Contributions Under the Draft Social Security Code

The Union Labour and Employment Ministry released the draft Social Security Code, 2018, version 2.0. The code aims to reframe the existing social security architecture by replacing as many as 15 laws with a single but integrated labour code. The laws to be replaced include the Employees’ Provident Fund and Misc Provisions Act, 1952, the  Employees’ State Insurance Act, 1948, the Maternity Benefit Act, 1961, and the Payment of Gratuity Act, 1972.

The existing social security laws largely exclude unorganized sector workers which constitute over 90% of the total labour force. Therefore, the current architecture is not only structurally complex and opaque but also very limited in its reach. The draft labour code aims to simplify, rationalize and consolidate multiple social security laws into one single code which will have higher coverage, easier understanding and better enforcement.

What will replace UAN

The code aims to bring both organized as well unorganized sector workers under the same social security net via a common registration platform which implies the present concepts of the IP (of ESIC), UAN (of EPFO), and UWIN (of Unorganized Worker’s Act) will merge into one identity called the VIKAS (Viswakarma Karmik Suraksha Khata).

Who will be covered by the Labour Code

The Code prescribes for registration of all kind of employers including the commercial establishments, households employing domestic labour, contractors as well as own-account-enterprise. This is a dramatic change from the current coverage of the EPF which only applies to companies employing more than 20 workers.

Who will manage the social security funds

There will be state-specific social security funds. These will be managed by a social security board for each state and union territory.

Worker Categories

The workers at the time of registration shall be classified into four categories (SEC I, II, III, IV) based on their socio-economic status. As per the classification envisaged in the Code, Sec IV category is the most deprived section of the society while Sec-I has the strongest socio-economic status.

Contributions to be paid by employers and workers under the Social Security Code

• The code lays down the maximum contribution payable by the employer is capped at 17.5% of the monthly income upto the wage ceiling. The wage ceiling will be set by the Central Government from time to time. For instance, the wage ceiling under the EPF Act, 1952 for the purposes of pension payment has been set at Rs 15,000 per month. The maximum pensionable salary is Rs 15,000 even if your actual salary is higher.
• In addition to that, the employer needs to pay 2% of the wage as a contribution to the state gratuity fund. The contribution towards the gratuity fund would remain in the name of the employer until the actual disbursement of the funds to an eligible employee. This is different from the current gratuity system under the Payment of Gratuity Act which mandates the purchase of insurance policies from LIC to fund gratuity obligations under the Act.
• However, it is to be noted that the employer needs to make a consolidated contribution to the State Social Security Fund. He does not have to bifurcate his contributions scheme-wise. The employer’s contribution once received in the State SS Fund, will be credited in the name of each individuals worker account called VIKAS.
• The VIKAS account shall act as an escrow account for each worker, & from this account, subscription amount as per each scheme will be debited and credited into the scheme fund.
• The employee’s contribution is also limited to a maximum rate of 12.5% of monthly income. However, if the employee belongs to SEC-IV category, the employee contribution would be zero. This category applies to the underprivileged segment of workers but the exact definition is not laid down in the code. In case of SEC IV employees, only the employer needs to contribute. It is expected that the government will contribute on behalf of the employee belonging to SEC-IV category.
• A non-employee (own-account-worker/ owner cum worker) belonging to SEC-III category will need to contribute 20% of the minimum wages determined towards the social security fund.
• A non-employee of the SEC I or II categories, shall contribute as follows:

20% of (i) monthly income or wage ceiling whichever is lower;
or (ii) national minimum wage; whichever is higher.

• Interestingly, there is a provision for providing social assistance to persons who can not be covered under the regular contributory schemes. The person will be registered under ‘Special Registration’ and through the funds received from the state government, social assistance to such person shall be provided.

• Contributions are to be paid on monthly basis. However, for easier compliance, households, as well as own account workers, have the option to make a consolidated contribution for the quarter, semester etc.
• Administrative charges need to be paid by the employer. However, the manner of calculation of such charges has slightly changed as compared to the current EPF system. Instead of a certain percentage of wage, the administrative charged to be paid shall be calculated as a prescribed percentage (capped at 4%) of the contributions.