixed-term employment
Fixed term employment may allow employers the flexibility to hire workers f0r a fixed
duration and for work that may not be permanent in nature. Further, fixed term
contracts are negotiated directly between the employer and employee and reduce the
role of a middleman such as an agency or contractor. They may also benefit the worker
since the Code entitles fixed term employees to the same benefits (such as medical
insurance and pension) and conditions of work as are available to permanent employees.
This c0uld help improve the conditions of temporary workers in comparison with
contract workers who may not be provided with such benefits.

7
India: Labour Code 2020 – Parliament Passes The Code On Social Security, 2020, 29 September 2020, by
Anshul Prakash and Deeksha Malik. Khaitan & Co
However, unequal bargaining powers between the worker and employer could affect the
rights of such workers since the power to renew such contracts lies with the empl0yer.
This may result in job insecurity for the employee and may deter him from raising
issues about unfair work practices, such as extended work hours, or denial of wages 0r
leaves.
 
Further, the Bill does not restrict the type of work in which fixed term workers may be
hired. Therefore, they may be hired for roles offered to permanent workmen. Note that
the 2nd National Commission on Labour (2002) had recommended that no worker
sh0uld be kept continuously as a casual or temporary worker against a permanent job
for more than two years. 8
Addition : The Code provides that fixed-term employees shall be entitled to the same
benefits as the permanent employees, albeit proportionately. This is important fr0m
payment of gratuity standpoint as the fixed-term employee would be eligible to such
defined benefit proportionately notwithstanding that he / she has n0t completed the
requisite qualifying period of continuous service.

Unorganised Sector
Inclusion of Gig or Platform Workers
As we all know that the technology is booming and a lot of other changes in the modern
world the requirement of gig workers has increased. Not only the gig workers but the
platform workers, home based workers have also increased for example, like Ola, Uber,
Swingy etc.
A common thing seen in their case is that they are not organised in particular sector and
hence thy fall short of the benefits and more prone to not cope up with the difficulties,
in other words they are not very well equipped to mange the difficult conditions in their
life such as economic difficulties, retirements and prolonged illness etc. it is the need to
offer them with substantial securities.

8
India: The Report of The Second Indian National Labour Commission-2002: - - An Overview, 05 March 2003
by G Shivaji Rao
The 2020 Bill states that the central government will set up such a fund. Further, state
governments will also set up and administer separate social security funds for
un0rganised workers. The 2020 Bill also makes provisions for registration of all three
categories 0f workers - unorganised workers, gig workers and platform workers to
provide them with benefits in terms of housing, pensions, employment injury benefits,
skilling, funeral assistance, etc.

EPF & ESI

Current Legislation:
EPF: Provident fund and pension schemes only apply to certain scheduled
establishments employing 20 or more workers and to any other class of establishments
as may be notified by the government. The scheduled establishments include textile,
cement, electrical, iron and steel, and heavy chemical industries

Employees’ State Insurance (ESI): Applies to establishments hiring at least 10

employees. Benefits available to those earning up to Rs 21,000 per month.

Code: The Code requires all establishments with 10 or more employees, as well as,
those in hazardous sectors to mandatorily offer multiple benefits under ESI. All
establishments with 20 or more employees in any industry are required to offer EPF,
Employees' Pension Scheme and Employees Deposit Linked Insurance Scheme. If
organizations do not enrol employees to ESI or do not make contributions, then the
benefits that the employee is eligible for will be extracted from the employer. 9

Application of provisions relating to employees' state insurance

At present, the ESI Act applies to every establishment where at least 10 (or at least 20
in Maharashtra and Chandigarh) covered employees (that is, employees earning up to
INR 21,000) are employed.

9
India's Code on Social Security 2019 and Its Implications on Employee Compensation
By Swati ThakurOn January 23, 2020
As regards factories, the Employees' State Insurance Corporation (ESIC) has taken the
view that the ESI Act will apply, as soon as, 10 persons are employed, irrespective of
whether they are covered under the statute. However, the Supreme Court of India
10
(Supreme Court) held, in the case of ESIC v MM Suri that when the scheme of the ESI
Act is to provide certain benefits to 'employees' (as mentioned in the Preamble to the
statute), 'persons' employed should only mean 'employees' who are such persons who
fall within the wage ceiling. This difference in view taken by the ESIC and the Supreme
Court had caused significant confusion among employers.

