REFORMS TO INDIA’S LABOUR LAWS have happened since the late 1960s, and the government has always sought inputs from academics and practitioners while formulating new labour policies or laws, or introducing key amendments. Since the time of the Royal Commission on Labour, established by the British government in 1929 to investigate industrial working conditions in India, committees and commissions have played a critical role in the modification of existing laws in accordance with the social and economic changes sweeping the country.
One such committee was the National Commission on Labour (‘NCL’). The first NCL, formed in 1969, headed by Justice P.B. Gajendragadkar, the seventh Chief Justice of India, which in 1969, prepared a comprehensive report with several important recommendations that were for unknown reasons never implemented.
Over the years, many other committees were formed - in 1982 came the Sanat Mehta Committee, in 1990, the bi-partite Ramanujam Committee, and in 1991, the Rural Labour Enquiry Committee. Alongside these, between 1999 and 2004, under the previous rule of the National Democratic Alliance (‘NDA’) government led by Atal Bihari Vajpayee, numerous bodies were formed that were headed by industrialists.
It was under the NDA-I government that the terms of reference for the Second NCL were drawn up - one, to rationalise existing laws for the organised sector, and second, to propose an umbrella legislation to provide a minimum level of protection for workers in the unorganised sector. The Second NCL was also directed to consider factors like globalisation, technological change, and international competitiveness when making its recommendations. The Second NCL’s report came out in 2002.
In pursuance of the recommendations by the Second NCL, the government framed a pilot study of the Unorganised Sector Workers Social Security Scheme, 2004 for fifty districts. It had a poor response. In 2004, the first United Progressive Alliance government (‘UPA-I’) constituted the National Commission on Enterprises in the Unorganised Sector (‘NCEUS’) which submitted its report in 2005 .
The National Advisory Council, an advisory body set up by the UPA-I government to advise Prime Minister Manmohan Singh, submitted a draft bill, the Unorganised Sector Workers’ Social Security Bill, which was then forwarded to the Second NCL for their consideration.
The NCEUS constituted by the UPA-I government produced two detailed Reports, one on the Social Security (2005) and the other on the Conditions of Work (2007), both of which pertained to the unorganised sector.
I will primarily assess to what extent the implementation of critical social security reforms is reflected in the Code on Social Security (‘CoSS’). This assessment is particularly important as there are two important reports, which were prepared over a short duration in the first half of the 2000s. It is also important because these reports had also made passing references to laws relating to different social security mechanisms and institutions like the Employees’ Provident Fund Organisation (under the Employees’ Provident Fund Act (‘EPF Act’)), and the Employees’ Social Insurance Corporation.
In November 2025, in a press release, the NDA-II government asserted that the Second NCL had recommended the grouping of labour laws into four or five labour codes on a functional basis. The Second NCL drafted several laws. We can mention them here:
Draft Law on Wages (applicable to establishments employing more than 20 workers)
Draft Law on Wages (applicable to establishments carrying out any nature of work and employing 20 or more workers)
The Hours of Work, Leave and Other Working Conditions at the Workplace Act, 2002 (applicable to a host of institutions, from factories to lawyers’ organisations employing 20 or more workers)
Law on Labour Management Relations (applicable to establishments employing 20 or more workers)
The Small Enterprises (Employment Relations) Act 2002 (applicable to establishments employing not more than 20 workers)
The Second NCL allocated two chapters. One chapter was on the unorganised sector in which it delineated the vastly differing nature of economic activities taking place in the unorganised sector. The other chapter contained a detailed review of concepts and various components of social security.
The Law on Labour Management Relations also discussed existing social security components like Employees’ Provident Fund (‘EPF’), Employees’ State Insurance (‘ESI’), gratuity, and employment injuries compensation to employees.
The constitutional and international foundations of social security in India
Social security is one of the foundations of ensuring the right to livelihood, which is a constituent of the fundamental right to life. In order to realise the citizen’s right to livelihood, it is the State’s duty to prevent concentration of wealth and property, ensure optimum distribution of wealth to secure the common good and resources and ensure equal pay for equal work. Social security is a complementary aspect of the right to work and livelihood.
