Towards social security

The latest draft Code is welcome, but needs to be fine-tuned

The labour ministry’s latest Draft Social Security Code proposing a comprehensive cover for 500 million workers is a vast improvement over the earlier version. The Code, which is an amalgamation of 15 existing labour laws related to social security, provides clarity to several questions surrounding the first draft that was released last year. For instance, the earlier version was vague in its commitment to cover both organised and unorganised workers. It said the Code shall not apply to “such class of workers as may be specified”. The second draft has cleared the confusion by providing a detailed list of those who will not be covered. There were other omissions, too, in the first draft, which defined the unorganised sector as establishments where the number of workers was “below a threshold”. The latest draft has removed the confusion by saying that the Code will apply to all entities with five workers. The number can be even lower if the Centre or the state governments agree.

The Code, which is based on the recommendations of the Second National Commission on Labour in 2002, should be great news for workers in the unorganised sector who do not have any social security cover. One of the biggest issues the Code has resolved is the ongoing ambiguity on payment of social security contributions on wage components. The definition of ‘wages’ in the Code is more specific as compared to the social security laws enacted just after India’s independence. The Code envisages compulsory registration for all types of workers through an Aadhaar-based system, portable social security accounts (VIKAS) and a three-tier regulatory structure, with a National Social Security Council, headed by the Prime Minister, a Central Board and State/Union Territory Boards.

What is uncertain, however, is the compliance issue in which India’s track record has been dismal. While it’s good that the Centre will align fines for social security law violations with retail inflation, the biggest question mark lies in the proclivity of companies to negotiate negligible penalties — an easy route in India where petty corruption is a way of life. Smaller establishments will obviously be reluctant to implement the provisions because of higher cost. Employers at present contribute 8.33 per cent of basic pay to the provident fund, if a worker earns a monthly wage of over Rs 15,000. If the employee is eligible for employees’ state insurance, the employer contribution goes up by a further 4.75 per cent of wages. Under the proposed Code, the employer contribution to social security is estimated to go up to 17.5 per cent of wages, with reduced rates for industries having cess obligations. Apart from contributions towards the social security fund, there is also a requirement to make a two per cent contribution for gratuity benefits. The inclusion of self-employed professionals and the necessity of compulsory registration might also complicate matters.

There are other uncertainties as well. The Code keeps the “income threshold” vague by stating that it will be “notified by the Central government from time to time”. Fears about bureaucratic interference are also real, as employers have no representation in the apex decision-making body. Then there is this hare-brained idea of penalising chief executive officers (CEOs) of companies that violate labour laws by prescribing community service instead of fines or jail sentences. The draft law reasons that violating social security legislation amounts to “an offence against society as a whole”, and therefore demands that the offender should be “reformed” by community service within two years of the court order. The notion of corporate CEOs being made to clean streets and public places, paint walls or serve the poor as a penalty for violating labour laws may be a tempting one, especially for workers whose rights have been violated. But the writers of the Code could have perhaps taken a more practical approach in their drive to reform offenders.