Analysis of the Social Security Code, 2020

Contributed by: Samvad Partners






Introduction


It was the vision of the National Commission on Labour (2002) (NCL), that had laid the foundation for the need for universal social security coverage to all workers in India, to ensure that the basic social security requirements of all workers are addressed and do not slip through the cracks, due to the duplicity of laws and lack of compliance. Based on this ideal, the Social Security Code was introduced on December 11, 2019 and was thereafter referred to the Standing Committee of Labour, Ministry of Labour and Employment, (Standing Committee) which, consolidated stakeholder suggestions and reviewed the provisions of the Social Security Code and presented its report on July 31, 2020. The onset of the global coronavirus pandemic and the resultant national lockdown that was imposed to curb the pandemic, led to the forced and overdue recognition of the lack of social security coverage for the large informal and migrant workers of the country, who account as the backbone of most industries. This laid the impetus for the speedy introduction of three labour codes in the Lok Sabha on September 19, 2020, including the updated Code on Social Security, 2020 (Social Security Code), based on the Standing Committee Report, that was passed by the Lok Sabha on September 22, 2020 and the Rajya Sabha on September 23, 2020. The Social Security Code, subsequently received the President’s asset on September 28, 2020 and will be enforced upon an appointed date, as declared by the Central Government. The Social Security Code, does not have the appropriate rules and schemes in place and the enforcement of various provisions, may take place in a staggered manner.


Based on the newly introduced Social Security Code, this article seeks to analyse the legislation and its limitations. This article is divided into 4 parts. Part I deals with the background of introduction and need for the consolidation of the social security coverage in India, Part II provides a detailed analysis of the provisions of the Social Security Code in the light of recommendations proposed in the Nineth Report of the Standing Committee of Labour, Ministry of Labour and Employment, dated July 2020 (Standing Committee Report) and Part III notes the conclusion and the author’s recommendations.


Background of the Social Security Social Security Code


Taking note of India’s obligations, under several international law instruments pertaining to labour rights, such as the International Covenant on Economic, Social and Cultural Rights, 1976, the International Labour Organisation, conventions, and in line with the recommendations of the Second National Commission on Labour; the Ministry of Labour and Employment, proposed for the consolidation of the existing labour laws in the country, into four labour ‘codes’ viz, the Code on Wages, the Occupational Health, Safety and Working Conditions Code, the Industrial Relations Code, and the Code on Social Security. Labour and employment matters, being a subject on the concurrent list under the Constitution of India, empowers both the Central and State governments, in framing laws on this matter. This has led to a multiplicity of laws saddled with State specific rules for most labour legislations. This is sought to be rectified by the introduction of the codes.


The Social Security Code, aims to expand the existing national security coverage for workers in the economy and subsumes nine key social security laws in the country, being:

  1. The Employees’ Provident Fund Act, 1952 (EPF Act);

  2. The Employees’ State Insurance Act, 1948 (ESI Act);

  3. The Maternity Benefit Act, 1961;

  4. The Payment of Gratuity Act, 1972 (Gratuity Act);

  5. The Unorganised Workers’ Social Security Act, 2008;

  6. The Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959;

  7. The Cine Workers Welfare Fund Act, 1981; and

  8. The Building and Other Construction Workers Welfare Cess Act, 1996 (BOCW Act).

The aim is to harmonise the provisions under the existing labour laws that each cover or relate to social security and related matters, ensuring social security benefits to all categories of workers and employers, in both the organised and informal sector.


Analysis of the Social Security Social Security Code


The primary aim of the Social Security Code, is to assimilate and amalgamate the aforementioned social security laws, in order to effectively promote ease of compliance for industries and businesses. However, the Social Security Code, merely consolidates the existing social security laws, by retaining separate frameworks for the various laws in the Social Security Code, with separate chapters outlining the social security benefits that are provided under existing laws. A key example would be that, while the Social Security Code, establishes a ‘Social Security Organisation’, the definition of the same includes the various administrative bodies, that are currently present in the existing laws. These include, the Central Board of Trustees of Employees Provident Fund, the Employees' State Insurance Corporation, the National Social Security Board for Unorganised Workers, the State Unorganised Workers' Social Security Board, the State Building and other Construction Workers' Welfare Boards and an enabling provision allowing the Central Government to constitute or declare any other organisation as a social security organisation under the Social Security Code. Not only does this exercise continue the duplicity of forums for administration and regulation, but the Social Security Code misses a unique opportunity to streamline these organisations and continues the fragmented set up, as under the existing social security laws.


A key issue of the Social Security Code, that was highlighted in the Standing Committee Report as well, is that it does little to reference the schemes that would be applicable to the informal sector that it seeks to include. The Social Security Code, merely specifies that the Central Government will frame schemes under the chapter relating to the state insurance benefits, for unorganised workers, gig workers and platform workers and their families, including the rate of contribution of the benefits and their eligibility and qualifying criteria. A similar enabling provision is not present for the Chapter relating to the provident fund benefits, for ‘self-employed persons’ and ‘any other class of persons’. The Social Security Code continues to retain thresholds based on the size of establishment for making certain benefits mandatory, based on the size of the establishment, thereby restricting the applicability of the social security benefits. Chapter IX of the Social Security Code, provides for a framework for the social security that would be applicable to the unorganised workers, gig workers and the platform workers, which involves both the Central Government and the State Government to formulate schemes in relation to the informal sector. The schemes are meant to cover matters relating to (i) life and disability cover, (ii) accident insurance (iii) health and maternity benefits, (iv) old age protection, (v) creche, and (vi) other benefits as determined by the Central Government.


