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To reform the archaic labour and employment law legislations
pertaining to social security, the Central Government has enacted
the Code on Social Security, 2020
(“Code“) with an aim to extend the
social security benefits to maximum workforce working in either the
organized or the unorganized sectors.
The Code has repealed the following 9 (nine) major labour law
legislations: (i) The Employee’s Compensation Act, 1923; (ii)
The Employees’ State Insurance Act, 1948; (iii) The
Employees’ Provident Funds and Miscellaneous Provisions Act,
1952; (iv) The Employment Exchanges (Compulsory Notification of
Vacancies) Act, 1959; (v) The Maternity Benefit Act, 1961; (vi) The
Payment of Gratuity Act, 1972; (vii) The Cine-Workers Welfare Fund
Act, 1981; (viii) The Building and Other Construction Workers’
Welfare Cess Act, 1996; and (ix) The Unorganized Workers’
Social Security Act, 2008.
This article provides a comparative analysis of the key changes
introduced under the Code except these acts i.e., The Cine-Workers
Welfare Fund Act, 1981 and The Building and Other Construction
Workers’ Welfare Cess Act, 1996, with the current labour law framework and its impact on the
employment ecosystem of India.
Contrast between the Extant Framework and the Prospective
Framework
1. Registration of establishment
- Extant Framework: Currently, the registration
of an establishment is required across all the previous labour and
employment legislations. - Prospective Framework: Every establishment to
which the Code applies has to register themselves via the Shram
Suvidha Portal. An establishment which is registered under the
current labour law legislations need not register themselves again
however, such establishments will be required to update the
registration particulars on the Shram Suvidha Portal under the
Code.
2. Appeal to the Industrial Tribunal under the
Employees’ Provident Fund: Time limit and Fees
- Extant Framework: Currently, the time limit of
6 (six) months is prescribed for the Tribunal to decide the appeal
from the date of its registration and the fees for filing an appeal
to Tribunal is INR 2000 (Indian Rupees Two Thousand). For an appeal
to be raised by an employer before the Tribunal, the percentage of
deposition of sum which is due on part of the employer is 75%
(seventy five percent). - Prospective Framework: Under the Code, the
Tribunal needs to decide the appeal within 1 (one) year from the
date the appeal has been preferred and the fees for filing an
appeal to tribunal has been raised from INR 2000 (Indian Rupees Two
Thousand) to INR 5000 (Five Thousand) respectively. The percentage
of deposition of sum which is due on part of the employer has been
reduced from 75% (seventy five percent) to 25% (twenty-five
percent).
3. Limitation Period
- Extant Framework: Currently, there is no time
period prescribed for initiating the proceedings in terms of
determining any dues from an employer and dispute regarding the
applicability to an establishment under the Employees’ Provident Fund
(“EPF“) and the Employees State
Insurance Corporation (“ESIC“). - Prospective Framework: A limitation period of
5 (five) years has been prescribed under the Code to initiate
proceedings in terms of determining any dues from an employer and
dispute regarding the applicability to an establishment under the
EPF and the ESIC.
4. Prior opportunity before prosecution
- Extant Framework: Currently, no such prior
opportunity is provided to the employer to correct a non-compliance
in terms of the EPF and the ESIC or any other labour law
legislations. - Prospective Framework: Under the Code, the
employer has been provided a prior opportunity to correct a
non-compliance in terms of the EPF and the ESIC or any other
provisions stipulated under the Code within a specified time-period
before any prosecution is initiated against the employer. However,
no such opportunity will be provided, if an employer violates the
same provisional requirements more than once within 3 (three) years
from the date of the first violation.
5. Fixed Term Employment
- Extant Framework: Currently, the definition of
the term ‘fixed term employment’ has not been defined in
the labour law legislations. - Prospective Framework: Under the Code, the
definition of the term ‘fixed term employment’ has been
introduced which means the engagement of an employee on the basis
of a written contract of employment for a fixed period.
Furthermore, the hours of work, wages, allowances, and other
benefits shall not be less than that of a permanent employee and
such benefits shall be proportionate to the period of service
rendered by such employee.
