Overview
The Code on Social Security, 2020 is a comprehensive law aimed at unifying and updating India’s social security legislation. It consolidates nine existing laws related to social security and employee benefits, including: the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952; Employees’ State Insurance Act, 1948; Maternity Benefit Act, 1961; Payment of Gratuity Act, 1972; Employees’ Compensation Act, 1923; Employment Exchanges Act, 1959; Cine Workers Welfare Fund Act, 1981; Building and Other Construction Workers Cess Act, 1996; and the Unorganized Workers’ Social Security Act, 2008. By merging these, the Code aims to create a uniform legal framework for retirement and insurance benefits, and also to extend coverage to workers in the unorganized and gig economy who were not fully covered before. The Code on Social Security (CSS) was passed by Parliament in September 2020. Like the other new labor codes, it is expected to come into effect once central and state rule-making is completed.
Key Features and Coverage
The Code on Social Security, 2020 expands the notion of social security to encompass all types of workers – organized, unorganized, self-employed, and gig/platform workers:
• Provident Fund (PF): The Code continues the mandatory provident fund system for establishments over a certain size (the threshold under the old Act was 20 or more employees). It retains the structure of employee and employer contributions (likely still around 12% each of wages) to a provident fund, which provides lump-sum retirement savings. The Code defines “wages” uniformly (aligned with the Wage Code’s definition), which may affect PF contribution calculations (some allowance components might become includable). The provisions allow the government to extend PF coverage to new classes of workers and potentially tweak thresholds via notification.
• Employee State Insurance (ESI): Similarly, ESI under the Code will be available to establishments above a certain employee count (10 or as notified) and to employees below notified wage limits, as was under the ESI Act. However, the Code enables the extension of ESI benefits to the unorganized sector and gig workers if the government decides to formulate schemes for them. This means in the future, platform workers (like rideshare drivers or food delivery personnel) might also be given health insurance coverage through ESIC-like schemes, funded through contributions from their aggregators or state funds.
• Gratuity: The Payment of Gratuity Act’s provisions are carried into the code. That is, a lump-sum gratuity is payable to employees who leave after at least 5 years of continuous service (with exceptions for death or disability where it’s payable even if shorter). The formula remains 15 days’ wages for each completed year of service, subject to a wage ceiling for calculation (which as of now is ₹20 lakh maximum payout exemption in tax terms, but the Code allows the government to notify ceilings). Importantly, the Code introduces the idea that fixed-term employees (those on a contract of a fixed duration) are entitled to gratuity on a pro-rata basis even if they don’t complete 5 years (because their contract is for a defined period). This is a new inclusion to protect the growing number of fixed-term contract workers.
• Maternity Benefit: Women employees will continue to enjoy maternity leave and other benefits as per the Maternity Benefit provisions in the Code. This essentially mirrors the Maternity Benefit Act, 1961 as amended in 2017 (which provided 26 weeks of paid maternity leave for eligible female employees, creche facilities in larger establishments, nursing breaks, etc.). The Code doesn’t reduce any benefit; if anything, it ensures these benefits can be extended to all women, including those in the unorganized sector through specific schemes.
• Employee Compensation: Workers who suffer injury or death arising out of and in the course of employment are entitled to compensation (earlier known as Workmen’s Compensation). The Code carries this forward, ensuring employers are liable to pay compensation for workplace injuries or occupational diseases to employees not covered by ESI (if ESI covers them, then ESI scheme provides). It also retains the requirement for certain employers to purchase Compulsory insurance for their liability (or it may allow the ESIC to provide such insurance).
• Gig and Platform Workers: A novel feature of the Code is the explicit recognition of gig workers and platform workers – those who work freelance or for digital platforms (like Uber, Swiggy, etc.), as well as unorganized workers (like domestic help, self-employed artisans, etc.). The Code envisages setting up social security schemes for these categories. For instance, a platform worker might get certain insurance or provident fund-like benefits financed through a combination of state funds and contributions from the platform companies (there is a provision for a social security fund where aggregators contribute a percentage of their turnover). This is an evolving area, and specifics would be in the rules or separate schemes, but the inclusion itself is a major step to widen the safety net beyond traditional employment.
