By Abhiudaya Verma, Research Associate, Policy

With layoffs and pay-cuts starting in various firms all over the world, most economists are of the view that the economic crisis due to corona could be as bad as the 2008 financial crisis and that recession is inevitable. Experts also urged various Indian companies to avoid layoffs and pay cuts on humanitarian grounds and to provide a sense of security to their employees. But the neo-liberal world has imperilled the Welfare State values and in a pro-market economy it seems highly unlikely that firms would adopt the humane approach and face greater losses. In such times, it is the labour and social security laws that provide relief to the workforce of the country. The Government of India aims to bring a new labour legislation that would merge 44 labour laws under four categories– wages, social security, industrial safety & welfare, and industrial relations. The recent Social Security Code Bill, 2019 is one among the four consolidated laws. 

Origin of Necessity

The Social Security Code Bill, 2019 (to be called ‘the Code’ from hereon) introduced in the parliament on 11th December, 2019 seeks to subsume the following social security laws which are prevalent currently :-

  1. Employee’s Compensation Act, 1923 (Employee’s Compensation Act);
  2. Employees’ State Insurance Act, 1948 (ESI Act);
  3. Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act);
  4. Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959 (Employment Exchanges Act);
  5. Maternity Benefit Act, 1961 (Maternity Benefit Act);
  6. Payment of Gratuity Act, 1972 (Gratuity Act);
  7. Cine-Workers Welfare Fund Act, 1981;
  8. Building and Other Construction Workers’ Welfare Cess Act, 1996;
  9. Unorganised Workers Social Security Act, 2008 (Unorganised Workers Act).

Many of these laws were considered archaic in nature, as they catered to the economic and social conditions of the times when they were put into force. Today the state of economy and social aspects have changed to the extent that they require a new, improved and comprehensive approach towards social security. These old stringent laws at times become a hurdle in facilitating sustainable employment opportunities. These schemes and the resultant policies also leave out certain sections of the labour force like the platform workers and the gig economy workers to be covered under social security schemes. The Code is thus an attempt to universalize social security, which is an ambitious step by the government, covering the whole of the labour force including the unorganised sector which accounted for 82.7%  of the total workforce in 2011-2012 according to NSSO.

Reform Provisions under the Code

The Code establishes various social security organisations for specific sectors and benefits like the Employees’ State Insurance Corporation (ESIC), State Building Workers Welfare Board, National Social Security Boards etc. With the goal of subsuming various social security laws, several provisions of the individual Acts have been changed, left-out or diluted. For example, the EPF Act provides for calculating the Employees’ Provident Fund (EPF) contribution using the basic wages, dearness allowance and retaining allowance. The Code expands this provision to EPF contribution to be calculated on the ‘wages’ of the employees. In another change of provision, the Code includes fixed-term employees to be included in the gratuity benefits without the earlier condition of the employee completing the requisite qualifying period of continuous service. 

It is also aimed at procedural cleaning up and making compliance easy and smooth. For this the record keeping requirement for firms has now been limited to 5 years for inspection purposes, making the regulatory regime less problematic and the penalties for violations of rules and procedures have been enhanced to a maximum of 3,00,000 rupees from 1,00,000 in certain cases. There’s a new provision in the employees’ state insurance chapter with respect to employer non-compliance, wherein if the employer fails or neglects to insure an employee or pay any contribution, the ESIC may pay the benefit to such employee and recover the benefit from the employer. The provisions of chapter on employees’ state insurance will apply only where there are 10 or more covered employees in the factory/establishment. The current ESI Act does not provide for a voluntary coverage of employers and employees who are otherwise not covered therein, this Code provides this voluntary coverage where the employer and majority of the employees have agreed to it. The Code provides an option for increasing the take-home salary of the employees by keeping the employer’s share of contribution to provident and pension fund fixed at 12%, the Central Government may, by notification specify a different rate lower than 12% for the employees. The increase in take-home salary, which is prefered by most employees,  can prove helpful to the workers in times of inflation and emergencies.

