INTRODUCTION1

Revamping labour regulations has been an area of focus for the government. The objective is to
consolidate and simplify the multitude of labour regulations into four labour Codes – the Code
on Wages, Social Security, Industrial Relations and Occupational Safety and Health, subsuming
29 existing regulations.
The Code on Social Security 2020 (Code), which received the Presidential Assent on 28
September 2020, subsumes nine regulations relating to social security, retirement and employee
benefits, such as (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). The effective date of
implementation and the issue of relevant schemes is awaited.
This Code is far from being a mere consolidation of previous legislations. It has enhanced the
coverage, extended the benefit to all workers in the organised / unorganised sectors, introduced
concepts of providing maximum benefits under minimum governance and reflects uniformity in
approach across the four labour codes.

1
https://www.financialexpress.com/money/the-code-on-social-security-2020-how-will-this-new-labour-code-benefit-
employees-workers/2098269/

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SALIENT FEATURES OF THE CODE ON SOCIAL SECURITY, 20202

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

2
https://www.simpliance.in/blog/code-on-social-security-2020/

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 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.

Section 2 (19)3 "contract labour" means a worker who shall be deemed to be employed in or
in connection with the work of an establishment when he is hired in or in connection with such
work by or through a contractor, with or without the knowledge of the principal employer and
includes inter-State migrant worker but does not include an employee (other than part time
employee) who is regularly employed by the contractor for any activity of his establishment and
his employment is governed by mutually accepted standards of the conditions of employment
(including engagement on permanent basis), and gets periodical increment in the pay, social
security coverage and other welfare benefits in accordance with the law for the time being in
force in such employment;

Section 2 (78)4 "social security" means the measures of protection afforded to employees,
unorganised workers, gig workers and platform workers to ensure access to health care and to

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THE CODE ON SOCIAL SECURITY, 2020
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THE CODE ON SOCIAL SECURITY, 2020

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provide income security, particularly in cases of old age, unemployment, sickness, invalidity,
work injury, maternity or loss of a breadwinner by means of rights conferred on them and
schemes framed, under this Code;

INCLUSION OF CONTRACT LABOUR IN THE DEFINITION OF

'EMPLOYEE'5

Under Code 2019, the definition of 'employee' did not include contract labour hired through a
third-party manpower services provider within its ambit. However, the definition of 'employee'
as set out in Code 2020 covers such contract labour as well.

Such inclusion of contract labour has two important implications. First, establishments which
would 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 contribution (Clause 31), and employees'
compensation (Clause 85) allow the entity engaging contract labour to 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 for the industry.

SOCIAL SECURITY FOR UNORGANIZED WORKERS6 

The Bill proposes setting up a social security fund using corpus available under corporate social
responsibility. This fund will provide welfare benefits such as a pension, medical cover, death
and disablement benefits to all workers, including gig workers, platform workers, and
unorganised workers. 
The draft code says 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” [Section 109].

5
https://www.mondaq.com/india/government-contracts-procurement-ppp/989030/labour-code-2020-parliament-passes-the-
code-on-social-security-2020
6
https://blog.ipleaders.in/analysis-code-social-security-2019/

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Unorganised workers include home-based and self-employed workers. While framing of
schemes, the draft says the states may also formulate and notify suitable initiatives for
unorganized workers, including schemes relating to provident fund, employment injury benefit,
housing, educational scheme for their children, old age and funeral assistance. 
Bulk of India’s labour force is in the informal sector and a move looks forward looking but most
of the key initiatives it suggests may be the decision of the states with little contribution from the
centre. There may be unorganized sector social security boards at the centre and state levels.
Ensuring that such employees are covered under the social security regime, is noteworthy as
otherwise this population may end up without coverage. 

BENEFITS FOR GIG WORKERS

Millions of the gig workforce in India, often referred to as lonely in the workplace, may soon get
life and disability insurance, health and maternity benefits among others. Gig workers refer to
workers outside of the traditional employer-employee relationship (e.g., freelancers). Platform
workers are workers who access other organisations or individuals using online platforms and
earn money by providing them with specific services, including the Ola and Uber drivers.
Though the exact number of gig workers are unknown as they are still figuring out whether they
are formal workers or informal workers or independent entrepreneurs, a 2017 study by
consulting firm EY has said that nearly one out four gig workers in the world are from India.

