Social Security Code Limits Workers Access to Benefits Through Bureaucracy-Raj [Part 2]

Unimaginative and obscure rulemaking will make it difficult for workers to access benefits that the law entitles them to, argues Dr. K R Shyam Sundar.

Read Part 1 here.


The government has endorsed the unjustified stinker of a tag of “Inspector-Raj”, crowned by the business class to labour and factory inspectors. However, the Rules seem to promote “Bureaucratic-Raj” as several matters are still left to the will and pleasure of bureaucrats.

Limited Definition of Wage Affects Employer Contribution to Insurance Schemes

Rules have retained the rates of contribution for employers (3.25%) and employees (0.75%) that were amended in July 2019. Earlier the combined contribution was 6%.

But the definition of “wages” in the existing Employees’ State Insurance Act, 1948 is wider.

Various judicial decisions have led to the legalisation of several components of wages, other than basic wages and dearness allowance (DA).  For example, wages under ESI Act include several components like house rent allowance, overtime allowance, conveyance allowance and so on.

However, SSC has narrowed the definition of wages to three components, viz. basic wages, DA and retaining allowance (the last one is a rare component save in seasonal industries).  So, if the eligible wages is lower, then the total outgo for an establishment will be lower also.

 If the entire universe of the unorganized sector will be covered, then the registration process concerning at least 400 million workers will be long and cumbersome. This is a huge ask!  

A simple numerical example will illustrate this point. If the legal wages under the ESI Act is ₹10,000, then 4% of it will be ₹400. If we assume the legal wages under SSC (basic wages and DA) as ₹6,000, then 4% of it will be ₹240.

Lower outgo per establishment under SSC will reduce the revenue accruing to Employees State Insurance Corporation (ESIC).

These will weaken ESIC’s ability to deliver quality services and also hurt its avowed expansion of ESIC’s coverage to 10 crores workers by 2022. The latter is because of the discrepancy between a lower marginal revenue to ESIC due to lower outgo per marginal establishment and higher marginal costs of the delivery of services of ESIC due to the standards set by earlier revenue model or aspirational rise in them.

The rules must amend the rates of contribution suitably to secure the same if not higher outgo from an establishment since health insurance and benefits are paramount.

Unrealistic Registration Model

The Rules require the vast majority of unorganised sector workers including the construction workers to register themselves with Aadhar card and other details “electronically only”.

If the entire universe of the unorganized sector will be covered, then the registration process concerning at least 400 million workers will be long and cumbersome.   This is a huge ask!

The Unorganised Workers’ Social Security Act, 2008 (UWSSA) rightly conceives a “decentralised registration model” at the local levels with the help of the Workers’ Facilitation Centres (WFCs).  However, this model failed due to the government’s inefficiency and its lack of commitment.

The government is deluding itself in thinking that web-based labour administration, including inspection systems, is a panacea to all the ills witnessed during the pandemic. 

Now the government has thrown this worthy model out of the window and instead framed a “centralised model” electronic registration at the web-portal designed and maintained by the Central government.  This is an unrealistic model, as the unorganised workers are spread across diverse spaces including remote and hilly regions that may or may not have internet facilities.

The government is deluding itself in thinking that web-based labour administration, including inspection systems, is a panacea to all the ills witnessed during the pandemic.

To be sure, it could prove to be if- a big if- the institutional and infrastructural conditions support such an endeavour.  Further, it ignores the empirical reality of heterogeneity of the unorganised sector and its extensive and non-homogenous spread.

What is important is the government’s intent, which is lacking.

Rule 50(1)(b) gives uncalled for flexibility to the administrative agencies to design more eligibility conditions for sub-categories of workers. Why this?

The Rules framed within the ambit of SSC naturally do not talk of issuance of identity cards to the registered workers. If they did, then the workers will be given a “Unique Registration Number” (URN) through which they could use all processes.

Let us imagine the unorganised workers in remote areas or even in urban spaces wanting to claim the legal benefits due to them. They would, according to the web-portal scheme, mention their URN and the employers or the government agencies would log in on the web portal, input the URN and then do the transaction.  This procedure assumes the availability of e-enabling instruments and mechanisms that are always functional at every administrative space.

Further, the portability of URN is missing. This is a huge demand for every actor but could be even “exclusionary” for millions of workers.  To be sure, a phased and planned graduation to the web-based system of labour administration must be the goal.

Further, since neither the Code nor the Rules provide for linkage of URN with bank accounts, how will the benefits be transferred to workers. Then, the complete modern system should ensure a triple linkage, viz. URN, Aadhar and bank account, and they must be portable.

Now, do the websites of the state governments faithfully carry all the notifications in duel languages (local and English) for long? The answer is an emphatic NO. The construction, maintenance and updating of web-portals are woefully inadequate.

Lack of Credibility

Neither SSC nor the Rules talk concretely on the Social Security Fund and leave the matters undefined which do not inspire confidence in the government.

The government has no clarity on the sources of fund contribution and their ratios. Rule 59(2) specifies: “The Central Government shall identify the source(s) for initial funding/ replenishing the Social Security Fund from time to time.”

The trenchant but sound critique offered by former labour ministry official T.S. Sankaran on the Unorganised Workers’ Social Security Act, 2008 (UWSSA) rings relevant even now, which is not only unfortunate but even unforgivable: “The law [UWSSA] must stipulate that the funds needed for providing these minimum benefits must be provided by the Central and State Governments in prescribed proportions; a small contribution could and should be collected periodically from the workers. The basic drawback of the law as enacted is that none of these substantial provisions has been incorporated in the law to indicate legislative policy and intent… The law has failed to indicate clearly the extent of funds that must be earmarked for providing social security and welfare. This could have been done by prescribing a minimum percentage of Central and State’s revenue budgets or of their GNPs to be earmarked for this purpose.”

The SSC and the Rules do not do them. Is this a repeat of the dismal performance of UWSSA?

Bureaucratic-Raj in Place of Inspector-Raj?

The law had left many substantive issues to the rule-making process.

Now the Rules leave many matters to the notification method.

To be sure, the government cannot include every substantive issue, like the schemes for the unorganised and other workers, or the procedural matters like notifying the authorities by regions. But leaving out the sources and their respective contribution rates to the notification procedure is inadmissible.

Similarly, the social partners and others like academics who teach labour laws and administration will have to watch for thousands of notifications that would be issued, say with respect to appellate authority or the competent authority or the eligibility conditions for sub-categories of unorganised workers and so on.

Flexibility is essential but not at the cost of clarity.

The abundant mention of clauses “as may be specified or prescribed” even in the Rules, save in justifiable, cases will promote bureaucratic-Raj.

All this means loss of labour welfare.  Then, why do we need these massive and hurried exercises?

(Dr. K R Shyam Sundar is Professor, HRM Area, XLRI, Xavier School of Management, Jamshedpur. Views are personal.)