The Social Security Architecture
The Social Security Code, 2020 consolidates nine central laws governing provident funds, pension, insurance, gratuity, and maternity benefits into a unified social security framework. For employers, this consolidation rationalises compliance while expanding coverage to previously excluded categories including gig workers and platform workers.
Understanding the Code's provisions is essential for payroll structuring, compliance planning, and workforce management. The stakes are significant: non-compliance attracts substantial penalties, and recovery proceedings can disrupt business operations.
Provident Fund Framework
The Employees' Provident Fund provisions under the Code apply to establishments with 20 or more employees. Both employer and employee contribute 12 per cent of wages (as defined under the Code) to the fund. The employer's contribution is split between the EPF account and the Employees' Pension Scheme.
The wages definition for provident fund purposes follows the Code on Wages definition, including the 50 per cent rule. Establishments that have structured salaries with basic pay below 50 per cent face increased PF liability under the new framework.
Employee Coverage
All employees drawing wages up to Rs 15,000 per month are mandatorily covered. Those drawing above this threshold may be excluded from the pension scheme but can remain in the provident fund with employer consent. Voluntary contributions exceeding the statutory minimum are permitted.
Establish clear policies on PF coverage. Document decisions to exclude high-wage employees and ensure employee consent where required. Maintain accurate records of contributions, accounts, and balances.
Employees' State Insurance
ESI coverage applies to establishments with 10 or more employees and to employees drawing wages up to Rs 21,000 per month. The employer contributes 3.25 per cent and the employee 0.75 per cent of wages. In return, covered employees receive medical care, sickness benefits, maternity benefits, and employment injury benefits.
The ESI contribution is calculated on gross wages without the exclusions that apply to provident fund. This means HRA, overtime, and other allowances typically form part of the ESI wage base. Calculate contributions accordingly.
Medical Benefits
Insured employees and their dependents are entitled to medical treatment at ESI hospitals and dispensaries or through panel providers. The quality of ESI medical services varies by location. Some establishments supplement ESI coverage with group health insurance, though this does not reduce ESI contribution obligations.
Gratuity Provisions
Employees completing five years of continuous service are entitled to gratuity at termination, resignation, retirement, or death. The payment is calculated at 15 days' wages for every completed year of service or part thereof exceeding six months.
The wages for gratuity calculation include basic pay plus dearness allowance. The 50 per cent rule under the Code affects this calculation. The maximum gratuity payable is Rs 20 lakh, though employers may pay more voluntarily.
Forfeiture
Gratuity may be wholly or partially forfeited if termination is for wilful omission or negligence causing employer loss, or for riotous or disorderly conduct or other violent act. The forfeiture must be proportionate to the loss caused. Document forfeiture decisions carefully with supporting evidence.
Maternity Benefits
Women employees in establishments with 10 or more employees are entitled to maternity benefits. The benefit period is 26 weeks for the first two children and 12 weeks for subsequent children. Commissioning mothers and adopting mothers receive 12 weeks' benefit.
Payment during maternity leave is at the average daily wage for the three months immediately preceding maternity leave. The employer pays directly and cannot deduct the period from any other leave entitlement.
Work From Home Option
The Code permits employers to allow women to work from home after exhausting maternity leave, depending on the nature of work. This provision supports workforce participation while accommodating childcare responsibilities. Consider implementing work from home policies for new mothers where feasible.
Gig and Platform Workers
Perhaps the most significant innovation in the Code is the explicit coverage of gig workers and platform workers. The Central Government may frame schemes providing life and disability cover, health and maternity benefits, old age protection, and other benefits to these workers.
Aggregators operating platforms must contribute to the social security fund at rates to be prescribed. While the rules are still being notified, platform operators should prepare for contribution obligations. The gig economy's flexibility does not exempt it from social protection responsibilities.
Definition Issues
A gig worker is defined as one who performs work outside a traditional employer-employee relationship. A platform worker is a gig worker who works through an online platform. These definitions will require interpretation as the rules develop.
Businesses using gig or platform labour should assess their classification carefully. Misclassifying employees as gig workers to avoid social security obligations creates substantial liability if challenged.
Compliance Infrastructure
Implement payroll systems that correctly calculate contributions under each scheme, accounting for wage definitions and thresholds. Integrate with EPFO and ESIC portals for electronic filing and payment.
Maintain detailed records. Contribution registers, payment challans, employee declarations, and nomination forms must be preserved. These records are essential for compliance audits, employee claims, and dispute resolution.
Registration and Returns
Register with the appropriate authorities under each applicable scheme. File returns and pay contributions within prescribed timelines. Late payment attracts interest and penalties that accumulate rapidly.
Designate responsible personnel for social security compliance. The complexity of multiple schemes, contribution calculations, and filing requirements demands dedicated attention. Errors in this area affect employees' retirement security and create regulatory risk.
