Highlights of the Bill
Key Issues and Analysis
PART A: HIGHLIGHTS OF THE BILL
Context
Labour falls under the Concurrent List of the Constitution. Therefore, both Parliament and state legislatures can make laws regulating labour. Currently, there are over 100 state and 40 central laws regulating various aspects of labour such as resolution of industrial disputes, working conditions, social security and wages.[1] The Second National Commission on Labour (2002) (NCL) had examined existing labour laws and recommended their re-consolidation into broader groups such as industrial relations, wages, social security, safety, and welfare and working conditions.[2] Subsequently, four labour Codes were introduced in Parliament. These four codes relate to: (i) wages, (ii) occupational safety and health, (iii) social security, and (iv) industrial relations. While the Code on Wages, 2019 has been passed by Parliament, Bills on the other three areas are pending in Parliament.
Social security refers to protection measures provided to workers to ensure healthcare and income security in case of certain contingencies such as old age, maternity, or accidents. In India, social security schemes under different laws are designed on the basis of size of establishment, nature of employment, income of worker, or income status of the worker's household. These schemes are administered through a combination of contribution-based schemes (funded by the government, employer, or employee), state-funded social assistance programmes, or, employer-liability schemes. The NCL noted that existing social security schemes have limited coverage and varied applicability based on the class of establishments, number of employees and wage ceilings. It recommended integrating these schemes, universalizing coverage to all workers and decentralizing the delivery machinery.
In this context, the Code on Social Security, 2019 was introduced in Lok Sabha by the Minister of Labour and Employment, Mr. Santosh Kumar Gangwar, on December 11, 2019. Following this, the Bill was referred to the Standing Committee on Labour on December 23, 2019. The Committee submitted its report on July 31, 2020.[3]
Key Features
The Bill replaces nine laws. The Annexure to this Brief compares the provisions of the Bill with these laws.
Social Security Schemes and Funding
Coverage and Registration
Social Security Organisations
Inspection and Appeals
Employment Information and Monitoring
Offences and Penalties
PART B: KEY ISSUES AND ANALYSIS
Purpose of the Bill
The Bill replaces nine laws related to social security. The National Commission on Labour (2002) (NCL) had emphasised the need for universal and comprehensive social security coverage to avoid deprivation of basic needs of workers, and recommended the simplification and consolidation of existing laws towards this end.2 The Statement of Objects and Reasons of the Bill states that it seeks to simplify and amalgamate the provisions of these laws in line with the NCL recommendations.[4]
The NCL recommended that: (i) the social security system should apply to all establishments, (ii) the existing wage ceilings for coverage should be removed, and (iii) there should be a functional integration of the administration of existing schemes. Further, every employer and employee may make a single contribution for the provision of all the benefits, with a ceiling prescribed for such contributions. However, the Bill largely retains the current set up and does not fully implement these recommendations.
First, the Bill continues to retain thresholds based on size of establishment for making certain benefits mandatory. Benefits, such as pension and medical insurance, continue to be mandatory only for establishments with a minimum number of employees (such as 10 or 20 employees). All other categories of workers (i.e., unorganised workers), such as those working in establishments with less than 10 employees and self-employed workers may be covered by discretionary schemes notified by the government. This is similar to the current system where unorganised workers are governed by a different law (being subsumed by the Bill) under which voluntary schemes are notified for such workers.[5] A large numbers of workers may continue to be excluded. Note that the Periodic Labour Force Survey Report (2017-18) indicates that 71% of regular wage/salaried employees in the non-agricultural sector did not have a written contract and 50% did not have any social security benefit.[6]
Second, the Bill continues to treat employees within the same establishment differently based on the amount of wages earned. For instance, provident fund, pension and medical insurance benefits are only mandatory to employees earning above a certain threshold (as may be notified by the government) in eligible establishments.
Third, the Bill continues to retain the existing fragmented set up for the delivery of social security benefits. These include: (i) a Central Board of Trustees to administer the EPF, EPS and EDLI Schemes, (ii) an Employees State Insurance Corporation to administer the ESI Scheme, (iii) national and state-level Social Security Boards to administer schemes for unorganised workers, and (iv) cess-based labour welfare boards for construction workers.
