Labour Codes: Code on Social Security, 2020

[Ed Note: On 23rd September 2020, the Parliament passed the new labour codes namely, the Industrial Relations Code, 2020, the Occupational Safety, Health and Working Conditions Code, 2020, and the Code of Social Security, 2020. In 2019, the Ministry on Labour and Employment introduced these codes along with the Code on Wages to codify 29 central labour laws. The three codes subsequently received the Presidential assent on 29th September 2020. In the coming days, we will be publishing explainers on each of these three labour codes. Earlier our reporter, Chitranksha Kumari looked at the The Industrial Relations Code, this post. In this post Sahil explains the contents of the Code on Social Security, 2020, and identifies key issues with it.]

On September 28, the President of India assented to one of the four labor codes, namely, the Code on Social Security, 2020 (hereafter, the Code). The Code was introduced in an attempt to consolidate and simplify nine of the central social security regulations. However, it is far from being a mere consolidation of previous laws, since it has been said to enhance its coverage and benefits to workers in organized as well as unorganized sectors, and to introduce concepts such as providing maximum benefits under minimum governance, etc. It is therefore important for the stakeholders to assess the implications and revisit the compliance requirements under the Code. In this post, we will discuss some new changes introduced by the Code and potential limitations of the Code and the corresponding Code on Social Security (Central) Draft Rules, 2020 (hereafter, the Draft Rules) released by the government.

A. Key Changes Introduced Through the Code

(i) Changes in Definitions

The Code has introduced changes to the definitions of crucial terms in order to expand the scope of the benefits provided in the Act. For instance, the definition of ‘employees’ has been expanded to include workers employed through contractors. Further, ‘inter-state migrant workers’ will now include self-employed workers from another state. The Code also empowers the government to include additional categories of services or activities in the category of ‘platform workers’ by issuing a notification. It also expands the definition of audio-visual productions to include films, web-based serials, talk shows, reality shows and sports shows. It exempts construction works from the ambit of “building or other construction work” if the total cost of construction work exceeds Rs 50 lakhs or if they employ more than a certain notified number of workers.

(ii) Benefits to Gig Workers and Platform Workers

The inclusion of the gig and platform workers in the Code has been seen as the most significant step towards strengthening the formal economy in India. The Code defines gig workers as workers outside the traditional employer-employee relationship. Platform workers, on the other hand, are the people engaged in platform work such as solving specific problems of other individuals or organizations or to provide specific services by using an online platform. Although the Code does not provide for any specific social security to be provided to gig workers and platform workers, yet it empowers the Central Government and State Governments to notify schemes for such workers related to life and disability cover, health and maternity, provident fund, employment injury benefit, housing, etc. The Code clarifies that schemes for gig workers and platform workers may be funded through a combination of contributions from the central government, state governments, and aggregators. An aggregator means a digital intermediary or a market place for a buyer or user of a service to connect with the seller or the service provider. Whether such schemes would apply to all unorganized workers, gig workers and platform workers irrespective of the quantum of salary earned by them will depend on the final framework of the schemes introduced by the State or Central Government.

Interestingly, the Draft Rules released by the Government propose the formation of a separate National Social Security Board for gig workers and platform workers. This board will make recommendations for formulating schemes for gig workers and platform workers and will monitor such schemes. It will also advise the Central Government on issues that arise out of the Code’s administration. Further, the Code also obligates the Government to set up a Social Security Fund especially for these workers, which was not necessary for the government to create as per Code on Social Security Bill of 2019.

(iii) Registration

The Code mandates that every unorganized worker, gig worker or platform worker is required to be registered. For that purpose, every eligible unorganized worker, gig worker or platform worker is required to make an application for registration along with prescribed documents (including Aadhaar number), and all workers shall be assigned a distinguishable number to their individual application. In this light, as per the Draft Rules, workers can only register themselves by submitting Aadhar card-related and other details only through an electronic medium. Notably, some scholars and labor-right workers have presented their concerns about whether the Code will be able to ensure the registration of every single worker in the informal sector, given the diversity and fluidity of their work and inadequate electronic and internet facilities available for the workers.

