Major Labour Law Reforms in India – Code on Social Security, 2019 – Blog | Payroll | Tax | Compliance Services

Reading Time: 3 minutes

The Code on Social Security, 2019 was introduced in Lok Sabha by the Minister of State for Labour and Employment and was referred to the Standing Committee on Labour Reforms in December 2019 for their review & recommendations. This standing committee has provided its recommendations to the parliament in July 2020 & history says that most of this committee’s recommendations will be incorporated.

There are about 51 recommendations but here we will discuss about the 4 relevant recommendations.

Be ready for a dynamic threshold of Wage Limits
Permanent and Temporary workers
Definition of Unorganized Workers
Changes to Payment of Gratuity

#1 – Be ready for a dynamic threshold of Wage Limits:

Currently, the Base ceiling for PF is Rs.15,000 and for ESI is Rs.21,000. The Labour Reforms committee wants to connect this to CPI and call this “Automatic Process of Wage Indexation”. So changes to these limits may be as frequent as Every year, or at least once in 3 years.

Impact on Organizations:

The PF contribution (EE &ER) will no longer be fixed, it will be floating & in most likely cases increasing.
Increase in Compliance Complexities, as if they aren’t already complicated.

#2 – Permanent and Temporary workers:

Under Clause 2(26) of the, As per the Social Security Code, we should be ready to understand that there would be no differentiation Between Permanent & Temporary workers. This means Employers are required to facilitate,

access to health care (ESI)
Income security particularly in the case of old age (EPF & EPS)
unemployment schemes
coverage during inability to work due to injury (ESI)
comprehensive maternity benefits, even for contract workers
loss of breadwinner (EDLI)

Organizations, across all sizes, have always had dual policies towards Temporary & Permanent workers in terms of leaves, benefits, rights of such employees & sometimes even would have a lower pay to temporary employee Vs a permanent one.

Impact on Organizations:

Responsibilities towards Temporary & Permanent employees could be the same.
“Hire & Fire” approach may not work moving forward.
Increased Payroll & Compliance costs.

#3 – Definition of Unorganized Workers:

The Standing committee on Labour is pressing to clearly define the “Unorganized Workers”. It is felt that the existing definition has some grey areas and needs to be resolved. Hence, the committee has recommended to include the following:

Gig workers – Are those who work for a short period for a specific task.
Platform workers – Examples are those on platforms such as Fiverr, Peopleperhour, etc.
Freelance workers& Self-employed workers – Commonly used in small &mid sized companies termed as Consultants.

Currently, different acts interpret unorganized workers differently, For example – The Industrial Disputes Act, 1947. As the New Labour reforms kick in, The Industrial Disputes Act will merge into the Industrial Relations Code, 2019 & hence these grey areas are being addressed.

Impact on Organizations:

Cost of Outsourced Services will go up.
Small & Mid Sized Companies, who currently have a competitive advantage due to exclusion on certain labour laws, will feel the heat.

#4 – Changes to Payment of Gratuity:

Currently, an employee becomes eligible for Gratuity if they complete 5 years of continuous service & this may change to just 1 year. Yes, once an employee has completed,

1 year of continuous service
Extended to any type of employee such as Temporary employee, contract worker, seasonal workers & piece-rate workers.

The Social Security Code already has a provision to pay Gratuity on a Pro-Rata basis to fixed-term employees & now the recommendations of the standing committee are to include everyone who works for 365 days.

Impact on Organizations:

Higher Gratuity outflow, either as Premium to Gratuity fund or in settlement of gratuity claims.
Small organizations that don’t have a specific Gratuity fund, may feel the pinch on their P&L.

What are your thoughts? Do you think as a country, we are moving in the right direction regarding large-scale labour reforms? Given that the unorganized sector employs a significant share, do you think this will solve or secure Social Security which is – the right to live & die with dignity?

Let us discuss & you could connect with Akash Mahagaonkar on Linkedin.

Link to the Committee’s Recommendations, .

We hope it would have gained you some interesting insights. Watch the original video here!! Also, don’t forget to subscribe to our channel for future updates.