What is India's new code on Social Security and why does it matter?
India’s labour landscape is preparing for significant transformation with the imminent rollout of four new labour codes that aim to rationalise, consolidate, and simplify complex labour legislation.
The new labour codes usher a series of changes that have set off industry-wide discussions on their impact on businesses and long-term implications. Among them is the Code on Social Security, 2020, that extends social security to employees and workers across the organised and unorganised sectors. With most Indian states ready with the draft rules, there are now indications that the new codes will be released as phase-1 of a staggered launch program. Once implemented, the labour codes will establish new precedents in the Indian labour scenario, specifically through policies focused on employee welfare, social security coverage, gender equality, and so on, while advancing them to the unorganised sector.
The implementation of the new code presents unique opportunities and complexities for businesses that are operating in India or have commercial interests in the country. If you are interested to know how your business may be impacted, contact ADP India today to find out how we can support your needs.
What’s involved? Top 3 takeaways
One highlight of the new social security code is how it seeks to consolidate existing labour laws while extending the ambit to include social reforms. There is focus on involving more contemporary practices that represent the modern day workplace. Certain provisions may be of particular interest to employers:
- Redefining the “employee”: More than 7.7 million of India’s workers engaged in gig work in 2020-21.1 The new code on social security essentially speaks to this context by broadening the definition of employees to include contractual, gig, platform, self-employed, and inter-state migrant workers. It officially brings the unorganised sector under its radar for the very first time.
- Commitment to gender equality: Beyond the emphasis on general employee wellness, the code goes a step further by introducing reforms that promote a conducive environment for women at the workplace. Most noteworthy among these are the extension of maternity benefits to a broader segment of women employees as well as adoptive mothers (subject to certain criteria), improved facilities for childcare, and increased security for nightshift workers. Together with the Code on Wages, 2019, that advocates pay equity by regulating gender discrimination on wages, it invests in building more “equal” workplaces and closing the perceivable gaps in gender equality at work.
- Focus on employee welfare: With the definition of “employee” expanding to include the unorganised sector, the code now extends provident fund and gratuity benefits to fixed-term employees. Furthermore, it brings even the smaller establishments under Employees’ State Insurance (ESI) cover. ESI coverage is now available to workers of hazardous industries as well. Both the centre and the respective state governments are tasked with administering the social security funds for these segments.
What are the implications of the change?
The various provisions in the new code work together to foster increased diversity, equity, and inclusion at the workplace – for example, by encouraging more women to participate in the workforce or including the unorganised sector in disability cases caused due to accidents at work.
However, some of the new provisions pose additional challenges.
For workers, the added social security cover means better retiral benefits, but they could also translate to a lower remuneration in the short-term or in-hand pay. For employers, it could mean added expenditure in terms of employee compensation, particularly when it comes to contract work. Interpreting the numerous laws and employee definitions accurately may pose numerous complexities.
Some of these provisions and their implications may not be fully understood by businesses without appropriate subject matter and advisory support. With stringent penalties for non-compliance, it bodes well for businesses to work closely with organisations like ADP to determine the magnitude of impact, stay prepared, communicate, and use technology to implement the changes impacting core processes, like payroll and social security.
Facilitating the move
ADP is the ideal partner in your journey to implementing the new Indian labour laws. With a long-standing history in 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 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: This article is for informational purposes only and does not constitute legal advice. Its purpose is to allow you to commence identifying any potential gaps in your current processes in order to work with your Labour Law advisors with respect to your specific circumstances.
1 India’s booming gig and platform economy, NITI Aayog, June 2022, https://www.niti.gov.in/sites/default/files/2022-06/Policy_Brief_India%27s_Booming_Gig_and_Platform_Economy_27062022.pdf