US Social Security Administration (November 30th) On September 28, India's president approved a law (the Code on Social Security, 2020) that consolidates and amends nine existing social security laws. Among the law's changes are an extension of benefit eligibility to fixed-term workers under the employer-liability gratuity scheme, a broadening of the definition of wages for contribution calculation purposes, and new protections for informal-sector workers. (Over 80 percent of India's labor force is estimated to be employed in the informal sector and thus, currently excluded from most social security coverage.) Many details of the law, including the implementation date, have yet to be finalized (though it is expected to be implemented by April 2021). According to the government, the main goal of the law is to extend social security coverage to all workers in the country. It is also part of a larger effort to simplify the country's labor laws, which included the government approving three other laws on wages; industrial relations; and occupational safety, health, and working conditions.
On September 28, India's president approved a law (the Code on Social Security, 2020) that consolidates and amends nine existing social security laws. Among the law's changes are an extension of benefit eligibility to fixed-term workers under the employer-liability gratuity scheme, a broadening of the definition of wages for contribution calculation purposes, and new protections for informal-sector workers. (Over 80 percent of India's labor force is estimated to be employed in the informal sector and thus, currently excluded from most social security coverage.) Many details of the law, including the implementation date, have yet to be finalized (though it is expected to be implemented by April 2021). According to the government, the main goal of the law is to extend social security coverage to all workers in the country. It is also part of a larger effort to simplify the country's labor laws, which included the government approving three other laws on wages; industrial relations; and occupational safety, health, and working conditions.
Key changes under the Code on Social Security, 2020, include:
- An extension of gratuity-scheme benefit eligibility to employees on fixed-term contracts: Currently, workers must have at least 5 years of continuous employment to be eligible for a benefit under the gratuity scheme. (The gratuity scheme is an employer-financed program that provides lump-sum old-age, disability, and survivor benefits that vary based on the insured's last daily wage.) The new law extends eligibility to employees on fixed-term employment contracts with no length of service requirement. For these employees, the benefit will be prorated based on their length of service. (It is not yet clear if periods of fixed-term employment prior to the law's implementation will be considered when calculating the benefits.) The 5-year continuous employment requirement remains in place for all other workers.
- A new definition of wages for the purposes of calculating contributions: The new law expands the definition of wages used for calculating contributions to include additional compensation types (such as bonuses, commissions, and allowances) that exceed 50 percent of an employee's total compensation. Currently, a significant portion of employees' compensation is often paid as allowances that are excluded when calculating contributions. The change is expected to increase employer and employee contributions to the Employees' Provident Funds (EPF) and the Employees' Pension Scheme (EPS).
- New protections for informal-sector workers: The new law mandates that the federal government and state governments introduce social security programs that cover all informal-sector workers, including home-based workers, self-employed persons, gig workers, and platform workers. These programs will be financed by contributions from the federal government, state governments, and, in the case of schemes for gig and platform workers, aggregators. (The law defines an aggregator as a “digital intermediary or a market place for a buyer or user of a service to connect with the seller or the service provider.”)
India's main public programs include the EPF, the EPS (a supplementary social insurance program), and the gratuity scheme. The EPF covers employees with monthly wages of 15,000 rupees (US$201.43) or less working in firms with at least 20 employees in certain categories of covered industry, and certain other employees specified by law. The EPS covers employees who became members of the EPF on or after November 16, 1995. The gratuity scheme covers employees of factories, mines, oil fields, plantations, ports, railways, and businesses with at least 10 employees. In most industries in the formal sector, the employer contributes 3.67 percent of monthly payroll (plus administrative costs) to the EPF; 8.33 percent of payroll to the EPS; and an average of 4 percent of payroll to the gratuity scheme. (The employee contributes 12 percent of monthly earnings to the EPF only.) Besides these programs, other major retirement programs in India include the National Pension System (an individual account program) and the Atal Pension Yojna Universal Pension (a voluntary defined-benefit program for informal-sector workers aged 18 to 40).