The Bill proposes setting up a social security fund using corpus available under corporate social responsibility. This fund will provide welfare benefits such as a pension, medical cover, and death and disablement benefits to all workers, including gig workers.

As per the bill, millions of organised sector employees may soon have the option of reducing their provident fund contribution — currently at 12% of basic salary — and therefore increase their take-home pay.

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

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.

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.

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.

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.