Decoding the New Draft Social Security Code

The Union Labour Ministry is set to overhaul the social security architecture of India with the draft proposal of the new Social Security Code, 2018. The recently released draft talks about amalgamation and rationalization of the labour laws in the country by replacing as many as 15 social security laws including the Employees’ Provident Fund Act, 1952 and the Employees’ State Insurance Act, 1948 with a single but integrated Labour Code.

The code once enacted will make about tenfold increase in the social security coverage along with many added benefits. The draft also proposes for the establishment of a National Social Security Council under the chairmanship of the Prime Minister. However, despite all the fanfare around the proposed code, it has faced strong criticism from certain sections of the civil society. Let’s decode the highs and lows of the proposed provisions under the freshly drafted labour code.

Key Provisions

• The new code envisions to replace about 15 existing social security laws which are currently outdated and redundant. This includes laws like Unorganized Workers’ Social Security Act, 2008, Employees’ State Insurance Act, 1948, the Employees’ Provident Fund Act, 1952, Maternity Benefits Act, 1962 and the Payment of Gratuity Act, 1972. This means that the new code would provide integrated social security coverage to about 50 crore workers and design a common platform of registration to both organized and unorganized sector workers.

• The Labour Commission has proposed a decentralized structure of social security regulation and management involving state governments and local bodies like gram panchayats along with central government’s coordination. However, the draft proposes to dismantle the EPF, the ESI and six other centrally managed welfare schemes. That means that these funds worth lakhs of crore rupees along with employees would be transferred and divided between the state boards. This is a major concern of the civil society as these boards have not been historically so efficient in fund management of this scale.
• Interestingly, the code prescribes for registration of all kind of employers including the commercial establishments, the households employing domestic workers as well as contractual workers. An ‘Own-Account-Enterprise’ will be registered both as employer and worker automatically. It is projected that the scope of the code would increase by ten times than the existing coverage in order to provide the universalized social security coverage.
• The draft proposal solidifies the social security cover in favour of the employee in various circumstances. For example, there is a provision for payment of part of the gratuity even when the establishment is running losses. The code includes many other workers including unemployment benefits and group insurance. Also, the new scheme proposes to provide benefits to the workers.
• The new labour code also proposes to constitute a National Social Security Council to be chaired by the Prime Minister in order to ensure smooth inter-ministerial coordination and develop a harmonious relationship between centre and states and other stakeholders. Apart from that, the code also seeks to establish a Central Board of Social Security as well as State Boards of Social Security in each state.
• The proposed code, while taking the plight of the migrant workers who switch jobs frequently, provides a provision for a portable social security account. This kind of account would be specifically called “VIKAS” (Vishwakarma Karmik Suraksha Khata). Surprisingly, the code mandates the portable account to be mandatorily linked with Aadhaar. This provision may be removed after the Supreme Court’s recent Aadhaar judgment.
• In accordance with the provisions of the new code, there shall be a state administrative fund prescribing administrative charges to be levied upto five percent of the total payable contribution. The provision looks like a retrograde step as currently, EPFO levies just 0.5% as admin charges.
• The code puts an obligation on the employer to pay his contribution in case of default or failure of registration of employee under the social security net along with 12% interest from the due date.

With these proposals, the new social security code attempts to simplify and rationalize the Indian social security architecture, in lines with the recommendations of the 2nd National Commission on Labour (2002). However, there are many issues which still remain to be addressed, especially on the implementation ground.

The main bone of contention between the government and the civil society is the feasibility of at par treatment of unorganized sector employees with the organized ones. As per the existing labour laws, organized sector employees are mandated to contribute about 12% of their basic salary towards social security. However, the mandate, if applied to unorganized sector employees may negatively affect their consumption and saving pattern as they don’t have regular employment and have lower in hand salary.

Besides that, ensuring smooth centre-state and interstate coordination along with efficient state boards in social security claim settlements would be a key ingredient for the success of the draft Labour Code.  Also, sudden registration of such a large number of beneficiaries in the social security net would be a huge challenge. Finally, it is true that providing social security benefits to the downtrodden section is a big leap forward but at the same time, the scheme can be successful only when it is well understood and accessed by the targeted section of the society.