6. Gratuity
- Extant Framework: Currently, gratuity is not
payable to an employee who is employed on fixed term employment on
pro rata basis or upon termination of the contract period under the
fixed term employment. Further, the time period for making an
application by the claimant employee, nominee or legal heir to the
competent authority for issuing a direction is 90 (ninety) days to
in disputes pertaining to amount of gratuity, admissibility of
claim, person entitled to receive gratuity, etc. Moreover, the
Central Government has specified that the amount of gratuity
payable to an employee under the Payment of Gratuity Act, 1972,
shall not exceed 20 (twenty) lakh rupees. - Prospective Framework: Under the Code,
Gratuity is payable to an employee upon termination of the contract
period under the fixed term employment or on happening of any such
event notified by the Central Government. Further, completion of
continuous service of 5 (five) years is not necessary wherein fixed
term employment has expired or on happening of any such event
notified by the Central Government. Furthermore, employee employed
on fixed term employment will also be eligible for gratuity on pro
rata basis given by the employer. An employee on fixed term
employment is eligible for gratuity, if he renders service under
the contract for a period of 1 (one) year and he shall be paid
gratuity at the rate of 15 (fifteen) days’ wages, based on the
rate of wages last drawn by him, for every completed year of
service or part thereof in excess of 6 (six) months. Under the
Code, the time period for making an application by the claimant
employee, nominee or legal heir to the competent authority for
issuing a direction has been increased from 90 (ninety) days to 180
(one hundred and eighty) days in disputes pertaining to amount of
gratuity, admissibility of claim, person entitled to receive
gratuity, etc. Further, the threshold of the amount of gratuity
payable to an employee has not been notified by the Central
Government yet, under the Code.
7. Consolidated definition of the term
‘Wages’
- Extant Framework: Currently, the definition of
the term ‘wages’ is different in different labour law
legislations.
- Prospective Framework: Under the Code, a
single, uniform definition for ‘wages’ with specified
inclusions and exclusions has been introduced across all the 4
(four) codes. As per the Code, the term ‘wages’ means all
remuneration paid in way of salary and allowances and includes
‘basic pay’, ‘dearness allowance’ and
‘retaining allowance’ (if any). It excludes components such
as bonus, value of house accommodation or electricity, water or
medical attendance, provident fund contribution, conveyance
allowance, house rent allowance, overtime allowance etc. It is
significant to note that a proviso has been inserted under the
definition of ‘wages’ to construe that the excluded
components cannot exceed one half, or such other percent as
notified by the Central Government, of all the remuneration payable
to the employee. In the event, such amount exceeds one half, or
such percent as prescribed by the Central Government, the same
shall be considered as ‘wages’. Another proviso has been
added in the definition to provide that in the event, an employee
is given any remuneration in kind by the employer, the value of
such remuneration in kind not exceeding 15% (fifteen percent) of
the total wages, shall be deemed to form part of the wages payable
to such employee.
8. Social security for unorganised workers, gig workers and
platform workers
- Extant Framework: Currently, the Central
Government has formulated welfare schemes in relation to the
unorganised workers in matters pertaining to life and disability
cover, health and maternity benefits, old age protection, etc.
Furthermore, for registration purposes, every unorganised worker
shall have completed 14 (fourteen) years of age.
- Prospective Framework: Under the Code, every
unorganised worker, gig worker or platform worker who has completed
16 (sixteen) years of age has to be registered, with Aadhar, on
self-declaration basis in the form on the Shram Suvidha Portal.
Provided that such worker has been engaged as gig worker or
platform worker, for not less than 90 (ninety) days during the
preceding 12 (twelve) months. Further, the Central Government will
be formulating suitable welfare schemes for gig workers and
platform workers on matters pertaining to life and disability
cover, accident insurance, health and maternity benefits, old age
protection, creche, etc.
Furthermore, education is introduced as one of the suitable
welfare schemes for unorganized workers to be framed by the Central
Government. Moreover, a social security fund has been established
by the Central Government for social security and welfare of the
unorganised workers, gig workers and platform workers wherein,
aggregators have to contribute to the fund ranging from 1 % (one
percent) to 2% (two percent) of the annual turnover of every such
aggregator. For ease of reference, the term ‘aggregator’
means a digital intermediary or a marketplace for a buyer or user
of a service to connect with the seller or the service
provider.
9. Voluntary Coverage of EPF and ESIC
- Extant Framework: Currently, the concept of
voluntary opt in and opt out regarding the applicability of EPF and
ESIC does not exist.
- Prospective Framework: Under the Code, the
employee threshold regarding the applicability of EPF and ESIC
remains the same. However, the concept of voluntary opt in and opt
out of social security schemes has been introduced under the Code.
In case of opt in or opt out of the applicability of EPF, an
application needs to be made to the Central Provident Fund
Commissioner by the employer of the establishment and there should
be an agreement between the employer and the majority of employees
as regards the same. In case of opt in or opt out of the
applicability of ESIC, an application needs to be made to the
Director General of the Corporation by the employer of the
establishment and there should be an agreement between the employer
and the majority of employees regarding the same.
10. Employee’s State Insurance Corporation
- Extant Framework: Currently, the Employees
State Insurance Act, 1948 is applicable to all factories (including
factories belonging to the Government) in which 10 (ten) or more
persons are employed or were employed on any day of the preceding
12 (twelve) months, other than seasonal factories. Furthermore, the
corporation rights are limited under the current legislation in
respect of principal employer failing or neglecting to pay any
contribution.