Policies for the Gig Economy and Unorganised Workforce

At present, unorganized workers have to spend on all contingencies, out of their meagre wages, and they are helpless in their old age. Such workers follow informal means such as borrowing, and they are only made more vulnerable by their continued reliance on such strategies. The unorganized sector labour finds a mention in chapter IX of the Code wherein it mentions that the Central Government shall formulate suitable welfare schemes for unorganised workers. It also provides for keeping records of unorganised workers and establishing workers facilitation centers for providing information on schemes, registration and enrollment in welfare schemes. The workers are supposed to register by linking their application from their Aadhaar number or by being assigned a distinguishable number to their application. 

Chapter IX also mentions the emerging gig economy which has the potential to absorb 25-30 percent of the unemployed population and employed around 3.3 million in 2018 and is estimated to grow further. The Code, like for the unorganised workers, allows the Central Government to formulate suitable social security schemes for the gig workers and platform workers. The current laws do not provide for any social security scheme for gig workers. However, the Code does not include ESI or EPF benefits for the gig workers and unorganised sector workers.

Policy Gaps in the Code

The criticism of the Code lies in the intent of the Code itself. The policy of universalisation of social security at the current level of unemployment and labour fragmentation is a bit far fetched. To implement social security measures in a country as massive as India, it is expected to be handled by more than one ministry and one single level of government. Concerning the gig economy, it speaks about social security, but it does not explain how to achieve universal social security. This Code speaks about pensions, provident fund and other incentives for contract employees, but it does not explain who is responsible for providing them, the State or the new-age entrepreneurs who are fostering people’s network economy. The protections for gig workers come under the chapter on unorganized workers, suggesting that the government is not able to recognize them as part of the traditional workforce where employers partially fund social security benefits. Stringent compliance rules and increase in penalties might act as a barrier to formalisation. Lastly, this Code, like most laws, has not addressed the problem of enforcement and needs substantive reform in the operative part of it. For instance, the facilitation of access to schemes is unclear with provisions on just making of schemes. The sector specific schemes for bidi workers, non-coal workers, etc., will be at the mercy of the Central Government, as and when it deems fit to make a scheme, until then with the subsuming of the specific Acts related to these sectors, the workers will be without any social security. Lastly, the provision of linking Aadhaar to get benefits under schemes, in Chapter IX of the Code, may be challenged in view of the Supreme Court judgement in KS Puttaswamy v Union of India, 2017 which said that linking of the Aadhaar is not necessary to claim benefits under government schemes.

Suggestions for Policy Reforms

The Code must try to reduce the ‘barriers to formalisation’ for unorganised and gig economy workers. Extending the ESI and EPF for gig economy workers and platform workers might be a bold move towards formalization of the workforce. It must also include provisions for clear demarcation of work for various implementation agencies and for which setting up implementation institutions at all three levels of government is necessary. Lastly, with subsuming so many sectors and industry specific (bidi workers, non-coal workers, audio visual workers, gig economy, unorganised workers etc) social security acts, the Code just provides provisions to make schemes for such industries. However, to ensure that the workers of such industry do not suffer at the lack of a social security scheme when the Code becomes an Act, the government must either include the sector specific schemes within the Code or must come up with such schemes simultaneously with the rolling out of the Code. While this Code has done well in focusing labour reforms on the service sector, which is the largest employer of the labour force, rather on the manufacturing sector, recommendations for removing certain ambiguities and provisions can be made in order to ensure that social security is viewed in a broader framework.

Social security is seen as a ‘poor-relief’ measure in India rather than as an entitlement with an emphasis on a rights based approach. The concept of social security and the philosophy behind it is yet to synthesize with the socio-economic policies of our country. India is not yet a signatory to Convention no. 102 of the ILO which agrees upon eight updated social security agreements and is the only international agreement that defines the nine classic branches namely; medical assistance, sickness benefits, unemployment benefits, old-age benefits, occupational accident and illness benefits, family benefits, maternity benefits, disability benefits and survivors’ benefits of social security, with minimum standards prescribed for each of them. Following the ILO norms of minimum standards for social security, India can come up with a more holistic and comprehensive Code on social security aiming towards true universalisation of social security.