Entry 23 of the Concurrent List under Schedule VII of the Constitution mentions ‘social security’. This framework is the foundation of the social security laws, welfare funds, and social assistance. International treaties like the ILO Social Security (Minimum Standards) Convention, 1952 (No. 102), also enrich and expand the framework for social security.
“High time” for a national social security policy: Critical recommendations of the Second National Commission on Labour
Having reviewed all the labour laws the Second NCL came to a central conclusion:
“It may be seen from what we have said that the existing labour laws do not cover the vast majority of workers who work as home-based workers, domestic workers, self-employed workers and those working in small units.”
The Commission felt that it was “high time” to have a national social security policy.
To make the social security system universal, it made three recommendations:
(a) make the laws applicable to all classes of industries and establishments without any distinction,
(b) remove wage ceilings, and
(c) remove the threshold limit (on the number of workers) for coverage.
It struck a cautious note when it observed that the removal of the threshold limit may be achieved progressively.
The Commission recommended that social security be elevated ideally to a fundamental right or else be made a part of the Directive Principles of State Policy. It noted that the social security system in India should ultimately aim to provide social security protection to all workers against all risks or contingencies within a specified time frame (say ten years), so that at the end of the period the coverage could be universal and comprehensive. It recommended that the Social Security (Minimum Standards) Convention, 1952 (No. 102), and other related conventions should be ratified by India starting immediately.
“The extension of social security to the unorganised/informal workers is not merely a matter of social equity,” noted the 2005 report of the NCEUS, “but also a developmental goal with a view to strengthening their capabilities in an increasingly competitive context.”
India has a long history of extending social security to the workers, particularly in the organised sector, such as EPF, ESC, gratuity, and employees’ compensation, among others. Social security in India has taken many institutional forms and includes “social assistance” (tax-financed) to poor workers and those who were below the poverty line. The EPFO and ESIC have had a long legacy of functioning and construction workers’ welfare boards have been operational since the 1990s. The Union and state governments have also formulated numerous ‘welfare funds’. Kerala and Tamil Nadu, over the years, have formed several institutions and laws in this regard.
When it comes to the CoSS, the Preamble to the legislation reads: “An Act to amend and consolidate the laws relating to social security with the goal to extend social security to all employees and workers either in the organised or unorganised or any other sectors and for matters connected therewith or incidental thereto.” (emphasis supplied).
The Cambridge Dictionary explains that “either…or” connects “two choices.” This means that the usage of ‘either, or’ presents a choice between two alternatives. The Preamble of the CoSS promises the extension of social security to all in the unorganised sector but does not include in its ambit ‘agriculture’, even as a substantial portion of the unorganised sector is agriculture precisely. Even the 2005 report of the NCEUS provided a detailed definition of “agriculture”.
Despite the Second NCL’s recommendation, the Code on Social Security retains the threshold requirement of ‘twenty and more’
Now in the CoSS, the promise of “all” raised expectations that the limitations of applicability of the Code will be, where possible, reduced to at least ‘five or more’ or even lesser, reduced gradually. However, while the CoSS removed the schedule of establishments attached to the EPF Act, it continued with the threshold requirement of ‘twenty or more’ workers. The Second NCL had recommended, in its 2002 report, that the threshold must immediately be brought down to ‘ten or more’, and subsequently to ‘five or more’ over the next three to five years, and finally over time to ‘one or more’. A little more than two decades have passed, and yet the lawmakers have retained that old threshold.
As far as the ESI Act is concerned, the Second NCL report had recommended that though the legislation covers areas with a concentration of 500 or more insurable population, in several areas with even more a thousand employees, the Act had not yet been implemented as of 2002. It had also noted that the Act did not cover seasonal factories, mines and plantations, or unorganised labour or self employed workers. The Commission had estimated that out of the labour force of 393.21 million workers (as of 2001), only 8 million were covered under the ESI Act. Thus it had recommended that the wage ceiling and employment threshold be lowered, eventually removed.
With the CoSS, while lawmakers removed the concept of “areas”, it continued the threshold requirement of ‘twenty and more’ workers.
