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    Social Security Code, 2020: A Quick Overview

    December 29, 2022

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    An overview of Social Security Code, 2020, of the New Labor Codes in India

    The Government of India is set to implement a set of four labor codes aimed at streamlining and simplifying the labor regulations in the country. This article explores one of the codes, Social Security Code, and its underlying provisions.

    What is the Social Security Code of 2020?

    The Government of India has put together a plan to combine India's 44 labor laws into four codes. The intention is to make India's labor laws easier to understand and facilitate ease of doing business. To streamline and rationalize the existing laws, the Central Government has combined them under four Codes. Four Labor Codes now exist as a codification of the labor Laws. These have been categorized as follows:

    • The Code on Wages, 2019  
    • The Industrial Relations Code, 2020  
    • The Occupational Safety, Health and Working Conditions Code, 2020  
    • The Code on Social Security, 2020.

    The Code was passed in Dec. 2019, and on Jul. 31, 2020, the Parliamentary Standing Committee gave its report. After that, a new bill called the Code on Social Security, 2020 was introduced. Its goal is to make it easier to follow labor laws, cut down on the number of definitions, reduce the number of authorities under different laws, and make sure that the basic ideas of worker welfare and benefits are kept. Another important goal of the Code is to encourage the use of technology that makes it easier to follow the rules and enforce them.

    Collectively, these laws represent a significant overhaul of India's labor laws and are intended to provide greater protection and security to workers, while also promoting the growth and development of the country's economy.

    Which Laws Will Be Subsumed Under the Social Security Code of 2020?

    The Code on Social Security provides robust social security benefit provisions and combines, clarifies, and rationalizes the pertinent aspects of the following 9 central labor laws: 

    • The Employees’ Compensation Act, 1923 
    • The Employees’ State Insurance Act, 1948 
    • The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 
    • The Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959 
    • The Maternity Benefit Act, 1961 
    • The Payment of Gratuity Act, 1972 
    • The Cine Workers Welfare Fund Act, 1981 
    • The Building and Other Construction Workers Welfare Cess Act, 1996 
    • The Unorganised Workers’ Social Security Act, 2008 

    What Is the Applicability of the Social Security Code of 2020?

    With the intention of providing social security support to all employees and workers, whether in the organized or unorganized sector or any other sector, it has modified and consolidated the legislation relating to employee social security. By allowing for the registration of all types of workers, including gig and platform workers, the CoSS has broadened the scope of social security. 

    For the schemes, the Code sets several applicability levels. The EPF Scheme, for instance, will be applicable to businesses with 20 or more employees. The ESI Scheme will be applicable to specific businesses with 10 or more employees as well as to all businesses that perform hazardous or life-threatening employment as specified by the Central Government. The Central Government has the authority to change these limits. Unless they are already registered under another labor legislation, all eligible establishments must register under the Code.

    When Will the Social Security Code Come Into Effect?

    The Central Government will announce the date that the Code will go into effect and be operational in the Official Gazette. A single date may be set to make the entire Code operative, or various dates may be earmarked for implementing multiple provisions. State Labor Departments have started issuing draft rules concerning the Social Security Code of 2020, passed by the Central Government, and will shortly be put into effect.

    What Are the Key Provisions of the Social Security Code of 2020?

    The major provisions of the Code on Social Security are:

    1. Maintenance of records

    The employer of an establishment covered under the code must: 

    •    Maintain records such as wages paid, leave, attendance, and overtime, et al.   
    •    Issue electronic or paper slips for payments  
    •    File returns electronically or otherwise

    2. Employees’ Provident Fund (EPF)  

    •    The provisions of EPF will be applicable to every establishment with more than 20 employees.  
    •    Both the employer and the employee will need to contribute 10% of the wages of the employee to the provident fund.  
    •    The employee may contribute more than 10%, provided that the employer is not obligated to contribute more than 10% of the wages of the employee to the provident fund.  
    •    The Central Government can set this rate at 12% for any establishment or class of establishment

    3. Employees State Insurance Corporation (ESIC)  

    The Code widens the scope of applicability of ESIC and provides the option to organizations with less than 10 employees to be voluntarily covered under the scheme.    

    ESIC must be set up through contributions, grants, donations, et al., and may be used for payment of salaries, benefits, allowances, and provision of benefits like medical and gratuities. Every employee in an establishment must be insured, electronically or otherwise.