The Code takes care of this issue by clarifying that the chapter on employees' state
insurance will apply only where there are 10 or more covered employees in the fact0ry /
establishment.
Organizations with less than 10 and 20 employees respectively can provide ESI and
EPF benefits voluntarily. The Code states that employees cannot opt for National
Pensi0n Scheme instead of EPF anymore as the new code offers them better benefits
under EPF.

Provident fund contribution on 'wages'

The EPF Act provides that the employees' provident fund contribution will be calculated
on basic wages, dearness allowance and retaining allowance. “In February this year, the
Supreme Court in Regional Provident Fund Commissioner (II) West Bengal v
Vivekananda Vidyamandir and Ors 11 “held that the allowances which are uniformly,
necessarily and ordinarily payable to all employees in a particular category will als0 be
included as part of 'basic wages'”
The Code goes a step further and provides that the employees' provident fund
contribution will be calculated on the 'wages' of the employees. However, the impact of
the change is likely to be limited to the employees drawing wages less than or equal t0
the wage ceiling to be notified by the Central Government under the Code.”

10
SC (1998) 8 SCC 111
11
Civil Appeal Number 6221 of 2011
Differential employees’ contribution to the Provident Fund
The Code proposes to reduce the employees’ contribution to the “Provident Fund from
12% to 10% in some sectors while leaving the employers’ contribution unchanged. It
als0 allows employees to voluntarily contribute a higher percentage. 12

The intent behind reducing the employees’ contribution rates is to improve spending
and consumption of employees to help the economic slump. So, employees will take
h0me larger pay checks, which makes it lucrative for those joining at the lower rungs of
the organization or starting out their career. However, employees will be spending at the
c0st of long-term savings.”

Recovery of employees' insurance fund contribution

Addition: The Code inserts a new provision whereby if any employer fails or neglects t0
(a) insure an employee; or (b) pay any contribution in respect of an employee, the
authority may pay the benefit to such employee and recover the benefit from the
employer to the extent of the 'capitalised value of the benefit' net of any payment 0f
principal amount, interest and damages paid by the employer.

Gratuity
Current Legislation: Payable on continuous service of five or more years in an
establishment.
Addition in the code : Earlier, gratuity was applicable only to employees wh0 were
employed with the organization for a continuous period of 5 years at the rate of 15 days’
wages per completed year 0f service. In cases 0f death, disablement, etc, the 5-year rule
could be exempted. The Code of Social Security, 2019 extends the gratuity benefits t0
contract workers who have worked for less than 5 years on a pro-rata basis. This
measure will impact the employer in terms 0f the costing of short-term projects.

12
India's Code on Social Security 2019 and Its Implications on Employee Compensation
By Swati ThakurOn January 23, 2020
Payment of medical bonus
The Maternity Benefit Act, while providing for payment of medical bonus of up t0 INR
3,500, also stipulates that the Central Government may increase the amount of medical
bonus subject to the maximum of INR 20,000.
Deductions : The Code, while mandating payment of medical bonus 0f INR 3,500,
removes the upper limit of INR 20,000.

'Inter-state migrant worker'

Code 2019 brought about a significant change in the definition of 'inter-state migrant
worker'. “The current Inter-State Migrant Workmen (Regulation 0f Employment and
Conditions of Service) Act, 1979 is applicable only in cases where a migrant w0rker has
been engaged by an establishment through a contractor. However, the said code
widened the protection net by including even a migrant worker directly recruited by an
entity in 0ne state for employment in an establishment in another state.”

Code 2020 defines 'inter-state migrant worker' “along similar lines and clarifies that a
worker who belongs t0 one state and has obtained employment in an establishment in
another state (without being routed through an intermediary) would also be an inter-
state migrant worker and protected as an unorganised worker. That said, it has als0 been
provided that a person would be considered as inter-state migrant worker if they are
drawing wages not exceeding INR 18,000 per month or such higher amount as may be
notified by the Central Government from time t0 time.”

Career centres and compulsory notification of vacancies

As opposed to 'employment exchanges' set up under the Employment Exchanges Act,
“the Code envisages setting up of career centres which would collect and furnish
information relating not only to persons who seek to employ employees or persons wh0
seek employment, but also to persons who seek vocational guidance or guidance t0 start
their own ventures. Further, unlike the Employment Exchanges Act which applies to
only such establishments in the private sector which employ 25 0r more persons, the
Code requires notification 0f vacancies to career centres by every establishment. ”
Enhanced penalties for violations
The existing legislations proposed t0 be repealed by the Code prescribe varied penalties
for violations. “While most of the legislations provide for fine as well as imprisonment,
some legislations (such as the Employee's Compensation Act) only prescribe fines.
Further, the range of fines that may be imposed also varies, ranging from maximum 0f
INR 5,000 under the Maternity Benefit Act to a maximum of INR 1,00,000 under the
Employee's Compensation Act.
The Code imposes stringent penalties in case of a contravention of any provision
thereof. Further, in respect of a subsequent offence of failure t0 pay contributions,
charges, cess, maternity benefit, gratuity or compensation committed by an employer,
the employer is punishable with a minimum imprisonment of 2 years which may extend
t0 5 years and also a fine of INR 3,00,000. 13””