The Standing Committee on Labour (2020) examined the Bill and recommended that the Code provide a framework for achieving universal social security within a definite time frame.3 It made several recommendations for expanding the coverage of establishments, employees, and types of benefits. These include: (i) re-considering establishment-size based thresholds and expanding the definition of “establishment” to include other enterprise categories such as agricultural and own account enterprises, (ii) expanding definitions of “employees” to include Asha and Anganwadi workers, “inter-state migrant workers” to include self-employed persons from another state, and “unorganised workers” to include agricultural workers, (iii) creating a separate fund for inter-state migrant workers, (iv) introducing unemployment insurance for unorganised workers and (v) and re-introducing labour welfare funds for workers in certain industries such as iron ore mines and beedi establishments.
Table 1 below compares the Bill against the recommendations of the NCL on the existing laws with the Bill. It further sets out the recommendations of the Standing Committee on the provisions of the Bill.
Table 1: Comparison of Bill with existing laws and NCL recommendations
Feature |
NCL Recommendations |
2019 Bill |
Standing Committee Recommendations |
Coverage |
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Registration |
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Portability |
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Delivery |
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Sources: Existing social security Acts; 2nd National Commission on Labour; Report of the Standing Committee on the Bill; 2019 Bill; PRS.
Provisions on gig workers and platforms workers are unclear
The Bill introduces definitions for ‘gig worker’ and ‘platform worker’. Gig workers refer to workers outside the “traditional employer-employee relationship”. Platform workers are those who access organisations or individuals through an online platform and provide services for payment. The Bill also creates provisions for unorganised workers. An unorganised worker is defined as one who works in the unorganised sector, and includes workers not covered by the Industrial Disputes Act, 1947, or other provisions of the Bill (such as provident fund or gratuity). It also includes self-employed workers. The Bill mandates different schemes for all these categories of workers. However, there may be some overlap between their definitions. We illustrate this below.
Consider the example of a driver working for an app-based taxi aggregator. Here, there is no employee-employer relationship. For example, appointment letters are not issued, social security benefits are absent, work hours are not regulated by the employer, and the driver may choose to work for a competitor taxi aggregator. Therefore, the nature of the work involved may lie outside the purview of a ‘traditional employer-employee relationship’, making him a ‘gig worker’. However, the driver is able to pursue this job only through an online platform. This would meet the definition of a ‘platform worker’ as well. Such a driver may also be an ‘unorganised worker’ as he may be self-employed. With such overlap across definitions, it is unclear how schemes specific to these categories of workers will apply. Further, the Code is silent on how these schemes will be funded. The Standing Committee on Labour (2020) examining the Bill recommended: (i) expanding the definition of “unorganised workers” to include gig and platform workers, (ii) making the definition of “gig worker” more specific to avoid misinterpretation, and (iii) expanding the definition of “platform worker” to enable inclusion of future models of work.3
Note that workers in the gig economy are typically classified as independent contractors and thus are not provided labour protections, including social security benefits.[7] The Code does not specify how the role of third parties (such as, digital intermediaries) will be determined to decide their liability in funding schemes for gig and platform workers. Globally, some regions have defined principles by which to identify employer-employee relationships which may be disguised and mis-classified as independent contract work. For example, the state of California passed a Bill in 2019 which classifies certain independent contractors as employees and entitles them to certain benefits such as health insurance, if the hiring company fails to prove that: (i) the tasks performed by the person fall outside the usual course of the company’s business, (ii) the company does not exercise control over the manner in which the person performs their tasks, and (iii) the person is customarily engaged in a trade or occupation of the same nature as that involved in the work performed.[8] The European Union has also passed directives to recognise the rights of persons in certain non-standard employments like platform work, if they work for over an average of three hours per week over a four-week period.[9]
Mandatory linking with Aadhaar may violate Supreme Court judgement