The Code on Social Security overlooks many critical suggestions of the Second NCL
In 2020, the Parliamentary Standing Committee on the Social Security Code remarked that with a higher wage threshold (of twenty or more), the EPF Act covered a much larger number of workers than the ESI Act with a lower threshold (of 10 or more). The CoSS does not include the generic term ‘worker’, instead separating employees and ‘wage workers’, which does not align this Code with others. The Second NCL had constituted a study group which had observed that the “provisions to cover persons employed on casual or on contract basis were operating largely to the disadvantage of the workers.”. These problems continue to plague the EPF administration and coverage.
The Second NCL had recommended that the tripartitely-funded unemployment insurance should preferably be implemented by the EPFO. This, it had noted, would increase its coverage significantly. Today, two unemployment insurance schemes operate under the ESIC - the Rajiv Gandhi Shramik Kalyan Yojana (since 2005) and the Atal Beemit Vyakti Kalyan Yojana on a pilot basis from 2018. But there are few takers for the same.
The 2002 report of the Second NCL had noted that an unemployment insurance scheme financed by a tripartite contribution should be implemented through the EPFO to all establishments and all workers covered under the EPF Act.
The thresholds of the components of social security have been shifted to the Schedule (The First Schedule) and they may be amended by the appropriate government through notification. This is a clear departure from the convention. I have pointed out previously how the new laws have weakened the core labour clauses, leaving many procedural and substantive matters to the notification process. It is clear that legal power has shifted from the Parliament and state assemblies to the political executive.
The First Schedule of the CoSS notes that maternity benefit provisions apply to every establishment being a factory, mine, plantation, shop or establishment in which ten or more were employed . In 2002, the Second NCL had observed:
“There are many other classes of establishments where women are being employed increasingly, to which the Maternity Benefit Act is not applicable. We recommend that those classes may be brought within the scope of the Act. There are many women workers who are not covered by the Act such as building and construction, aviation, transport and communications, Trade and commerce, the Services Sector, namely Educational and scientific services, legal services, business services, community services, recreation services, personnel services, etc.. They should be covered following the National Industrial Classification.”.
Again, the definition of factory under the Occupational Safety and Health and Working Conditions Code (‘OSHWCC’) covers factories employing twenty workers with power and forty workers without power. For registration purposes, the OSHWCC notes factories employing ten workers would also be covered. The new Codes have such types of smaller, local thresholds, different from the macro thresholds given in the definition section. This is mischievous and counterproductive, because on the other hand, the Codes increase the thresholds (arithmetically) to remove existing covered workers from it. They are thrown to the market forces or their fates. The above applies to gratuity also. The issue of wage ceilings and months or years of service, etc. differs across and within the Codes – the classic example of it is the OSHWCC.
The Second NCL had recommended integration of gratuity with EPF and making the former a social insurance scheme. Being under the banner of EPF, it noted that gratuity’s coverage will naturally increase. It had also advised that all the contributions of employers (upto 30 percent and employees (upto 20 percent) under the social security laws could be clubbed together for ease of collection and administration.
The CoSS is silent on unemployment benefits since this is covered under the ESI Act as a scheme. But, again, there are very few takers for that.
What the NCEUS’s 2005 report said about the ‘Social Security Fund’
The fundamental aspect of social security for the unorganised workers is the Social Security Fund (‘SSF’), its funding details and the definition of the unorganised sector and unorganised worker.
According to the Second NCL, unorganised workers are those without any form of social security. But the NCEUS expands these definitions, noting that the ‘unorganised sector’ consists of all unincorporated private enterprises “owned by individuals or households engaged in the production and sale of goods and services and operated on a proprietary or a partnership basis and employing less than 10 persons”. It noted that unorganised workers are those working in the unorganised sector, and those workers in the formal sector who do not have employment security and social security provided by the employer.
The NCEUS report suggested that at the central level, an SSF must be set up, and across each state, SSFs may be set up. The funds should be vested in and be administered by the Central Board of Social Security or the State Board of Social Security as the case may be. The report observed that the SSF should be funded by either through contributions and or by levying a tax or cess.