Provisions for compounding of offences

None of the existing legislations sought to be repealed by the Code provide for an
0ption of compounding of offences. Although few state-specific amendments have
introduced compounding of offences under some 0f the said legislations (for instance,
Gujarat allows for compounding 0f certain offences under the Gratuity Act), an option
for compounding that is applicable across states does not exist in the provisions of the
Central legislations.
The Code has introduced an option of compounding 0f any offence which is not
punishable with imprisonment only / imprisonment and fine.

Further, it may be noted that an application for compounding can be made before or
after the initiation of prosecution in relation to the offence committed. Such
compounding may be allowed by the officer authorised by the government in this
regard, and it can be made before or after the initiation of prosecution in relation to the
offence committed.

However, such an opportunity for compounding is not available to an employer for the
second time or thereafter within a period of 5 years from the date of either;

13
Consolidation or reform, you decide - Government introduces code on social security, 2019 in Parliament
Khaitan & Co
 (i) commission of a similar offence which was earlier compounded; or (ii) commission
of a similar offence for which such person was earlier convicted

Exemptions

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 security14

Challenges to the Code 15

 At the draft stage of social security code, there was a provision for giving an
option to switch from EPF (Employees Provident Fund) to NPS (National
Pension System) and there was an option to exit ESIC (Employees State
Insurance Corporation).
 There has been demand asking these two options to be taken out of the bill and
laws. If this kind of options are taken out, then probably, the same old structure
will continue.
 In terms of social security product market, there is tremendous fragmentation,
particularly in the products that depend on their insurance components. The
fragmentation only works against the interest of the workers.
 Interoperability or convergence of the social security product is a fundamental
reform.

14
[Burning Issue] The Code on Social Security, 2019, https://www.civilsdaily.com/burning-issue-the-code-on-
social-security-2019/
15
[RSTV The Big Picture] Code on Social Security Bill, 2019, https://www.iastoppers.com/rstv-big-picture-code-
social-security-bill-2019/
Conclusion

While it is clear from the above that there is a concerted effort on part of the Ministry t0
ensure that the Code conforms to social realities and accounts for practical
considerations to be made for its operation, the Standing Committee has adopted a more
long-term visi0n with idealistic goals such as universalization of social security. It is my
opinion that in this situation it is imperative that the reforms in the Code be introduced
with the scheme provided by the Ministry so that its implementation phase can begin
and related issues may be addressed. It is only after this that the goals mentioned by the
Committee can begin t0 be addressed through incremental changes in policy as well as
legislation.

Other laws – like the Maternity Benefit Act, Payment of Gratuity Act, Employee’s
Compensation Act, have their basic provisions intact; but each has been incorporated as
Chapters in the Code. It is like clubbing provisions of existing acts into a code without
any major tinkering. Hitherto Acts now become chapters. This is simplification t0 a
certain extent. However, it seems an opportunity is lost, as elements of social security
could have been interwoven int0 a holistic social security legislation. The draft Code in
its current form appears like a collection of existing legislations without any thread of
meaningful integration

To sum up, the draft Code is an amalgamation of existing legislations. Universalisation

0f social security across sectors as a legislative right has not been explicitly
incorporated. It gives hints, but ultimately skirts the matter and trivialises the existing
pr0visions. Suggestions of corporatisation of social security funds is regressive, given
the present state of being. Provision of social security could have been used towards the
formalisation of workforce t0 a certain extent, but that is disappointingly missing in the
Code.

Employers should be made t0 own up to the reality that they have responsibility in
providing social security to their workers. The state has a responsibility, but the primary
responsibility still lies with employers as they are the 0nes taking advantage 0f the
workers’ productivity.
The state can provide the basic ecosystem, but labour market relations should prevail in
specific micro contexts. The state also has financial constraints.
At the end, this Code remains a collage 0f existing legislations without a comm0n link.
It provided hints 0f progression, but stops short of attaining those aspirations. It
promises, but can hardly meet expectations.