Social Security Code (2020) Explained

by Sindhu, AIITEU Bangalore

During the Budget Speech of 2019, FM Nirmala Sitharaman announced that the BJP led central government will be replacing the existing 29 existing labour laws with 4 controversial Labour Codes. The Government will likely see this through in 2022–23. The Union Ministry while drafting these codes, have been unscrupulously avoiding the route of tripartite consultation with stakeholders, the trade unions in particular.

The draft rules on Social Security Code have, therefore, been designed and articulated in a manner so as to substantially reduce the obligations of the employers in the matter of social security to workers; and to make that arrangement perpetual and continuous by way of empowering the government to open-endedly decide, devise and alter the social security schemes through executive orders. That means whatever long-standing statutory rights on social security were available to workers, would lose their statutory teeth and their fate is made dependent on the pleasure of the government/executive.

This article is an attempt at providing a brief explainer on the Code on Social Security, 2020, and some of the important provisions and rights the workers stand to lose with its implementation.

What is the Code On Social Security?

The Code defines “social security” as the “measures of protection afforded to employees to ensure access to health care and to provide income security, particularly in cases of old age, unemployment, sickness, invalidity, work injury, maternity or loss of a breadwinner by means of rights enshrined and schemes framed under the Code.”

The new Code on Social Security incorporates nine existing laws that deal with social security as listed below :

1. Employees’ Compensation Act
2. Employees’ State Insurance Act
3. Employees’ Provident Fund and Miscellaneous Provisions Act
4. Employment Exchanges (Compulsory Notification of Vacancies) Act
5. Maternity Benefit Act
6. Payment of Gratuity Act
7. Cine Workers’ Welfare Fund Act
8. Building and Other Construction Workers’ Cess Act
9. Unorganised Workers’ Social Security Act

The National Commission on Labour, 2002 (NCL) had emphasised the need for universal and comprehensive social security coverage to avoid deprivation of basic needs of workers, and recommended the simplification and consolidation of existing laws towards this end. The Statement of Objects and Reasons of the (2019) Bill stated that it seeks to ‘simplify and amalgamate the provisions of these laws in line with the NCL recommendations’. The NCL recommended that:

(i) The social security system should apply to all establishments,

(ii) The existing wage ceilings for coverage should be removed, and

(iii) There should be a functional integration of the administration of existing schemes. Further, every employer and employee may make a single contribution for the provision of all the benefits, with a ceiling prescribed for such contributions.

Furthermore, The Standing Committee on Labour, 2020 (SCL) had examined the 2019 Social Security Bill and recommended that the Code should provide a framework for achieving universal social security within a definite time frame. It made several recommendations for expanding the coverage of establishments, employees, and types of benefits. These include:

(i) Re-considering establishment-size based thresholds and expanding the definition of “establishment” to include other enterprise categories such as agricultural and own account enterprises,

(ii) Expanding definitions of “employees” to include ASHA and Anganwadi workers, and “unorganised workers” to include agricultural workers,

(iii) Creating a separate fund for inter-state migrant workers,

(iv) Introducing unemployment insurance for unorganised workers and

(v) Re-introducing labour welfare funds for workers in certain industries such as iron ore mines and beedi establishments.

The Code on Social Security 2020 does NOT incorporate any of the critical recommendations of either the National Commission on Labour or the Standing Committee on Labour.

How do these new changes affect workers?

1. The Employee Provident Fund could be reduced or done away with

The Code allows any establishment to exit the Employee Provident Fund scheme if ‘employers and most employees agree’. The resulting employer-employee power imbalance, especially in small enterprises, will lead to employers en masse coercing their employees into opting out of a much-needed social security scheme.

• The rate of contribution to the Employees’ Provident Fund has been reduced from 12% to 10% of the wage, reducing the amount that will be provided to workers.
• The Central Government is empowered to notify any rate of contributions for any class of employees.

2. Employees State Insurance (ESI) Scheme will be severely impacted

In fact, all along the central governments have gradually been reducing the ESI contribution since 90s after liberalisation, from 7.25 per cent to 4 per cent of wages. Now they want to bring that ESI corpus down further by changing the definition of ‘wage’ on the plea of increasing the “take-home-salary” of the employees. It is nothing but an attempt to dismantle the workers’ self-funded health assurance scheme as it is basically against the doctrines of market economy — the corporate health insurance business.

• The Code dilutes the ESI scheme by restricting the powers of the enforcement authority (ESI Corporation) and by removing certain obligations for employers to pay ESI contributions.
• It reduces the existing benefits to the workers and allows diversion of ESI funds to other areas.

3. Fixed term workers may not receive gratuity

Under this Code, gratuity is payable if the employee has served a continuous period of five years. However, this time period will not apply if the contract term of a fixed term worker expires.