The Social Security Code, also provides for flexible methods for funding such schemes, between the States and the Centre, which includes complete government funding by either the State or the Central Government, partly funded by the Government and partly by contributions from employers, and from corporate social responsibility funds, within the meaning of the Companies Act, 2013. The States may also seek financial assistance from the Centre for funding of the schemes. A critical point would be that with the States, being the appropriate government for the framing of the schemes for the informal sector, there may be a concern that without a basic framework provided in the Social Security Code itself, States may provide rules or constitute frameworks, which would create a multiplicity of laws and regulations, defeating the very purpose for which this Social Security Code was enacted.


Another painful misstep is with regard to the overhauling of the BOCW Act and the compliances in relation to a building worker. The Social Security Code, while it provides for the registration of building and construction workers, does not mandate that it would be the contractor or employer’s responsibility for the registration of building workers. The Standing Committee made a series of stellar observations for the overhaul of the BOCW Act and to ensure that migrant and building construction workers, would have access to the funds that are currently being underutilised by State Governments, for their benefit, including a key recommendation allowing for portability of benefits, between States, for the construction workers, which has not been included in the Social Security Code.


The Social Security Code, in trying to achieve its ideals, has provided for various definitions of workers, in order to cover the myriad categories of employees and workers. It recognises the changing dynamics of an employer-employee relationship and sets out to define and provide coverage to gig workers, platform workers, building worker, contract labour, home-based worker, inter-state migrant worker, motor transport worker, self-employed worker, unorganised worker and a wage worker. These definitions have also been revised from the existing definition under the existing social security laws, keeping with the realities of the workforce, such as the definition of an ‘inter-state migrant worker’ also includes a worker who “has come on his own from one State and obtained employment in an establishment of another State (hereinafter called destination State) or has subsequently changed the establishment within the destination State


However, the multitude of definitions and their classifications would raise concerns for employers and workers, alike. The open-ended definitions, also allow for significant overlap between the definitions, provided in the Social Security Code. For example, the term ‘gig worker’ would be “a person who performs work or participates in a work arrangement and earns from such activities outside of traditional employer-employee relationship”; whereas a platform worker, is a worker who is engaged in ‘platform work’ which means “a work arrangement outside of a traditional employer employee relationship in which organisations or individuals use an online platform to access other organisations or individuals to solve specific problems or to provide specific services or any such other activities which may be notified by the Central Government, in exchange for payment”. From a literal reading of the definitions, a platform worker, would also be seen as a gig worker, as the crux of their arrangement is that their work arrangement is outside of a traditional employer-employee relationship. In this scenario, unless the rules or schemes developed by the appropriate governments, make reference to any distinction, there will be an overlap with regard to the schemes that may be applicable to the workers. In industry practise today, classification of workers, is typically a question of fact, whereby employees gauge the skills and the work description of the person, prior to classifying them as a ‘workman’ or a managerial employee. Undoubtedly, this classification would be a cause of concern as employers and employees or workers, alike.


Chapter V of the Social Security Code is in relation to the payment of gratuity to an employee and supersedes the Gratuity Act. With the onset of the pandemic, there have been multiple concerns raised in bringing down the existing threshold for the payment of gratuity, from five years, to a lesser period. This is due to the fact that most employees, are engaged for a shorter period, therefore, it would be difficult to avail the gratuity benefits as the pre-requisite for continuous employment for 5 years, is required under the current scheme of the Gratuity Act. The Standing Committee Report, recognised this grievance and provided that the payment of gratuity be reduced to continuous service of one year. It also provided that such gratuity be extended to all categories of workers, such as contract workers, employees, unorganised workers, wage workers, in addition to fixed term employees, with the principal employer, being responsible for the disbursement of such gratuity, in case of failure of the contractor to provide the same.


The Social Security Code however, extends the provision of gratuity to only employees and fixed term employees, and does not mention the extension of rights to contract labourers, piece rate and time rate workers along with the fixed term employees. The proviso to Clause 53(2) states that “in the case of an employee employed on fixed term employment, the employer shall pay gratuity on pro rata basis”. Primarily, this is to extend the gratuity benefits to those fixed term employees, who may not complete five years of continuous service to be provided with pro-rata gratuity entitlements. However, it remains to be seen if this would create a scenario where more beneficial provisions relating to employees are provided to fixed term employees, than to permanent employees, who would still be required to render five years of service, for this benefit.


Conclusion


While the Social Security Code aims to recognise the informal sector and bridge the existing disparity between employees and workers in the formal and informal sector, this article highlights how the framework of the Social Security Code, misses the opportunity to address concerns that are instrumental in ensuring the efficacy of the provisions of the Code. Key recommendations from the Standing Committee Report have also not been included in the provisions. Further, the passage of the Social Security Code in the Lok Sabha and the Rajya Sabha on September 22, 2020 and September 23, 2020, respectively, gave little room for debate and discussion on the new codes that were introduced, as the opposition did not partake in the discussions. Key reforms that affect every worker or employee, both in the formal and informal sector, require a robust discussion and debate to ensure that all concerns are addressed for the betterment of the labour market. By only providing a skeletal framework and delegating most rule making and administration to State governments and other bodies, the multiplicity of laws may remain and one can only hope that the rules do justice to the ideals enumerated by the NCL.


Contributed by Samvad Partners


The above article has been authored by Ms Poornima Hatti(Partner) and Ms Nivedita Udupa(Associate)