- Prospective Framework: The scope of the
applicability of the ESIC has been widened under the Code, wherein,
apart from the establishment where 10 (ten) or more persons are
employed other than a seasonal factory, it is also applicable to
such establishments which carries on hazardous or life-threatening
occupation as notified by the Central Government, in which even a
single employee is employed. Furthermore, the Code expands the
scope of the corporation’s rights when an employer fails to pay
the contribution to the employee which is inclusive of the
employer’s failure or neglect to insure (i) an employee at the
time of his appointment, which deprives him of the entitled
benefits and (ii) employee on/after the date of accident resulting
in personal injury, which disentitles him to receive dependent
benefit or disablement benefit. Moreover, under the Code, the
employer needs to register the person before taking into employment
by entering his name and Aadhar number on the Shram Suvidha Portal
unless registered under the ESIC, post which a registration number
will be allotted to the employee which will be used by the employer
for filing the contributions and the same number will be used by
the employee for availing any benefits available to him and (or)
his family members under the Code.
11. Maternity Benefit
- Extant Framework: Currently, there is no
concept of common creche facility being availed by an
establishment. Moreover, a maximum amount of INR 20,000 (Indian
Rupees Twenty Thousand) is granted by the Central Government as a
medical bonus.
- Prospective Framework: Under the Code, a
common creche facility has been introduced wherein, any
establishment may avail such common creche facility of the Central
Government, State Government, municipality, or private entity or
provided by non-Governmental organisation or by any other
organisation or group of establishments who may pool their
resources for setting up of common crèche. Moreover, the
Code is silent on the aspect of maximum amount of medical bonus
being granted by the Central Government.
12. Concept of “principal employer” and
“immediate employer” removed
- Extant Framework: Currently, both the
“principal employer” and the “immediate
employer” are covered under the Employees’ State Insurance
Act, 1948. As per the provisions of the Employees’ State
Insurance Act, 1948, the establishment or factory’s principal
employer may hire employees through an immediate employer, who
would then carry out the work of the factory or establishment under
the supervision of the principal employer.
- Prospective Framework: Under the Code, the
arrangement between the principal employer (including a contractor)
and an immediate employer has been reformed under the respective
heads i.e., “employer” and “contractor”
(including a sub-contractor).
13. Inspector-cum- Facilitator
- Extant Framework: The present legislations
grant certain powers to officers and inspectors to undertake
cognizance in the of matters of any non- compliances on the part of
the employers and pass necessary orders, as it may deem fit. - Prospective Framework: It is noteworthy to see
thatthe Code has adopted a neutral approach in respect of
streamlining the processes of compliances to be undertaken by
employers. The introduction of the concept of
Inspector-cum-Facilitator has been predicted to play a very
progressive role to change the dynamics of the labour laws in
India. The role of the Inspector-cum-Facilitator is not limited to
carry out search and seizures, inspection of the records, but shall
also to act as a facilitator by rendering advice to the employers
and employees in relation to compliances under the Code. The Code
has also, recognised the significance of the principles of natural
justice wherein prior to initiating a prosecution, the
Inspector-cum-Facilitator must give an opportunity to the employer
to comply with the provisions of the Code through a written
direction. The employer is required to comply with the directions
within the stipulated time period in order to avoid any
prosecution. However, no such opportunity will be accorded to an
employer if the violation of the same nature is repeated within a
period of 3 (three) years from the date on which such first
violation was committed. Additionally, the Code also allows
inspection electronically and calling of information relating to
inspection through a web-based platform.
14. Employment Compensation
- Extant Framework: Currently, the Employees
Compensation Act, 1923, is applicable to a certain class of
employers for payment of compensation to their employees for injury
by accident. Furthermore, in the erstwhile legislation, disablement
is defined under 2 (two) heads i.e., partial disablement and total
disablement. - Prospective Framework: Under the Code, the
Employee’s Compensation is applicable to the employers and
employees to whom ESIC does not apply. Furthermore, the Code has
made a more distinctive division and it defines disablement under 3
(three) heads i.e., permanent partial disablement, permanent total
disablement, and temporary disablement.
Under the Code, the liability for compensation to the employee
by the employer has been increased which also includes an accident
occurring to an employee while commuting from his residence to the
place of employment for duty or from the place of employment to his
residence after performing duty. Such accident shall be deemed to
have arisen out of and in the course of employment if nexus between
the circumstances, time, and place in which the accident occurred
and his employment is established. This provision does not exist in
the erstwhile legislation.