B. Issues and Limitations under the Code

(i) Arbitrary Categorizations and Exclusion of Informal Workers

Although the Code has certainly made strides to extend social security benefits to gig workers and platform workers, yet it has certain limitations. Section 2(6) retains the old threshold of only those sites with 10 or more building and other construction workers to enjoy the benefits of the Code. This implies that ‘personal residential construction workers’, which form a large proportion of daily waged workers, may end up being excluded from the provisions of the Code. The Code continues to retain thresholds based on the size of establishment for making certain benefits mandatory.  Benefits, such as pensions, medical insurance, and provident fund, continue to be mandatory only for the establishments with a certain minimum number of employees (such as 10 or 20 employees). This leaves out nearly 80% of all Indian workers in the informal sector from the ambit of these benefits. Further, such low numeric thresholds may create adverse incentives for establishments to remain small, in order to avoid complying with labor regulation.

Moreover, under Section 2(82), the Code continues to categorize employees within the same establishment based on the amount of wages earned by them as a basis for eligibility to enjoy the social security benefits, despite the Standing Committee’s recommendation to remove it. The Standing Committee noted that the implication of such provision would not only be to limit the scope of wage worker in the unorganized sector, but it will also result in artificial restrictions in the proper implementation of the social security provision. Thus, benefits like provident fund, pension and medical insurance are only available to employees that earn above a certain threshold (as may be notified by the government) in ‘eligible’ establishments.

(ii) Representation of Unorganized labor and Social Dialogue

Section 6(2)(i)(ii) of the Code provides for the nomination of seven members of workers and employers of the unorganized sector to the National Social Security Board (NSSB). However, Rule 9(1)(d) of the Draft Rules provides that Central Government ‘may’ seek nominations from amongst the representatives of associations of unorganized sector workers and employers’ associations of the unorganized sector, in the National Social Security Board. This must be seen in contrast to the usage of the word ‘shall’ used for the nomination of other members in the board which suggests that the government has discretionary power in nominating the workers and employers to the Board. Thus, it is not clear as to how the representation of unorganized workers and employers will be secured in the Board. This shows that the present Code and the Rules continue the governance of labor with a poor framework of social dialogue for relevant stakeholders.

(iii) Appeals, Provisions for assessment, and Penalties

The 2019 Bill on Social Security empowered the authorized officers to conduct inquiries and decide the disputes regarding the applicability of the provisions and amounts due under the benefits such as provident fund and employee state insurance for employers and employees. Any aggrieved party was empowered to file for a review of the order. However, the Code introduced in 2020 removes the provision for such a review. Moreover, it also removes the provision that empowered the authorities to reopen any case and pass further orders to re-determine the amounts due from the employer within five years of the order if they had a reason to believe that certain amounts had escaped their notice earlier. This can happen either because of the failure of the employer to disclose relevant documents/facts or because of certain information that was received subsequent to the order. Thus, it has been argued that such restrictions on authorized officials will deter their ability to protect the interests of the workers.

Similarly, the Code changes the penalties for certain offences. For example, the maximum imprisonment for obstructing an inspector from performing his duty has been reduced from one year to six months. And the penalty for unlawfully deducting the employer’s contribution from the employee’s wages has been changed from imprisonment of one year or fine of Rs 50,000 to only fine of Rs 50,000. It has been argued that this can make it easier for employers to flout legally required social protection for workers.

C. Conclusion

Although, the Code and the Rules have sought out to extend the provisions of the law to more people, yet their remains certain concerns regarding their ability to universalize social security. These concerns and issues are majorly related to the inclusion of labor from the informal sectors and their representation in the system, registration model, the portability of social security benefits, etc. It has also been argued that the Code excessively on the Executive by leaving many substantive issues to the ‘rule-making process’. Therefore, to achieve the desired objectives of the Code, there is an inescapable need to cover the critical gaps in significantly basic issues and allay the concerns of the stakeholders.

Further Readings –

Sahil Aggarwal

Sahil is second-year student at NALSAR. He is an enthusiast exploring the different dimensions of public law, to find the best field for himself. He is also interested in sports and books.

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