Legal Advice

New Rules in Place If You Employ Gig Workers

The previously unregulated gig economy is now regulated and for the good! The Social Security Code of 2020 has made being a gig worker less nerve-wracking and a more focused and viable avenue for work and earning. 

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With the second wave of the pandemic making work from home a necessary reality for businesses, there have been major transformations in the manners of employment. While formal employment is an important facet of business planning, another trend is on the rise: gig workers. 

Recently, the government passed the Social Security Code of 2020 as part of its four labour codes. In this post, we analyse the legal and compliance-related requirements of employing gig workers in your business. We will also discuss the advantages of the gig economy on your business. 

What Is a Gig Economy?

Often called the future of work – the gig economy is a system where temporary positions are common. Organisations, startups, and entrepreneurs in the early stages hire independent workers for short term assignments. It is estimated that more than half of India’s newly employed workers are engaged in a gig economy setup for work (Economic Times, 2020). 

The emergence of a new gig economy of young and mid-level workers in white-collar professions can reengineer the way our workplaces, payrolls, and recruitment systems function. This makes gig workers an important business asset. 

Benefits of Gig Workers for a Business

  • Reduced compliance needs 
  • Lower employment costs 
  • Often, such lower employment expenditure leads to lower pricing of the company’s goods and services 
  • Workers, knowing they are on short term employment may display greater motivation, drive to perform and boost business performance 
  • Decentralised working can enable a business to recruit and retain the best of talents 
  • Gig economy setups are said to have greater employment scope for women, given the flexibility and nature of work. 
  • With the increase in digitisation, remote working facilities, and improvements in internet infrastructure, the ability of businesses to recruit gig workers has been greatly enhanced.


How Workers Gain Under a Gig Setup

It’s not just the companies that gain both financially and quality-wise from engaging short term workers. The benefits for a technically trained person who is willing to coordinate with different organisations are immense. These professionals can quote their own price on projects of their choice, and put conditions of time and place of their choice. It allows an enterprising worker to put in long hours for a shorter time, and determine their work. Moreover, instead of being bound to a specific institution, workers have greater freedom, flexibility, and better work-life balance.

Growing Outsourcing Industry

Recognised globally for its ability of high-quality, low-cost technology skills, and for being an engine of wealth and job creation, India boasts a $150 billion outsourcing industry. It also has significant internal demand for a workforce engaged in IT, engineering, e-commerce, artificial intelligence, marketing, and forecasting related roles.

Legal Compliances for Hiring Gig Workers

Changed definition of a worker

  • The code clarifies doubts emerging over the definition of workers, mentioned in several different labour laws. It states workers would include, besides all persons employed in a skilled or unskilled, manual, technical, operational and clerical capacity, supervisory staff drawing up to ₹18,000 a month as salary.
  • The Code provides for a Social Security Fund comprising contributions from gig companies and the Centre or State government, with gig companies expected to allot 1-2% of their annual turnover. 
  • Companies also expect to maintain a register of their gig workers. The company employing such workers will have to bear expenses for the maintenance and updating of the database.  
  • Now, all establishments with more than 20 employees will be included in the Employee Provident Fund Act. These provisions will become applicable even if the workers are on short term assignments. 
  • Similarly, provisions of the Employee State Insurance Scheme become applicable, under the new code. 

If you are looking to register your business for PF, then you can do it easily and conveniently through Vakilsearch. Our experts will do the filings for you and guide you on setting up the PF account for your business.

Gratuity Requirement for Gig Workers

One of the most significant amendments under the new labour codes is the gratuity requirement for gig workers. Now, a business has to ensure that all statutory entitlements and service conditions equivalent to those of a regular employee are offered to fixed-term employees. 

Under the Code on Industrial Relations, gratuity becomes payable by a business to both permanent and fixed-term employees. This is applicable if the work completes for one year.

Gratuity is a fixed sum payable either on retirement, superannuation, death, or suspension of services of an employee. 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 with employment on any day in the last twelve months 

Thus, this provision may lead to greater business outflows, especially where fixed-term consultants are involved. However, for short term assignments involving less than one year of work, no gratuity is payable.

Additionally, just like PF registration, we make ESI registration hassle-free. If you are looking to register under ESI, feel free to reach out to us.

Giving Primacy to Workers Rights

Gig workers have always suffered from a lack of protection. Recently, Amazon employees protested against the working conditions and lack of concern. India too has seen protests in the past by cab drivers engaged with leading cab booking aggregators for similar reasons. Considering this, the new code will be gladly welcomed by gig workers.


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