India: New Code Proposed to Simplify Laws, Expand Social Security Coverage

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By Madhur Singh

India's labor ministry has proposed a new Social Security Code that will consolidate 15 existing laws and extend coverage to all categories of employers and workers, including those in India's vast unorganized sector.

The social security code is one of four the federal Ministry of Labour and Employment has proposed to create as a way to consolidate the 44 existing federal labor laws. The others are the Code on Wages and the Code on Industrial Relations, drafts of which have already been proposed, and the Code on Occupational Safety, Health & Working Conditions, for which a draft is still being prepared. Together, these changes are intended to streamline India's labor laws and ease employer compliance burdens with the professed aim of making it easier to do business.

'Piecemeal' Legislation

At present, a complicated web of legislation governs workers' social security in India, including the Employees Provident Fund Act, the Employees State Insurance Act, the Maternity Benefit Act, the Payment of Gratuity Act, the Employees Compensation Act and the Unorganized Social Security Act, among many others.

“As most businesses operating in India will tell you, determination of applicable labor legislations in India is sometimes harder than complying with them,” Rajiv K. Luthra, founder and managing partner at New Delhi-headquartered Luthra & Luthra Law Offices, told Bloomberg BNA. “India's labor law framework has evolved over the years in a piecemeal manner and has a fragmented corpus of separate enactments, which create regulatory uncertainty for business owners.”

Luthra added that foreign companies with limited regulatory experience in India have an especially tough time working through the maze of legislation.

Broadening the Scope

The code proposes mandatory registration of all workers, including contract, part-time, self-employed and domestic workers, all of whom will have to make social security contributions.

Current laws apply only to employers and workers in the organized sector, leaving out an estimated 82.7 percent of the workforce (approximately 391 million persons). The proposed social security code would extend coverage to the unorganizied sector as well.

“This move would have great implications on the protection afforded to the workers in the unorganized sector,” Ajay Raghavan, Bangalore-based partner at law firm Trilegal, told Bloomberg BNA in an email May 17.

The new code will also cover more employers, Raghaven said, since it applies to all “entities,” which “would include households and enterprises. Enterprise in turn has a broad definition and means project, undertaking or business carried out by any organization, institution, corporation, self-help group, Hindu undivided family or even any person or a legal entity.”

Remaining Concerns

Employers would have to ensure that all workers are registered with the government, which will issue them a portable social security account number linked to their Aadhaar number, the unique 12-digit identity number the government is issuing to all Indian residents and requiring to access a range of public benefits and services.

This linking of social security account and Aadhaar numbers could prove controversial. Privacy advocates are already contesting the government's requirement that an individual have an Aadhaar number to access public benefits and services, and the Supreme Court of India is hearing a case on the issue.

There is also concern that the new code would impose significant new administrative responsibilities on the government, which even now has trouble maintaining adequate oversight and enforcement.

Trilegal has also pointed out discrepancies between the draft social security code and the draft Code on Wages—for example, in the definition of “wages.”

“Similarly,” Trilegal noted in comments submitted to the labor ministry, the social security code “provides that if an establishment has branches in more than one state, the minimum wages notified by the Central Government would apply. This is not the case either under the current Minimum Wage Act, 1948 or under the proposed draft Code on Wages.”

The specifics of the exemptions to and thresholds for coverage for various provisions of the code also have yet to be announced, Luthra told Bloomberg BNA.

“An accurate evaluation of the code will only be possible once these contours are made clear,” Luthra said, although he added that “having said that, I believe that the proposed code is a significant piece of legislation that has the potential to go a long way in achieving efficiency and simplification.”

To contact the reporter on this story: Madhur Singh in Chandigarh at correspondents@bna.com

To contact the editor responsible for this story: Rick Vollmar at rvollmar@bna.com

For More Information

The draft social security code is available here.

For more information on Indian HR law and regulation, see the India primer.

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