The Draft Labour Code on Social Security-Workers’ Concerns: Ramapriya Gopalakrishnan


In March this year, the Ministry for Labour and Employment unveiled the third of its series of Labour Codes aimed at simplifying and rationalizing the labour laws. The Draft Labour Code on Social Security has been placed in the public domain and comments and suggestions have been invited in respect of its provisions. The Draft Code is ambitious in scope and amalgamates the provisions of 15 central labour laws relating to social security. These include the Employees State Insurance Act; the Employees Fund and Miscellaneous Provisions Act; the Employees Compensation Act; the Maternity Benefits Act; the Payment of Gratuity Act; the Unorganized Workers Social Security Act; the Building and Other Construction Workers Welfare Cess Act; the Beedi Workers Welfare Cess Act; the Beedi Workers Welfare Fund Act; the Iron Ore Mines, Manganese Ore Mines and Chrome Ore Mines Labour Welfare Cess Act; the Iron Ore Mines, Manganese Ore Mines and Chrome Ore Mines Welfare Fund Act; the Mica Mines Labour Welfare Cess Act; the Limestone and Dolomite Mines Labour Welfare Fund Act, the Cine Workers Welfare Cess Act and the Cine Workers Welfare Fund Act.

The Code applies to workers in the formal as well as informal sectors including casual workers, piece rate workers, fixed term workers, outworkers, self- employed workers, home based workers and domestic workers. It requires the formulation of various new social security schemes by the Central Government. These include a pension scheme, provident fund scheme, maternity benefit scheme, sickness, disablement, invalidity and medical benefit schemes and an unemployment benefit schemes. State Governments may frame supplementary schemes. The Code requires the establishment of various funds in each state and union territory. These include a social security fund, gratuity fund, welfare funds, a state social security reserve fund and a state administrative fund. The Code provides for the levy of cess on buildings and other construction, on manufacture of bidis on ores and minerals and on audio-visual productions.

Workers can derive benefits under the schemes by registering themselves with the State Board for Social Security. An Aadhar Card has to be necessarily produced for the purpose of registration. Each registered worker would be provided a portable Social Security account called the Vishwakarma Karmik Suraksha Khata (VIKAS).

The Code envisages the establishment of several new bodies for the implementation of its provisions. These include a National Social Security Council headed by the Prime Minister of India, a Central Board of Social Security, and State Boards of Social Security. Apart from these bodies, licenced intermediary agencies would be involved in the processes of registration of workers, receipt of contributions, management of funds and payment of benefits.

The existing schemes framed under the Employees’ Provident Fund and Miscellaneous Provisions Act, namely, the Employees’ Provident Fund Scheme, Employees Pension Scheme, Employees Deposit Linked Insurance Scheme and the various schemes under the Employees’ State Insurance Act would be scrapped upon the establishment of the new scheme funds visualized under the Code. Similarly, the welfare schemes and welfare funds set up for workers in the informal economy in various states would cease to be in operation once the new scheme funds are established. The existing organizations administering these schemes would also be phased out consequent upon the establishment of the new funds.

Concerns of trade unions

From a workers’ perspective, the Draft Code raises concerns on several counts. Trade Unions point out that rather than scrap well-established schemes like the Employees Provident Fund Scheme and Employees State Insurance schemes and replace them with new ones, the Government ought to have simply widened the coverage of the existing schemes. They have also expressed concerns about the replacement of the existing state-wide welfare schemes with new ones as there is no clarity in respect of whether the new schemes will continue to offer similar benefits to the workers presently covered under the schemes.

They are doubtful about whether the new bodies to be established under the Code can administer the schemes as efficiently as the Employees Provident Fund Organization and the Employees State Insurance Corporation and whether the administration of the schemes at the state level would work as well. The involvement of various private players in the administration of the schemes in the name of intermediary agencies is also an issue of concern as they are unsure about how that would pan out. It will also lead to unnecessary transaction and administrative charges.

Secondly, while the Code is touted to offer social security to all workers in the country, the following features of the Code raise doubts about this claim. Only establishments that employ workers in numbers that are equal to or more than the threshold notified by the Central Government are required to be registered under the Code. Moreover, the state government could exempt any establishment or class of establishments from the application of the Code if it is satisfied that the workers are in receipt of benefits that are similar or superior to the benefits provided under the schemes framed as per the Code. In addition, the Government could exempt certain categories of workers that are yet to be specified from coverage under the Code. The exclusion of workers engaged as apprentices under the standing orders of an establishment is also a matter of concern given the fact that such apprentices are engaged in large numbers to perform work of a regular nature.

