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Brief - Social Security Code, 2020

Objective:
  • To consolidate laws referring to Social Security with aim to increase Social Security to all or any employees and workers in organized or unorganized or the other sectors;
  • To streamline number of authorities under various laws; and
  • To encourage technology for ensuring compliance and enforcement

Amalgamation of 9 Labor Laws
  1. Employee Compensation Act, 1923
  2. Employee's State Insurance Act, 1948
  3. Employees' Provident Funds and Misc. Provisions Act, 1952
  4. Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959
  5. Maternity Benefit Act, 1961
  6. Payment of Gratuity Act, 1972
  7. Cine Workers Welfare Fund Act, 1961
  8. Building and Other Construction Workers Welfare Cess Act, 1996
  9. Unorganized Workers' Act, 2008

Definition:
Key Modifications/Insertions
  • Introduction of definition aggregator, platform worker and gig worke
  • Section 2(78):
    social security – means measure of protection afforded to employees, unorganized workers, gig workers and platform workers for ensuring access to health care and to offer income security, particularly in cases of old age, unemployment, sickness, invalidity, work injury, maternity or loss of a breadwinner.
  • Section 2(85):
     unorganized sector – an enterprise owned by individuals or self-employed workers, engaged in the production/sale of goods/ providing service of any kind whatsoever, having less than 10 workers.
  • Section 2(86):
    unorganized worker – means a home-based worker or a self-employed worker or a wage worker in an unorganized Sector.
  • Section 2(88):
    wages – expansion of definition of wages - Specific exclusions with ceilings provided for discouraging inappropriate structuring of salaries to minimize social security benefits.

Point to Note:
  1. OHSW Code has extended the threshold limit of workers to 20 or more workers with aid of power and 40 or more workers without aid of power whereas no change has been factored in this Code – this can create confusion.
  2. Definition of fixed term employment – same as defined in IR Code.
  3. Definition of employee – doesn't cover apprentices – just like IR Code
  4. Registration of unorganized worker, gig worker or platform worker is mandatory as per terms of Code[1].

Registration of Establishment
  • Establishment to which this Code applies to induce itself registered (either electronically or otherwise) within such time as may be prescribed.
  • If Establishment is registered under other Central Labour Laws – not required to again obtain registration.
Constitution of Social Security Organizations
  • Members, their removal & disqualification, interval of meeting, functions and allowances of members of these above mentioned Organizations shall be as prescribed by the Central Government.
Employees' Provident Fund & Employees State Insurance Corporation
  • Appointment of Central Provident Fund Commissioner (also be CEO of Central Board) of Employees' Provident Fund and appointment of Director General of Corporation and Financial Commissioner (also be Principal Officer of Corporation)
  • Code allows establishments to voluntarily submit to coverage of EPF and/or ESIC, even if no. of employees in such establishments are lower than the specified threshold.
  • Principal Employer eligible to recover the amount of contribution so paid by Principal Employer, on failure of Contractor to make payment to Contract employees, either by way of deduction from any amount payable to Contractor or as a debt payable by the contractor.
  • Contribution towards Corporation to have priority over other debts (in accordance with IBC Code, 2016)
  • Contribution to PF Fund (employer and employee) be 10% of wages. Central Govt. may by notification increase the contribution to 12% of both employer and employee of certain establishments.
  • For ESIC - Neither the employer nor the contractor shall be entitled to deduct the employer's contribution from any wages payable to an employee or otherwise to recover it from him.
  • Penalty (PF) - failure to contribute to PF Fund – punishable with (i) imprisonment up to 3 years but not less than 1 year (failure of employer to deposit the amount if the same has been deducted from employee's wages) and fine of INR 1 Lakh. (ii) other cases – imprisonment not less than 2 months (maximum of 6 months) and fine of INR 50,000/-

Gratuity
  • Fixing threshold limit for eligibly for gratuity for permanent as well as for fixed term employment.
  • Gratuity payable to all eligible employees in every shop/establishment having 10 or more employees
  • Gratuity payable to an employee on termination of employment for rendering continuous service for not less than five (5) years, or at superannuation or at retirement or resignation or on his death or disablement (either due to accident or disease) or on termination of contract period of fixed term employment[2].
  • Gratuity under the SS Code is payable to employees hired directly or through a contractor.
  • Penalty – failure to pay gratuity – punishable with imprisonment for a term up to 1 year or with fine up to INR 50,000/- or both.

Maternity Benefit
No employment
  1. No employer to employee a woman during 6 weeks immediately following her day of delivery, miscarriage or medical termination of pregnancy.
  2. No woman to work during six weeks immediately following her day of delivery, miscarriage or medical termination of pregnancy. (similar to existing law)

Applicability
  1. applicable to every shop or establishment in which 10 or more employees are employed (similar to existing law).
  2. To woman who has actually worked for a period not less than 80 days in 12 months (similar to existing law)
Maximum Period of Maternity Benefit:
shall be 26 weeks of which not more than 8 weeks shall precede the expected date of her delivery.

Woman having 2 or more children:
shall be 12 weeks of which not more than 6 weeks shall precede the date of her expected delivery.

Cr่che:
establishment with 50 employees (or as prescribed by Central Govt.) to provide Cr่che facility, however establishment may avail common cr่che facility.

Penalty:
any dismissal, discharge, reduction in rank or otherwise penalizes a woman employee or fails to provide any maternity benefit to which a woman is entitled to - punishable with imprisonment up to 6 months or with fine up to INR 50,000/- or both.

Employee Compensation
  • Reports of fatal accident resulting in death or serious bodily injury within 7 days to competent authority.
  • Employer liable to pay compensation if any personal injury is caused to employee by accident or occupational disease.
  • Accident occurred while commuting to work or from work after performing duty – shall be deemed to have arisen out and in course of employment (similar to existing law).
Compensation[3]:
  1. In case of death:
    amount equal to 50% of monthly wages[4] of deceased employee * relevant factor[5] or amount notified by Govt.
  2. In case of permanent disability:
    amount equal to 60% of monthly wages * relevant factor or any amount notified by Govt. (similar to existing law).
Indemnity by Contractor:
Employer entitled to be indemnified by Contractor.

Offences and Penalties
  • Opportunity to Correct - Section 137 allows employer an opportunity to correct non-compliance for any offence under the Code prior to the initiation of the prosecution or proceedings.
  • Compounding of Offence- any offence committed for 1st time which is punishable with:
    1. Fine
    2. Imprisonment up to 1 year and with fine
May be compounded on payment of an amount
  1. In case of fine – half of the maximum fine
  2. In case of imprisonment – 3/4th of maximum fine

Repeat offender to get enhanced punishment (imprisonment up to 2 years and with fine of INR 2 Lakhs)

Conclusion:
The Code once notified will not only incorporate existing major labor laws but will also provide clarity on coverage of unorganized sector, fixed term employment etc. In addition to this, the Code will force the employer to revisit and re-access the implication and compliances provided in the Code.

End-Notes:
  1. Registration either electronically or otherwise along with AADHAR number in form and manner prescribed
  2. Employer to pay gratuity on a pro rata basis and not on the pre-existing requirement of continuous service of 5 years.
  3. Amount of INR 1 lakh 40 thousand (as per existing law) – removed
  4. Amount deemed to be payable for a month's service
  5. Relevant factor means – as per 6th Schedule - completed no. of years of age on last birthday of employee immediately preceding date of compensation

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