• National Social Security Boards: The Code provides for the constitution of a National Social Security Board at the central level (and similar boards at state levels) for unorganized workers, gig workers, and platform workers. These boards will recommend and monitor schemes for these sectors, like life and disability cover, health and maternity benefits, old age protection (pensions), etc. This institutional framework is meant to continuously improve and oversee social security delivery to informal sector workers.
Compliance and Contributions
For employers in the organized sector, much of the compliance under the Code on Social Security will be similar to existing obligations under EPF, ESI, etc., but potentially unified and digitized:
• Registration: Establishments which fall under the criteria (e.g., having 10 or more employees for ESI, 20 or more for PF, or any that opt in voluntarily) must register with the appropriate authority and obtain a registration number (likely a single unified registration for all social security schemes). The Code mentions an obligation for every eligible establishment to register within a prescribed time, electronically if the facility is there. The idea is one establishment code could cover all schemes.
• Contributions and Deductions: Employers will continue to deduct employees’ contributions for PF and ESI from wages and contribute their own share. These amounts have to be deposited to the notified funds (EPF to EPFO, ESI to ESIC) by due dates to avoid penalties. The Code streamlines the ability to prescribe rates and thresholds via schemes or rules, but initially it is expected to remain the same (for instance, PF 12% each, ESI 4% combined at current rates) until changed. Also, for gratuity and maternity benefits, though there’s no periodic contribution, employers must provision for these costs (for example, many employers purchase group gratuity insurance or set up gratuity funds to ensure funds are available when needed). Under the Code, inspectors-cum-facilitators will oversee that contributions are correctly calculated on the proper definition of wages.
• Unified Returns: An important ease-of-compliance measure in the Code is the possibility of unified annual or monthly returns for multiple benefits. Instead of separate filings to EPFO, ESIC, etc., the government may allow combined filings. Also, electronic maintenance of records (like employee registers with details relevant to all social security) is encouraged. Employers should be prepared to furnish information about their workforce, such as number of employees, wages, contributions deducted, etc., in whatever consolidated format is prescribed.
• Employee Onboarding and Exits: HR will need to ensure that every new joiner’s details are updated for social security. For PF, generating a Universal Account Number (UAN) or linking an existing UAN, and for ESI, generating the Insurance Number (or using an existing one) will remain essential steps. When employees leave, ensuring their claims (PF withdrawal, gratuity payment, etc.) are processed timely is part of compliance and good practice. The Code may also mandate more clear communication to employees about their entitlements and how to access them.
• Inter-state Migrant Workers: One of the laws merged (Inter-state Migrant Workmen Act) gets subsumed, but the Code still calls for tracking and benefits for migrant workers. Employers who hire workers from other states might have to report such employment and ensure portability of benefits (so that a worker from State A working in State B’s factory can still get PF/ESI benefits seamlessly). UAN and aadhar linking will facilitate this. The Code emphasizes portability – benefits like ESIC and EPF are already nationally portable, and this continues.
As for legal implications, non-compliance with the Code on Social Security can attract penalties such as fines and even imprisonment (for serious defaults like evading PF contributions). For example, failure to deposit employee contributions which the employer deducted is treated strictly (under EPF Act it was an offence, likely under the Code as well). But the Code also provides some flexibility, like compounding of certain offences and an inspector-cum-facilitator approach (meaning inspectors will guide for compliance in the first instance).
Employers should watch the notification of rules under this Code. Once active, companies might have to adjust certain practices, such as factoring in the new wage definition for PF/ESI contributions, enrolling fixed term employees for gratuity, or budgeting for contributions to any new funds (for gig workers, if they fall in the aggregator category). The Code on Social Security, 2020 thus modernizes the social security net and is a significant move towards universal social protection in India’s labor market.