The Bill mandates an employee or a worker (including an unorganised worker) to provide his Aadhaar number to receive social security benefits. This may violate the Supreme Court’s Puttaswamy-II judgement.[10] In its judgement, the Court had ruled that the Aadhaar card/number may only be made mandatory for expenditure on a subsidy, benefit or service incurred from the Consolidated Fund of India. Applying this principle, the Court has struck down the mandatory linking of bank accounts with Aadhaar. Since certain entitlements such as gratuity and provident fund (PF) are funded by employers and employees and not by the Consolidated Fund of India, making Aadhaar mandatory for availing such entitlements may violate the judgement. Note that the Employees’ Provident Fund Organisation (EPFO) had made Aadhaar linking with PF accounts mandatory in 2015. After the judgement, the EPFO issued orders against the enforcement of these provisions.[11] In the context of mandatory linking of Aadhaar for registration of unorganised workers, the Standing Committee on Labour (2020) noted the government’s assurance that this provision will be re-examined.3
Threshold for applicability of Bill left to delegated legislation
The threshold for applicability of various social security schemes is specified in the First Schedule of the Bill. For example, the Employee’s Provident Fund will be applicable for every establishment with at least 20 employees. The Bill empowers the central government to amend this schedule. Therefore, the threshold for applicability of the social security schemes can be changed by the government through notification. Note that under the existing laws, this power could only be exercised through amendments passed by Parliament or state legislatures. The question is whether the power to decide such thresholds should be retained by the legislature of whether it should be delegated to the government. The Standing Committee on Labour (2020) also noted that the Bill delegates various aspects for rule-making by the government, especially in relation to defining the entitlements, benefits and contributions under the Bill.3 It suggested that the Ministry review all such instances of delegation in the Bill.
Other Labour Codes and recommendations of the Standing Committee
The Standing Committee on Labour (2020) gave certain other recommendations on the Bill. Further, some of the Committee’s recommendations on another labour code pending in Parliament, i.e. the Occupational Safety, Health and Working Conditions (OSH) Code, 2019, may also apply to this Bill. These include:
The Bill also defines the term ‘employer’ to mean a person who employs any persons and specifically includes certain categories of workers. In the case of a factory, employer means the occupier of a factory, i.e., the person with ultimate control over the affairs of the company. However, the remaining three labour codes define the term ‘employer’ to include occupier as well as the manager of the factory. It is not clear why managers of factories have not been included in the definition. Further, the Bill also does not define certain terms used to define an ‘establishment’. These include the terms ‘industry’, ‘trade’, ‘business’, ‘manufacture’ or ‘occupation’.
Annexure: Comparison of the Bill with the laws being subsumed
The Bill replaces the following nine Acts: the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952; the Employees’ State Insurance Act, 1948; the Employees’ Compensation Act, 1923; the Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959; the Maternity Benefit Act, 1961; the Payment of Gratuity Act, 1972; the Cine-workers Welfare Fund Act, 1981; the Building and Other Construction Workers’ Welfare Cess Act, 1996 and the Unorganised Workers Social Security Act, 2008.
Table 2: Comparison of the existing nine laws with the Bill
Current laws |
Code on Social Security, 2019 |
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Sources: Existing nine Acts; The Code on Social Security. 2019; PRS.
[1]. “List of Central Labour Laws Under Ministry of Labour and Employment”, Ministry of Labour and Employment.
[2]. Report of the 2nd National Commission on Labour, Ministry of Labour and Employment, 2002.
[3]. Report No. 9: “The Code on Social Security”, Standing Committee on Labour, Lok Sabha, July 31, 2020.
[6]. Periodic Labour Force Survey Report (2017-18), Ministry of Statistics and Programme Implementation, May 2019.
[7]. “Strengthening social protection for the future of work”, International Labour Organisation, February 15-17, 2017.
[8]. Assembly Bill No. 5 (amending the Labour Code and the Unemployment Insurance Code).
[9]. “Directive on transparent and predictable working conditions in the European Union”, May 24, 2019.
[10]. Justice K.S. Puttaswamy Vs. Union of India, Supreme Court, Writ Petition (Civil) 494 of 2012, September 26, 2018.
[11]. Seeding KYC details in UAN Portal, Employees’ Provident Fund Organisation, October 18, 2018.
[12]. “Report No. 4: The OSH Code, 2019”, Standing Committee on Labour, February 11, 2020.
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