Video Summary

[RSTV The Big Picture] Code on Social Security Bill, 2019

Union cabinet approved the Code of Social Security Bill, 2019. It is the fourth labour code. The bill seeks to consolidate the laws relating to social security of workers and subsume eight central laws.
By IT's Video Summary Team
December 27, 2019

Contents

  • Introduction
  • IT’s Input
  • Need to bring in new labour codes
  • Benefits to Indian Workers
  • The economy and the labour code connection
  • How the code will help the labour force?
  • Challenges for the labour laws
  • Wide coverage of the code
  • Best way forward

[RSTV The Big Picture] Code on Social Security Bill, 2019

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Introduction

Recently, the cabinet approved the Code of Social Security Bill, 2019 which is the fourth labor code. Other three are: Industrial Relations Code (approved by Parliament), Code on Wages (approved by Parliament) and Code on Occupational safety, Health and Working condition (sent to a standing committee for review by the Lok Sabha).

IT’s Input

What is Social security code?

  • The Code on Social Security, 2019 is a system or instruction which will merge eight exiting labour laws.

The eight laws are:

  1. Employees’ Compensation Act, 1923
  2. Employees’ State Insurance Act, 1948
  3. Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
  4. Maternity Benefit Act, 1961
  5. Payment of Gratuity Act, 1972
  6. Cine Workers Welfare Fund Act, 1981
  7. Building and Other Construction Workers Cess Act, 1996
  8. Unorganized Workers’ Social Security Act, 2008

Highlights of the Code on Social Security Bill, 2019

Highlights of the Code on Social Security Bill, 2019

Social security fund

  • The Bill proposes setting up a social security fund using corpus available under corporate social responsibility. This fund will provide welfare benefits such as pension, medical cover, death and disablement benefits to all workers, including gig workers.

Reducing employee PF contribution

  • The bill provides option of reducing provident fund contribution (currently at 12% of basic salary) and therefore increase workers take-home pay.
  • The rationale for allowing lower employee PF contribution is that higher take-home pay may boost consumption. The Bill, however, retains employers’ PF contribution at 12%.

Gratuity for fixed-term contract workers

  • Currently, workers are not entitled to gratuity before completing five years of continuous service. The bill says that fixed-term contract workers will be eligible for gratuity on a pro-rata basis.
  • It proposes to offer gratuity to fixed term employees after one year of service on a pro-rata basis as against the current practice of five years.

Exemption

  • It will empower the central government to exempt select establishments from all or any of the provisions of the code and makes Aadhaar mandatory for availing benefits under various social security schemes.

Insurance, PF, life cover for unorganized sector employees:

  • Central Government shall formulate and notify suitable welfare schemes for unorganised workers on matter relating to life and disability cover; health and maternity benefits; old age protection; and any other benefit as may be determined by the central government.

Need to bring in new labour codes

  • Most of the central labour laws were enacted between the 1920s and 1970s. These codes were created in conformity with the requirements of the workers of that period. However, things have changed dramatically today.
  • Many of the earlier laws have become archaic which has been creating hurdles for the employers to create new employment opportunities. Even the workers find it very difficult to get the efficient social security benefits on time.
  • The current objective of the bill is to cover each and every worker within a robust social security net. At the same time, Bill aims to help employers in creating new jobs. Hence, this bill will create an environment for the employers and workers to come together.

Benefits to Indian workers

  • The social safety related laws had indeed become outdated in today’s environment. For example, online platform workers such as Ola, Uber etc. were not covered in the previous laws. The Social security code Bill, 2019 covers all those workers.
  • The ambit of this social security code is truly large as it covers not only the number of employees which an organization has (if it more than 10, it will come under the social security laws) but the workers involved in hazardous nature of work will be also be covered under the act.
  • On similar line of merging 44 labour laws into 4 labour codes, the bill, by merging previous 8 laws related to labour, makes more simplification of laws.
  • At the same time, through code on social security, the regulatory regime would be less problematic for the employers and employees. For example, an inspector, under the new code, cannot open an EPFO (Employees’ Provident Fund Organisation) record of more than five years.
  • Under the Code, the central government may notify various social security schemes for the benefit of workers.  These include an Employees’ Provident Fund (EPF) Scheme, an Employees’ Pension Scheme (EPS), and an Employees’ Deposit Linked Insurance (EDLI) Scheme.

The economy and the social security code connection

  • The social security code has two different sets of regulatory regimes and provisions, one for organized workers and another for unorganized workers.
  • The need of the current economy is increasing job creation and improving consumption. Both can be achieved through formalization and digitization. Until and unless, the sectors won’t be formalized, the workers will also not come into formal organizations.
  • There is a legal ceiling mention in the code for EPF contribution which will be based on 12% employee and 12% employer contribution. This provision requires a relook because if added to other levies, the overhead payroll levies reach 40-45%. Hence, it is a big barrier to formalization.
  • The economy will benefit when the distinction between organized and unorganized goes narrower and when there will be truly a single governing regime.

How the code will help the labour force?

  • The idea is to create a regime which will give good protection and welfare to Indian workers.
  • Today, there is a general apathy towards labour laws. Employees are so allergic to the labours rule and laws that many a time, they desist from setting up a new enterprise.
  • There is need for creating more and more job in India and that can happen only when the environment is conducive.
  • Many of the labour laws were created for the welfare of the worker but while, implementing such laws, lot of intermediaries and government officials started using these laws for their personal goals.
  • For an employer, to adhere to the 44 labour laws became difficult and that is why new laws have been formulated.
  • Today, the inspector has turned into a kind of menace rather than a facilitator. The 2019 social security code ensures that an inspector will not be able to ask about the information which is not required. The idea behind this factor is that people will adhere to the laws without any fear.

Challenges for the labour laws

  • At the draft stage of social security code, there was a provision for giving an option to switch from EPF (Employees Provident Fund) to NPS (National Pension System) and there was an option to exit ESIC (Employees State Insurance Corporation).
  • There has been demand asking these two options to be taken out of the bill and laws. If this kind of options are taken out, then probably, the same old structure will continue.
  • In terms of social security product market, there is tremendous fragmentation, particularly in the products that depend on their insurance components. The fragmentation only works against the interest of the workers.
  • Interoperability or convergence of the social security product is a fundamental reform.

Wide coverage of the code

  • All the unorganized sector employees will now be covered under the Unique Identity Number (UIN) which will be linked to the Aadhaar.
  • The Trade unions may welcome the social security code, in particular, because it widens the coverage and their writ on the workers. For example, if an employee meets with an accident while reaching his/her office, ESIC will cover the accident, under the new code which was earlier not present.
  • Right now, trade union focuses on shrinking organized sector labour force and this code, by widening the ambit, is giving a larger platter for the Trade unions to work upon.

Way forward

The code is giving a robust and efficient coverage of social security to each and every worker of the country. The code gives lot of respite to the employer from the rigidity of laws and whims and wishes from the law enforcement agencies. This code takes the labour reforms from the manufacturing sector space to the services sector and this transition will cater to the large section of workers contributing to the share of GDP.