15. Employment Opportunities
- Extant Framework: Currently, the role of
employment exchange is limited which is to collect and furnish
information by maintaining registers in relation to persons who
seek to engage employees, persons who seek employment, and
vacancies to which persons seeking employment may be
appointed. - Prospective Framework: Under the Code, the
concept of ‘career centre’ has been introduced which
includes any office (including employment exchange, place, or
portal) established and maintained for providing career services
(including registration, collection and furnishing of information,
either by the keeping of registers or otherwise, manually,
digitally, virtually or through any other mode). Further, the role
of career centre has been broadened which also includes providing
career counselling, vocational guidance, guidance to start
self-employment, organizing job-fairs and job drives, conducting
employment related surveys and studies, enhance employment
opportunities, etc.
16. Penalties
Under the Code, enhanced and stringent penalties have been
imposed upon the employer for non-complying with the provisions
stipulated under the Code. As an effective deterrent, the quantum
of fines levied on the employer has been increased in matters
pertaining to (including but not limited) the following: (i)
failure to pay contributions; (ii) fails to pay amount of gratuity;
(iii) fails to provide maternity benefit to a woman; (iv) fails or
refuses to submit any return, report, statement or any other
information; (v) fails to pay any amount of compensation to which
an employee is entitled; (vi) obstructs Inspector-cum-Facilitator
to discharge his duties and fails to produce on demand by the
Inspector-cum-Facilitator any register or document in his custody;
and (vii) dishonestly makes a false return, report, statement or
information to be submitted.
Moreover, compounding of offences has been introduced under the
Code which are broadly applicable to the offences relating to EPF
and ESIC and other such offences as stipulated under the provisions
of the Code. For instance, in case of an offence punishable with
fine only, compounding is allowed for a sum of 50% (fifty percent)
of the maximum fine and in case of an offence punishable with fine
and imprisonment less than 1 (one) year, compounding is allowed for
a sum of 75% (seventy five percent) of the maximum fine.
A&A Analysis
By amalgamating the 9 (nine) major labour law legislations into
1 (one) Central Labour Code, the Government aims at promoting the
ease of doing business and further, streamline and simplify the
labour law related procedures. The conscious efforts taken by the
Indian Government will inevitably help boost the economy comprising
of small to medium sized enterprises and eliminate the fear of
unrealistic labour law compliances and improve the formal
employment conditions.
It is interesting to note that the changes brought about in the
Code are both employer and employee centric with the objective
towards balancing the rights of both the employer as well as the
employee. Under the Code, several new concepts have been introduced
such as the fixed term employment, career centres, revised the
definition of the term ‘wages’ with specified inclusions
and exclusions therefore, making it uniform across all the 4 (four)
codes. However, having a uniform definition for wages will
inevitably impact the employers regarding the calculation and pay
in terms of statutory benefits and amounts. Furthermore, the
concept of prior opportunity before prosecution has been introduced
which will allow some time to the employer to rectify the
non-compliances. Moreover, social security benefits will be
extended to unorganised workers, gig workers and platform workers
who had been left out due to the restricted applicability of the
erstwhile labour legislations.
The Code also empowers the Central Government to frame suitable
welfare schemes and formulate social security fund to provide
social security benefits to the unorganised workers, the gig
workers and the platform workers who were earlier not covered by
the labour law legislations in India. Such progressive steps by the
Indian Government is the need of the hour, not only to ensure that
the social security benefits are rightfully extended to the
vulnerable workers across all the sectors but also to protect them
from any discriminatory practises and exploitation. The Code also
makes Aadhaar registration on the Shram Suvidha Portal mandatory
for the workers across all sectors to receive the social security
benefits. However, this could surface new challenges for the Indian
Government and have far reaching implications for many workers who
still do not possess Aadhaar cards and hence, will be devoid of
such benefits.
Lastly, stringent penal provisions coupled with significant rise
in the amount of the fines being imposed have been prescribed under
the Code for violation and non-compliance of its provisions which
would act as an impetus for the employers to comply with the
provisions of the Code, thus, ensuring social security benefits to
workers.
Considering the need for uniformity in the labour law framework
in India, the codification and reformation exercise of such archaic
labour law legislations under 1 (one) Central Code by the Indian
Government is a step in the right direction. It would be
interesting to note as to how the central rules and regulations
coupled with the respective state rules are formulated and
implemented and further observe, whether the same are consistent
with the implementation of the Code or not to achieve the desired
objectives.
In 2023, one of the key priorities of the Indian Government will
be the implementation of the Labour Codes which is delayed time and
again. In the meanwhile, the employers are advised to brace
themselves with the impact of the vital changes which will be
brought about by the implementation of the Code pertaining to the
compensation structure and the benefits and accordingly revise the
existing policies and the employment contracts to ensure that there
are no disputes or discrepancies in future once the Codes are made
effective.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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