India is on the fast road to socio-economic advancement, driven by the collective aspirations of a 500-million-strong workforce.1 It is necessary to ensure that the benefits of this progress are transferred to each member of its labour force. Now is the time to re-examine India’s social security commitments to its workforce as the nation catapults towards becoming the world’s third largest economic force.
India’s new Social Security Code, 2020 – along with the Code on Wages, 2019 – attempts to do this by reforming the existing social security landscape and extending benefits to a broader spectrum of workers than ever before.
Why are the reforms needed? Here are 4 key reasons from the workers’ perspective:
- Currently, Indian workers under formal employment are covered by social security schemes, such as the Employees’ Provident Fund (EPF) or Employees’ State Insurance (ESI). However, with inflation a concern across the globe, it is possible that the retirement benefits they’re set to receive may not be sufficient to meet increasing health and daily living expenses over the long haul.
- Additionally, when compared to developed countries like Canada or Australia, a large share of India’s informal workers would benefit from improved social security coverage.2 By bringing more unorganised workers under the social security ambit, the country can continue to ensure adequate and affordable financial support to more members of its workforce.
- For India to ensure sustainable development, gender inclusivity is imperative. Particularly among the working class, employed mothers are known to empower the entire household – as nurturers as well as supplemental wage earners who prioritise savings and invest in the holistic development of the family. More female participation in the workforce has been proven to help accelerate economic growth and development. Incentives that enable women to enter and stay in the workforce are critical.
- While India has a large youth population, it also has a large aging population. In a little over 25 years, the UN forecasts India will have over 300 million senior citizens – almost 19% of its population.3 It is essential for India to implement the right measures now to ensure its elderly are not left vulnerable to old-age dependencies.
More coverage, more accessibility
Execution aside, the two new labour codes will simplify legislation while extending adequate social security cover to India’s working populace, beyond the purview of the organised sector. To workers this means higher retirement, maternity, life and disability coverage, increased gender parity, and more accessibility of benefits to all.
The new codes also eliminate procedural bottlenecks with the goal of encouraging more employees to sign up. There are several noteworthy provisions that incentivise those who participate: protection of workers’ social security in cases like insolvency; extension of insurance coverage to even single-employee, hazardous working units; pro-rata gratuity for fixed-term workers, and more.
Reinforcing a culture of savings
The added social security cover could mean lower remuneration in the short-term or reduce in-hand pay. On the surface, this may sound alarming for Indians with whom retirement planning is not yet a top priority.45 The new labour codes have set in motion a forcing function towards creating a culture of saving for the future, urging workers to forego a portion of their pay check in return for better retirement benefits and old-age support. In addition, the codes will improve the workplace ecosystem through gender-friendly and meritocratic policies.
Challenges ahead
Once implemented, the new labour codes are expected to impact almost every type of business that has cross-border or commercial interests in India. For employers, it could mean added expenditure in terms of employee compensation, particularly when it comes to contract or fixed-term work. In addition, due to the breadth and scale of the coverage, execution will take determined efforts from employers as well as the central and local authorities.
With the rollout of the new codes imminent, employers must work with organisations like ADP as early as possible to stay prepared, analyse the extent of the impact, and use the right tools and technologies to stay on top of the changes and communicate in a timely manner.
Facilitating the move
ADP is the ideal partner in your journey to implementing the new Indian labour laws. With a long-standing history of helping companies like yours navigate complex legislative and compliance changes, we have the right expertise, experience, people, and technology to help you stay on track throughout the implementation of the new Indian labour codes. Our proven track record and expertise in managed services payroll and payroll compliance can help simplify the journey for businesses of all sizes and their employees.
Disclaimer: The information provided by ADP is for general informational purposes only and is not legal, accounting or tax advice. The information and services ADP provides should not be deemed a substitute for the advice of such professionals who can better address your specific concern and situation. Any information provided here is by nature subject to revision and may not be the most current information available on the subject matter discussed. The information is provided “as is” without warranty of any kind, either express or implied, including without limitation warranties of merchantability and fitness for a particular purpose. Under no circumstances shall ADP be liable for any damages to you, including any incidental, special or consequential damages that may result from your use of the information in this document even if you were advised of the possibility of such damages.
References
1 Labour in India, Wikipedia, https://en.wikipedia.org/wiki/Labour_in_India
2 Report of the Working Group on Social Security for the Tenth Five Year Plan (2002-2007), Government of India Planning Commission, October 2001, https://niti.gov.in/planningcommission.gov.in/docs/aboutus/committee/wrkgrp/wg_soclscty.pdf
3 Why ageing citizenry is a challenge across the globe, particularly for India, The Economic Times, September 2022, https://economictimes.indiatimes.com/news/economy/policy/why-ageing-citizenry-is-a-challenge-across-the-globe-particularly-for-india/articleshow/94423632.cms?from=mdr
4 One in four Indians not bothered about retirement planning, says survey, Outlook India, 2021, https://www.outlookindia.com/website/story/one-in-four-indians-not-bothered-about-retirement-planning-says-survey/404501
5 Half of urban Indians have no retirement plan: PGIM India Mutual Fund survey, The Economic Times, 2021, https://economictimes.indiatimes.com/wealth/personal-finance-news/half-of-urban-indians-have-no-retirement-plan-pgim-india-mutual-fund-survey/articleshow/79095878.cms