As per the draft social security code, the “Central Government may formulate and notify, from
time to time, suitable social security schemes for gig workers and platform workers” and such
schemes would encompass issues like “life and disability cover”, “health and maternity benefits”
, “old age protection” and “any other benefit as may be determined by the Central Government”
[Section 114].

CORPORATIZATION OF SOCIAL SECURITY ORGANISATIONS 

The Code provides for the establishment of several bodies to administer the social security
schemes. These include: 

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 1. A Central Board of Trustees, headed by the Central Provident Fund Commissioner, to
administer the EPF, EPS and EDLI Schemes,
2. An Employees State Insurance Corporation, headed by a Chairperson appointed by
the central government, to administer the ESI Scheme,
3. National and State-level Social Security Boards, headed by the central and state
Ministers for Labour and Employment, respectively, to administer schemes for
unorganised workers, and
4. State-level Building Workers’ Welfare Boards, headed by a Chairperson nominated
by the state government, to administer schemes for building workers. 

The pension, insurance and retirement saving bodies including Employees’ Provident Fund
Organisation (EPFO) and Employee State Insurance Corporation (ESIC) will be body corporate.
The word ‘body corporate’ has been added [Section 5] in the draft and may bring in a departure
from the current autonomous body status of such an organization. The draft also talks about
appointment of chief executive officers (CEOs) in these organizations indicating that the labour
minister, labour secretary, the central PF commissioner and Director General of ESIC may not be
by default the head of such organizations. It means the EPFO may become a more structured
national body with its entire Rs. 11 trillion corpus under the responsibility of a central
government-appointed chairman. Currently EPF is headed by the labour minister chaired by the
central board of trustees. The Central Government shall also appoint a Financial Advisor and
Chief Accounts Officer to assist the Chief Executive Officer in the discharge of his duties.

MATERNITY BENEFIT 
The draft says 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 to say, the period immediately preceding the
day of her delivery, and any period immediately following that day [Section 60].

For the purposes of this subsection, ―the average daily wage means the average of the woman’s
wages payable to her for the days on which she has worked during the period of three calendar

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months immediately preceding the date from which she absents herself on account of maternity,
subject to the minimum rate of wage fixed or revised under the Code on Wages, 2019. 

GRATUITY FOR FIXED-TERM CONTRACT WORKERS 

Currently, workers are not entitled to gratuity before completing five years of continuous service.
The bill says that fixed-term contract workers will be eligible for gratuity on a pro-rata basis. It
proposes to offer gratuity to fixed term employees after one year of service on a pro-rata basis as
against the current practice of five years [Section 55]. 

PENAL PROVISIONS 
The code intends to provide penalties, and the severity of the same will be based on the nature of
the offence. For e.g. failure to pay employees’ contributions attracts a fine of Rs 50,000 (in the
first instance) and a prison term that could extend to six months. However, if the contributions
have been deducted from employees’ wages and not remitted, this is viewed more seriously.
Here the fine is double the amount (Rs 100,000) coupled with a minimum imprisonment period
of one year and could range up to three years. Falsification of reports is punishable with
imprisonment of up to six months [Section 135].

The messaging clearly seems to be that the benefit to employees should not be compromised and
acts as a deterrent to the employer from any non-compliance. 

INSPECTIONS AND APPEALS 

The appropriate government may appoint Inspector-cum-facilitators to inspect establishments
covered by the Code, and advise employers and employees on compliance with the Code.
Administrative authorities may be appointed under the various schemes to hear appeals under the
Code. For instance, the appropriate government may notify an appellate authority to hear appeals
against the order of the Inspector-cum-facilitator for non-payment of maternity benefits. The
Code also specifies judicial bodies which may hear appeals from the orders of the administrative
authorities [Section 122]. 

