Social Security Code 2020 – Tracing Effects on Businesses and Employees

Last Updated at: Feb 03, 2021
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Social Security Code
In the Code on Social Security, 2020, the centre stated that companies would have to contribute 1-2% of their annual turnover or 5% of the wages paid to gig workers, whichever is lower. Ecommerce platforms such as Amazon, Flipkart, Ola, Uber and Urban Company are reported to have asked the Ministry of Labour to clarify the definition of ‘turnover’. The calculation of  the company contribution to a proposed social security fund will be based on the ‘turnover’.

 

Social security legislation in labour law refers to beneficial laws for employees. These include acts such as the maternity benefit act, Provident act etc. Recently, nine of these laws have been converted into one single code – Social Security Code 2020. This would not just have an effect on employees but also impact business outflows. In this post, we comprehensively trace the impact of Social Security Code 2020. 

What are the significant features of the Social Security Code 2020? 

Coverage of several central schemes for employees

The code intends to cover the following acts – 

  • Employees Provident Fund Act, 1952 
  • Maternity Benefit Act, 1961 
  • Unorganised Workers Social Security Act, 2008 
  • Employee State Insurance Act 
  • Employee Pension Scheme 
  • Unorganised Workers Act 

Coverage of gig workers, platform workers and contractual workers

  • The social security code promises to be beneficial legislation for the unorganised sector and gig workers. 
  • Gig workers refer to freelancers who do not work in a tradition employer-employee set up. Similarly, platform workers are those that are engaged in providing specific services to a dedicated organisation. 
  • The code makes a reference to aggregators such as – ride-sharing services, food and grocery delivery services, content and media services, and e-marketplaces.  
  • The code states that the central government or state government should fund contributions in relation to such workers. 
  • Schemes for such workers related to life, disability, health, maternity, Provident fund, housing must be provided. 
  • The aggregator appointing them will require to contribute, irrespective of the salary given to such workers. This has the potential to impact many online business model companies. 

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Employees State insurance

Other than the regular provisions on state insurance, the new code adds coverage for gig workers and unorganised sectors. Neither the employer nor the contractor entitled to deduct any wages in respect of the contribution paid for such insurance. 

Maternity benefits under the social security code

  • Maternity benefits will be applicable if 10 or more employees are employed on any day in the preceding 12 months
  • No employer must employ a woman for six weeks following her delivery, miscarriage, termination of pregnancy. However, this benefit is available for only those women employees who have worked for at least 80 days in the last twelve months 
  • A maximum of 26 weeks can be claimed as a maternity benefit.
  • Any contravention of maternity benefits would make the employer punishable with imprisonment up to 6 months or fine up to Rs.50,000

Gratuity provisions under the Code

  • Under the new social security code, the most significant change will produce gratuity terms.
  • Gratuity is a fixed sum payable either on retirement, superannuation, death or suspension of services of an employee. 
  • Now, gratuity will be payable by a business to both permanent and fixed-term employees. This is payable at the rate of 15 days wages for every completed year of service 
  • The gratuity provisions become applicable when ten or more employees will employ on any day in the last twelve months 
  • Gratuity becomes payable when continuous service of five years will render by an employee. However, for fixed-term employees, this requirement does not apply. They would be paid gratuity on a pro-rata basis. 
  • Gratuity would also become payable even if employees hire for a contractor. Thus, a business will have to make a provision for payment of gratuity to even its contractual employees

Contributions

The code specifies that these beneficial schemes may finance through a combination of contributions from the employer, employee and aggregators in the case of gig workers. This would reduce the overall liability of a business, while also attracting talent.

Punishment for an employer for failing to pay contribution required under the Social Security Code

If an employer, fails to pay any contribution under the SS Code or its rules, regulations or schemes, he shall be punishable with: 

  1. imprisonment for a term of one year which may extend to three (3) years
  2. In case of failure to pay the employee’s contribution which will deduct by him from the employee’s wages imprisonment up to 6 months with a fine of ₹1 lac 

Administrative provisions

  • All establishments having over 300 workers must prepare standing orders on matters such as – classification of workers, termination of employment, work hours, grievance redressal etc. 
  • The social security code also specifies that inspectors-cum-facilitators would appoint to inspect establishments. These inspectors would also advise employers and employees on compliance. 
  • Unlike the previous regime, administrative authorities will appoint to hear appeals. This would help free of time and resources that would have gone into pursuing a labour dispute in the court.

Thus, through the Social Security Code, contractual and term employees stand to gain valuable social benefits of insurance, gratuity etc. While the financial impact on businesses may be higher, the actual compliance cost is only when the government notifies specific rules in this regard. The financial burden on businesses tries to subside through government contributions. 

 

Avani Mishra is a graduate in law from the National Law Institute University, Bhopal. She qualified the Company Secretary course with an All India Rank 1 and is a recipient of the President’s Gold Medal for her academic distinctions. She also holds a B.Com degree with a specialization in Corporate Affairs and Administration.