It provided a three layered social security system: the lower rung would consist of a basic level where it is the primary duty of all forms of the State (Central to the Local Government) to provide a minimum level of social security, called ‘social assistance’ which are funded by the State’s exchequer. Social assistance is provided to the old, the infirm and the young who are unemployed and unemployable. The second level is one of social insurance where the tripartite actors (government, employers and employees) make suitable contributions. The third layer comprises higher social insurance funded by capable persons.
The second and third layers of beneficiaries would be provided with higher levels of contributory social insurance.
The fourth one is voluntary schemes.
Put simply, social assistance is for those who cannot even make a contribution and social insurance is for those with varying abilities to contribute. Thus, the Second NLC’s Report conceived of three component-based social security systems: “social insurance type of contributory schemes, subsidised insurance/welfare fund type of partly contributory and partly socially assisted schemes, and social assistance schemes which will be wholly non-contributory.” .
The Second NCL did not provide a clear and concrete roadmap for the sources of and rate of contributions by them to the SSF. Here is where the 2005 NCEUS Reports makes concrete suggestions.
The Commission strongly urged that “there should be a national minimum social security with the flexibility to the state government to add on or strengthen the national minimum in their respective states.” This is akin to the national floor level statutory minimum wages provided for in the Code on Wages.
The components of the national minimum social security are:
(a) Health benefits for self, spouse and children below eighteen years of age and maternity benefits spouses of workers and women workers,
(b) Life Insurance to cover natural and accidental death, and
(c) Old age security in the form of an old age pension for BPL workers above the age of sixty years, and Provident Fund cum unemployment insurance benefit to all other workers.
This is the single most meaningful and fundamentally important recommendation made by the NCEUS. They do provide a huge sense of relief and protection to the BPL workers.
The CoSS does not talk of a national minimum social security fund. However, the recommendation of the NCEUS regarding the registration of the unorganised workers and allied matters finds a place in the CoSS.
The NCEUS Report therefore takes the view that a contributory system of social security, including that of the government, must be initiated for workers in the informal economy. The registered workers (non-BPL workers), employers (17 percent employers’ contribution becomes difficult, the revenue 100 percent be collected as a social security tax) and the Government will pay Re 1/- each (Central and State to share the contribution for BPL workers,), per day, per worker as contribution to the proposed National Social Security Scheme. In consultation with insurance agencies, the NCEUS Report suggested a division consisting of Rs. 380 for sickness and maternity cover, Rs. 150 for life insurance, and Rs. 565 for old age security.Naturally, the contributions would be indexed with inflationary trends. Higher-paid workers would naturally get higher benefits. In addition, the Union government would pay the contribution of workers who belong to the BPL households, that works out to 23 per cent of the workers eligible for the National Minimum Social Security. The Union government would also bear the cost of a minimum monthly pension to BPL informal workers . The NCEUS Report provides details of the SSF which need to be updated and aligned with the current rate of economic growth and inflation.
The Union government, the Report recommended, shall create a National SSF to which contributions shall accrue from the following sources:
a) Grants and loans from the Central Government;
b) Contributions from workers, employers and Governments for the specified
national minimum social security shall be as under:
(i) Re. 1/- per day by the worker, provided that for those below the
poverty line the contribution shall be made by the Central
government;
(ii) Re. 1/- per day, per worker, by the employer, provided that where
the employer is not identifiable, the contribution shall be shared by
the Central Government and the respective State Governments in
the ratio of 3:1;
(iii) Re. 0.75 per worker, per day, by the Central Government, and Re.
0.25. per worker, per day by the State Government.” (2005, pp.135-6).
c) Any tax or cess that the Central Government may impose for the purpose
of providing social security for unorganised workers;
d) Any tax or cess that the Central Government may impose on commodities
and/or services in lieu of employers’ contributions (which are either difficult
to collect or appropriate employers in the unorganised sector are not
directly identifiable).
In addition to the above, contributions may also be sourced from the following:
e) Contributions from the national financial/developmental institutions; and
f) Any voluntary contribution from individuals or institutions.