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ANALYSIS
The government's move to finally consolidate the law on social security and making
improvements over the previous version of the labour bill appears well intended. However, when
the earlier draft was sent to the Standing Committee on Labour 2019-2020, several employers'
associations had hoped that the government would revisit its move of requiring 'wages' to be at
least 50% of the remuneration and making the same as the basis for social security contributions.
Similarly, including contract labour within the purview of the term 'employee' may have onerous
implications especially for smaller establishments which may otherwise not be covered under a
particular chapter of Code 2020 but may now be so covered due to engagement of some contract
workers especially when the immediate employer of such contract workers would be covered /
registered and be required to contribute.
As regards fixed term employment, several employers have expressed their concerns over the
government extending minimum tenure benefits to fixed term employees which are otherwise
payable only upon completion of a certain service period. Perhaps, the government could have
referred to the approach followed by other jurisdictions, which involves placing restrictions on
the number of renewals of fixed term contracts and / or limiting their use only to tasks of a
temporary nature (by using certain objective criteria). Such approach would have allowed
genuine fixed term employment arrangements to be drawn up according to business requirements
without the relevant employer worrying about provision of benefits which are otherwise a
function of service continuity.
It would have been ideal if the government had released the draft of the revised bill for public
comments as has been the tradition and general practice. A consultative approach would have
enabled the government to address specific concerns of the industry and other stakeholders
especially during the present challenging times and given the sensitivity and potential impact on
the country's organized and unorganised workforce that the subject matter of the bill entails.

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CASE LAW
In Food Corporation of India v. Provident Fund Commissioner 7 the appellant had depots,
located at various places in Rajasthan for handling, storing and transporting food grains and
other articles. It had appointed contractors for execution of such works and they in turn engaged
some workers. In respect of such workers the provident fund commissioner called upon the
corporation to deposit contribution payable under the Employees' Provident Fund Act and
schemes framed thereunder. When there was non-compliance, the commissioner made an order
under section 1A of the said Act determining the amount payable by the corporation. It was held
that though the employer and the contractors are both liable to maintain registers in respect of the
workers employed, yet the question is whether the commissioner who is a statutory authority has
exercised powers vested in him to collect the relevant evidence before determining the amount
payable under the said Act. It would be a failure to exercise the jurisdiction particularly when a
party to the proceedings requests for summoning evidence from a particular person and which is
not accepted.
In P.M. Patel and Sons v. Union of India8 the petitioners were engaged in manufacture and sale
of beedis. They have their factories which are the formal establishments. The work of rolling
beedis is entrusted by the manufacturers either to workers directly employed by -them or through
contractors and the workers prepare beedis at home after obtaining supply of raw materials either
directly from the manufacturers or through contractors, as the case may be. Alternatively the
work is by independent contractors who treat the workers as their own employees and get the
work done by them either at their own premises or in the dwelling homes of the workers in order
to fulfill and complete the contract entered into with the manufacturers for the supply of finished
product from the raw material supplied by the manufacturers to the contractors. In the case of a
contract between the manufacturers and independent contractors, the manufactured product is
collected by the contractors from the homes of workers and delivered to the manufacturers. The
manufacturer is concerned only with payment under the contract to the contractors and the
payment of wages to the home workers is a matter between the contractors and the home
7
1990) S.C.C. (L&S) 1
8
1986) S.C.C. (L&S) 155

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workers. The Supreme Court held that a home worker is involved in an activity connected with
the work of the factory. The words, "in connection with" in the definition of "employee" in
section 2(f) of this Act should not be confined to work performed in the factory itself as a part of
the total process of the manufacture.77 Therefore, the provisions of this Act and schemes can be
applied

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.

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BIBLIOGRAPHY

 Goswami, V.G., Labour and Industrial Law, 2004 Central Law Agency, Allahabad

 https://www.mondaq.com/india/government-contracts-procurement-ppp/989030/labour-
code-2020-parliament-passes-the-code-on-social-security-2020

 https://blog.ipleaders.in/analysis-code-social-security-2019/

 https://www.simpliance.in/blog/code-on-social-security-2020/

 https://www.financialexpress.com/money/the-code-on-social-security-2020-how-will-
this-new-labour-code-benefit-employees-workers/2098269/

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