Social security bill: How it will impact employees' gratuity, safeguard their EPF dues

The government has embarked on a mission to amalgamate about 40 labour laws into four Labour Codes with a view to rationalise and simplify the provisions and facilitate ease of compliance. The latest code to be placed in the Lok Sabha is the Code on Social Security 2019.

This code integrates eight laws from different realms of social security and includes Provident Fund, Employees' State Insurance, Gratuity, Maternity Benefits, Employee's Compensation, Building and Construction Workers etc. The code has 163 clauses, divided into 14 chapters in addition to six schedules on the procedural aspects.

Some specific aspects of the code are highlighted below.

Wage definition widened

The definition of wages has three parts to it - an inclusion part, specified exclusions with limits and benefits in kind. All remuneration expressed in monetary terms are wages and includes basic pay, dearness allowance and retaining allowance.

Specific exclusions are statutory bonuses, PF, pension and gratuity, house rent and conveyance allowances etc. which cannot exceed 50 per cent of total remuneration.

Remuneration provided in-kind will be included to the extent of 15 per cent of total wages. Overall this will ensure that wages for social security benefits will be at least 50 per cent of overall compensation.

Also Read: Code on Social Security 2019: Sharp division among trade unions over benefits to workers

Provident Fund, Gratuity, Maternity Benefit and ESI

The quantum of PF contributions may be impacted by the change in the definition of wages, but otherwise, the approach towards contributions, having a wage ceiling etc., are broadly in line with the current provisions.

The highlight is the introduction of a limitation period of 5 years for inquiry. The Fifth schedule provides for matters that would be provided for in the scheme and it is surprising to note that there is no specific call out of international worker provisions under this schedule.

Under the existing payment of Gratuity Act, wages include basic salary and dearness allowance and does not include any other allowances. With the wider definition under the Code, clearly, employers will have a higher gratuity payout.

On the other hand, from a maternity benefit perspective, the current definition of wages is much wider than what will be applicable under the Code on Social Security.

The code also provides for beneficial provisions of payment of gratuity to Fixed Term Employees even if they have not rendered services for a continuous period of 5 years.

Existing ESI provisions such as periodical payments in case of sickness, pregnancy-related issues such as confinement, premature birth, miscarriage, disablement from an employment injury, to dependents on the death of an insured employee, medical treatment besides payment for funeral expenses, continue.

Social security for unorganised workers

A separate scheme may be formulated for this category including gig workers, platform workers, the self-employed etc. Ensuring that such employees are covered under the social security regime, is noteworthy as otherwise this population may end up without coverage.

Also Read: RSS affiliate BMS up in arms over draft Social Security Code 2019

Penal provisions

The code intends to provide penalties, and the severity of the same will be based on the nature of the offence. For e.g. failure to pay employees' contributions attracts a fine of Rs 50,000 (in the first instance) and a prison term that could extend to six months.

However, if the contributions have been deducted from employees' wages and not remitted, this is viewed more seriously. Here the fine is double the amount (Rs 100,000) coupled with minimum imprisonment period of one year and could range up to three years.

The messaging clearly seems to be that the benefit to employees should not be compromised and acts as a deterrent to the employer from any non-compliance.

The Code on Social Security is clearly a move in the right direction to rationalise and consolidate social security related labour laws.

It is critical for employers to analyse the impact of the Code and the compliances thereunder in order to be able to undertake a smooth transition as and when the Code becomes a law.

(Saraswathi Kasturirangan is Partner with Deloitte India and Sumit Jain is a Manager with Deloitte Haskins and Sells LLP)