• It states that in the case of fixed term employment, the employer will pay gratuity on a pro-rata basis (i.e. proportionate to the fixed term period). However, the Industrial Relations (IR) Code, 2020 while defining fixed term workers, states that such workers will be eligible for gratuity only if they complete a one-year contract.
• Therefore, the two codes contain different provisions on gratuity for fixed term workers and it is not clear whether a fixed term employee with a contract of lesser than one year will be entitled to gratuity under the Code on Social Security, 2020.

4. Workers in small sized establishments will be excluded from benefits altogether

The Central Government claims that the Code on Social Security will universalise social security benefits, extending coverage to even ‘gig and platform workers’ etc. These claims remain unsubstantiated due to the retention of the existing threshold limit of employment of establishments for the purpose of coverage.

• Here on out, the Code posits that the Employees’ Provident Fund is applicable only to establishments in which there are 20 or more employees. Employees’ State Insurance, gratuity & maternity benefits will only apply to establishments where there are 10 or more employees.
• This Code, continues to treat employees within the same establishment differently based on the amount of wages earned. For instance, provident fund, pension and medical insurance benefits are only mandatory to employees earning above a certain threshold (as may be notified by the government) in eligible establishments.
• The code also excludes large sections of workers who were previously provided different sectoral schemes from coverage by not mentioning them. The Periodic Labour Force Survey Report (2018–19) indicates that 70% of regular wage/salaried employees in the nonagricultural sector did not have a written contract, and 52% did not have any social security benefit. Hence, a large numbers of workers may continue to be excluded.

5. Certain benefits will require mandatory linkage of Aadhar

The Code mandates an employee or a worker (including an unorganised worker) to provide his Aadhaar number to receive social security benefits or to even avail services from a career centre. In the Supreme Court’s Puttaswamy-II judgement, the Court had ruled that the Aadhaar card/ number may only be made mandatory for expenditure on a subsidy, benefit or service incurred from the Consolidated Fund of India (CFI). Since certain entitlements such as gratuity and provident fund (PF) are funded by employers and employees and not by the CFI, making Aadhaar mandatory for availing such entitlements violates the SC judgement.

• Workers can derive benefits under the schemes framed under the Code by registering themselves. Providing an Aadhar Card has been made mandatory for both registration and to seek benefits. However, the rationale for seeking mandatory linking of Aadhaar for availing career centre services is unclear.
• This directly impacts social security of workers who do not possess Aadhaar cards. Workers in the unorganised sector may not have aadhar cards for various reasons and would be deprived of the benefits under the Code. This linkage had not existed earlier in any of the labour laws.

5. Ambiguity in sourcing the funds for the implementation of social security

The effective implementation of social security would require the government to chart out proper mechanisms for creating a fund or system which can be used to provide the benefits mandated by the law and administered by the government. But none of this is evident in the current draft of the code.

• No financial commitments from the central government are made in the Code on Social Security.
• The Code explicitly states that at present the provisions of the Code do not entail any expenditure from the Consolidated Fund of India.
• The Code mentions that the schemes notified for the unorganised workers may be funded by the Central Government or/and the State governments either independently or jointly. Without any concrete schemes and the corresponding funding arrangements the draft rules elaborate the procedures for managing the fund!

6. Benefits only the employers at the cost of employees and workers

This code stands to benefit many employers with the following provisions:

• The inspection system, which is essential for effective implementation, of any law becomes diluted. Instead of a complaint-based and physical inspection system, the Code provides for web-based inspection and randomised selection of establishments to be inspected. This is not in conformity with the ILO Convention of labour inspection. Moreover, unions are not involved in the inspection system.
• The Code provides for a limitation of 5 years to claim any due from the employer (section 125). This could again benefit employers who have failed to remit contributions etc.
• The Code empowers the Central government to authorise certain employers to maintain PF accounts. It also indicates that private players may be involved in the implementation of the schemes to be framed under the Code as well as in providing medical treatment, for commissioning and running ESI hospitals etc.

It is safe to conclude that the Code on Social Security is a step towards retrenching the hard won rights and benefits of the workers. The ambiguity within the code helps mask the deceitful propaganda of “universalisation of social security”. These codes will serve the interests of the capitalists looking to maximise their profits, at the cost of workers and employees. Hence, the government’s claim of universal application of social security for 40–50 crore workers remains unsubstantiated.

Whatever social security rights were earned by the organised working class through struggles have been severely tampered with, in order to pave the way for grossly diluting the statutorily enforceable rights of the workers in the days to come.

The Right to Social Security is an inalienable right of the workers who are the real creators of the wealth of nation. Thus, let us scale up the fight for universal social security, invariably linking the same with our ongoing fight for alternative policies.