The Report suggested that the State government may formulate schemes for two purposes:
(a) strengthen the national minimum social security by way of its own contribution, and/or
(b) design and implement additional social security benefits through its own schemes. These may include:
a) Provident fund schemes;
b) Employment injury benefit scheme;
c) Housing schemes;
d) Educational schemes for children of workers;
e) Skill up gradation of workers;
f) Funeral assistance;
g) Marriage of daughters; and
h) Any other schemes to enhance the socio economic security of unorganised workers .
On the other hand, the CoSS did not put in place a detailed scheme having concrete sources and their contributions. The CoSS listed the components of social security to be provided by the Union government (five of them) and by the State government (seven of them) which is a reproduction of the provisions in The Unorganised Workers’ Social Security Act, 2008. The 2008 Act was the most diluted version of the recommendations and the Bill drafted by the NCEUS.
The sources of funds for the schemes formulated by the Union government mentioned in the CoSS are as follows:
wholly funded by the Central Government; or
partly funded by the Central Government and partly funded by the State
Government; or
partly funded by the Central Government, partly funded by the State
Government and partly funded through contributions collected from the beneficiaries of the scheme or the employers as may be specified in the scheme by the Central Government; or
funded from any source including corporate social responsibility fund
within the meaning of the Companies Act, 2013 or any other such source as may be specified in the scheme.
The Code on Social Security misses out on the visions of the Second NCL and the NCEUS
The NCEUS’s 2005 Report included the unorganised worker so that there is some ownership of the benefit. As already noted, the Report classified BPL and non-BPL unorganised workers. Chapter IX of the Report made a detailed analysis of issues relating to “implementation and financial requirements” for the three schemes recommended on (a) sickness and maternity, (b) life insurance, and (c) old age security.
The NCEUS took advice and suggestions from the public insurance companies. Like the Second NCL, the NCEUS also recommended that post offices could be used for collection of premia. It also noted that Worker Facilitation Centres at the decentralised levels and post offices could act as collection agencies.
There are two sources of mobilizing the resources - contributions by the stakeholders and contributions by the Union and State governments. When it comes to contribution by the Union and State governments, the historical practice has been to apply cess on the concerned output, or the general tax. The Commission left these technical aspects to the respective governments.
The drafters of the CoSS have made some important inclusions in the Code such as the inclusion of gig and platform workers (though they are not figuring in the three other Codes). But the CoSS is rather vague when it comes to concerns which are at the heart of social security, pertaining to the SSF.
The CoSS did not tinker with the thresholds for application. It left the most crucial aspects of social security like welfare schemes to the notification process. What is surprising is that the drafters had rich literature provided by the two Commissions which made telling contributions. While the NCEUS was restricted to the unorganised sector, the Second NLC was concerned with both.
The CoSS, though notified, needs scores of amendments and it will be unproductive to implement it as is (same with the other three Codes). The Union government has a great responsibility to provide protection and identity to millions of unorganised workers. The political price/cost involved in implementing them after amending them suitably in the upcoming sessions of the Parliament would much less than the loss of welfare that would be accrued if the Code is implemented as is.
The government may constitute an Anomalies Committee or leave the process to be initiated by the Parliamentary Standing Committee. At any rate, social organisations on the ground must be consulted as much as opposition political parties.
The Second NCL made wide-ranging and concrete recommendations concerning the organised sector. While many of its recommendations figured prominently in reform narratives advanced by employers and the government, its elaborate recommendations on workers in the unorganised sector did not materialise into much. The project of a comprehensive legislative exclusively for workers of the unorganised sector remains unfulfilled.
While the NCEUS report led to the enactment of the Unorganised Workers’ Social Security Act, 2008 under the UPA-I government, it turned out to be a much diluted and deeply disappointing outcome. Its valuable recommendations failed to find a place in discussions on either social security or conditions of work for unorganised workers, an issue that sustains with the CoSS.
Politics often makes poor intellectual choices. The NCEUS deserved more meaningful legal action. Parties in power irrespective of their stated ideology are guilty in this regard.