    4. Social Security Fund

    A Social Security Fund will be set up by the government to implement welfare schemes for unorganized workers. Organizations will be allowed to make contributions to these schemes as a part of their Corporate Social Responsibility (CSR) initiatives. Also, state governments will set up and run separate Social Security Funds for workers who are unorganized workers. The 2020 Code also has plans for registering all three types of workers: unorganized workers, gig workers, and platform workers.

    5. Registration and Compliance 

    The Code mandates that new business establishments need to obtain only one mandatory registration. Workers across all categories need to be registered through Aadhaar.

    6. Take-home salary and employer’s contribution to Provident Fund

    The new law will mandate that employees’ basic salary be at least 50% of their gross salary. As a result, employees will have to make larger contributions to the Provident Fund (PF) and gratuity, leading to reduced take-home salaries. However, the money received after retirement (social security component) will increase.  

    7. Benefits for fixed-term employees

    Fixed-term employees are eligible to receive all statutory benefits that permanent employees receive. If the service rendered is less than the qualifying period, such benefits shall be bestowed on them proportionately, according to the period of service.

    8. Maternity Leave and benefit  

    •    Increased maternity break for women of 26 weeks, of which not more than 8 weeks shall precede the expected date of delivery.

    •    Leave for 12 weeks for women who have adopted children aged under three months.   

    •    Compulsory creche facility at workplaces with 50 or more employees (Maternity Benefit Act, 2017).

    •    A woman who is already a mother of 2 children is eligible for 12 weeks of maternity leave if she has a third child. 

    •    For a woman employee to be eligible under for maternity benefit at the rate of the average daily wage for the period of her actual absence, she should have been working for 80 days in the current establishment in the last 12 months.

    • Medical bonus of Rs. 3,500/- or such amount as notified by the Central Government from the employer, if no free prenatal or postnatal care is provided by the employer.

    9. Gratuity

    According to the new rules, the gratuity amount will be calculated on a larger salary base, including basic pay plus allowances. Employers must make sure that basic pay makes up 50% of an employee's CTC (cost to the company) and that employee allowances, house rent, and overtime make up the remaining 50%. And if the company pays any additional allowances or exemptions that surpass 50% of the CTC, it will be recognized as remuneration.

    The minimum tenure requirement for withdrawal of gratuity has been reduced from 5 years to 1 year for fixed-term employees and will be done on a pro-rata basis.

    10.    Definition and role of ‘Aggregators’

    According to the Social Security Code 2020, funding for platform and gig worker programs may come from a combination of central and state governments, and aggregator contributions. It contains a list of aggregators that are designated for this use. These include nine categories, including e-marketplaces, content and media services, food and grocery delivery services, and ridesharing services. Any contribution from such an aggregator may be at a rate specified by the government that ranges from 1 to 2% of the aggregator’s annual revenue. However, this contribution cannot go over 5% of what an aggregator pays or owes to platform workers and gig workers.

    11.    National Social Security Board 

    The 2019 Bill called for the creation of national and several state-level boards to oversee programs for employees in the unorganized sector. According to the 2020 Code, the National Social Security Board may operate as the Board for the welfare of gig workers and platform employees in addition to unorganized workers, and it may recommend and oversee programs for these workers.
    In these circumstances, a different group of individuals will make up the Board, including
    •    5 representatives of aggregators, nominated by the Central Government
    •    5 representatives of gig workers and platform workers, nominated by the Central Government
    •    The director general of the ESIC
    •    5 representatives of state governments

    12.    Offences and penalties

    The penalties for some offenses have changed because of the Social Security Code, 2020. For example, the most time you can spend in jail for stopping an inspector from doing his job has been cut from a year to six months. In the same way, the penalty for illegally taking the employer's contribution out of an employee's pay has gone from one year in prison or a Rs 50,000 fine to just a Rs 50,000 fine.

    The Way Forward for Organizations

    The new labor codes in India represent a significant reform of the country's labor laws. Businesses in India are expected to benefit from the disentanglement of labor regulations and compliances. The four labor codes have been enacted with the aim of consolidating and simplifying the existing labor laws and making them more relevant and effective in the contemporary economic and social context. Once the codes are enacted, organizations will need to ensure they are in compliance with the new laws. It will be crucial that the implementation of the codes is closely monitored and that any issues or challenges that arise are addressed in a timely and effective manner. HR leaders in organizations will be expected to spearhead this implementation and while it may seem challenging, staying on top of these reforms doesn’t have to be a hassle for your organization.

    To learn more about the labor law reforms in India, get insights into their impact on businesses, and explore how Darwinbox can help you implement them seamlessly in your organization, download this comprehensive guide.

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