Thirdly, the Code equates workers in the informal sector with those in the formal sector in the matter of payment of contribution for securing social security coverage without appreciating the vast differences in the working and living conditions of the workers in the two sectors. Ignoring the precarious nature of their work and the fact that wages of workers in the informal sector are generally much lower than that of workers in the formal sector and barely enough for them to sustain themselves, the Draft Code requires both categories of workers to pay a uniform contribution of 12.5% of their monthly wage and raises it to 20% in the case of self-employed workers. On the other hand, there is no clarity in respect of whether at all the Government would make any contribution to the various welfare funds to be established under the Code. Furthermore, the Code allows the Central Government to exempt any employer of class or employers from the levy of cess. Moreover, such exemption may be granted even retrospectively!

Importantly, several provisions of the Draft Code point to the possibility of stock market exposure of not just amounts collected towards provident fund but also amounts collected towards gratuity and various welfare schemes. The Draft Code also does not specify the limits on such investment. While investments of funds in the stock market could potentially yield higher returns, the volatility of the equity market means that it is fraught with risks. That is the reason why trade unions over the past few years have vociferously opposed the Government’s moves to increase the investment of the funds lying with the Employees Provident Fund Organization in the stock market. However, these concerns seem to have been entirely overlooked while framing the Draft Code.

Yet another concern is about the enforcement of the provisions of the Code. In the name of curtailing arbitrariness in the inspection system and facilitating the ease of doing business, the Government has already issued guidelines in respect of a computer-generated risk-weighted inspection system. The Draft Code goes one step ahead and proclaims that ‘the parameters and criteria fixed for the inspection system may be changed from time to time by the Commissioner.’

All these concerns seem to indicate that no proper consultations have been held with trade unions before the framing of the Draft Code despite the fact that the central trade union organizations have repeatedly emphasized on the need for such consultations even since the Government embarked on the labour law reform exercise three years ago.

5 thoughts on “The Draft Labour Code on Social Security-Workers’ Concerns: Ramapriya Gopalakrishnan”

  1. By iintegrating various laws and acts pertaining to labour, the draft labour code is curtailing benefits and welfare measures that existed in earlier laws. The investment of provident fund in share market is an example of privatising the terminal benefits and abdicating responsibility of the government. In the garb of simplification, the design is to curtail benefits to the workers and labourers and assist private players to dictae terms


  2. Just to put the whole thing into perspective: no more than a tenth of the entire labour force is governed by the labour laws – they especially leave out of their ambit women, children, the disabled, the lower castes and persons employed in the ‘unorganized’ sector, that is to say, most everyone that works. The common belief that trade unions defend the rights of the workers (which have always been in a poor way) is not entirely true, since trade unions even at their best would only represent a tiny minority and not the working class as a whole. The new laws will likely reduce employer expense and obligation to represent and reflect the new status quo (the same as the old one) : labourers have no rights.


  3. The Modi government is bent upon depriving the labour-sellers of all the benefits hitherto provided to them under existing laws.These laws entitled them to certain benefits which now will be snatched from them and passed over to the insurance companies as is being done in the case of various schemes of social security to the farmers.The farmers have protested against this practice also.The Trade Unions are yet to wake up and make their objections to the newly drafted code.


  4. Dissolving ESIC & EPFO and forming new Social Security Boards under state govt will spoil the social security of organized sector beneficiaries and also there is no demarcation of regular contributors from organised sector and seasonal or irregular contributors of unorganised sector. Moreover it is well known that how poor the state govts providing social security and medical benefits when compared to central govt. The social security benefits of organized sector must be under Central government or central board only. Especially the medical benefit provided by state govts are very poor and there in no difference between general public and contributors (insured personal).

    There should be separate body for unorganised sector to implement socialsecurity in more effective way.

    Also reorganisation of Group B, C & D Employees of epfo and esic to send under state government is clear discrimination and they loose already receiving pay and also many benefits which they are eligible under Central Pay rules.


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