Social Security Code, 2020
The Social Security Code, 2020 consolidates nine central labour enactments relating to social security. It extends social security coverage to gig workers, platform workers and unorganized workers for the first time. The Code provides for provident fund, employees' state insurance, gratuity, maternity benefits, and employee compensation.
CONSOLIDATES
Historical Context
India's social security framework evolved piecemeal, starting with the Employees' Provident Fund Act, 1952 and Employees' State Insurance Act, 1948. The emergence of the gig economy created a large workforce outside traditional social security coverage. The Social Security Code represents a historic shift by bringing gig workers, platform workers, and unorganized workers within the ambit of social security for the first time.
Key Provisions
Coverage of Gig and Platform Workers
NEWFirst-time inclusion of gig economy workers in social security framework.
- •Gig worker: person who performs work outside traditional employer-employee relationship
- •Platform worker: a person engaged in or undertaking platform work
- •Central Government may notify social security schemes for these workers
- •Aggregators required to contribute to social security fund
- •Examples: Ride-sharing, food delivery, logistics, e-marketplace, professional services
Aggregator Contribution
NEWMandatory contribution by digital platforms to gig worker welfare.
- •Aggregators must contribute 1-2% of annual turnover, OR
- •5% of amount paid to gig/platform workers
- •Whichever is LOWER applies
- •Creates sustainable funding for gig worker benefits
- •Applicable to ride-sharing, delivery, logistics, e-marketplace platforms etc. as listed under Schedule VII of the SS Code
Wage Definition - 50% Rule
NEWExclusions over 50% of remuneration added back to wages.
- •Same 50% rule as Code on Wages
- •Affects calculation of EPF contributions
- •Affects calculation of ESI contributions
- •Affects gratuity calculation
- •May increase employer contribution obligations
Aadhaar Linkage
NEWMandatory Aadhaar linkage for claiming social security benefits.
- •Section notified: 30 April 2021
- •Effective: 3 May 2021
- •Mandatory for all benefit claims
- •Enables digital verification of beneficiaries
- •Links social security records across schemes
Unorganised Workers
Social security schemes for workers in unorganised sector.
- •National Social Security Board to recommend schemes
- •State Social Security Boards to implement schemes
- •Registration of unorganised workers
- •Schemes for life and disability cover, health, old age protection, education, housing
Voluntary EPF/ESIC Coverage
NEWEstablishments below threshold can opt into coverage.
- •Available for establishments below mandatory threshold
- •Requires employer + majority employee agreement
- •Application to Director-General of ESIC
- •Once opted in, normal contribution rules apply
- •Enables social security for smaller workforces
Employees' Provident Fund
Provident fund scheme for organized sector workers.
- •Applicable to establishments with 20+ employees
- •Employee contribution: 12% of basic wages
- •Employer contribution: 12% of basic wages
- •Central Board of Trustees administers the fund
- •Voluntary coverage for smaller establishments available
Employees' State Insurance
CHANGEDHealth insurance and medical benefits for workers.
- •Applicable to establishments with 10+ employees
- •Wage ceiling for coverage as prescribed
- •Benefits include medical, sickness, maternity, disability, and dependants' benefits
- •ESIC administers the scheme
- •Hospital and dispensary network
- •Cash benefit continues to nominee/heir up to and including day of death
Gratuity - Fixed-Term Workers
CHANGEDFixed-term workers will be eligible for gratuity on a pro-rata basis.
- •Fixed-term employees are eligible for gratuity on a pro-rata basis
- •Regular employees: 5 years minimum service required
- •Exception: On death/disability, gratuity payable regardless of service period
- •Working journalists: 3 years minimum retained
- •Calculation: 15 days' wages per completed year
- •Wider wage definition means higher gratuity payouts
Maternity Benefits
Benefits for women employees during maternity.
- •26 weeks paid leave for first two children
- •12 weeks for third child onwards
- •12 weeks for adopting mother (child below 3 months)
- •Nursing breaks until child is 15 months old
- •Crèche facility in establishments with 50+ employees
- •Medical bonus as prescribed
Employees' Compensation
CHANGEDCompensation for work-related injuries and deaths.
- •Employer liable for compensation for injury by accident
- •Compensation for occupational diseases
- •Death benefit to dependants
- •Compensation rates as prescribed
- •No fault liability of employer
- •Travel to/from work may be covered if deemed during employment
Building Workers Welfare
CHANGEDSpecial provisions for construction workers with exemption.
- •Building and Other Construction Workers Welfare Boards
- •Cess on construction cost (1-2%)
- •Benefits include pension, medical expenses, education assistance
- •Registration of building workers
- •NEW: Residential construction below ₹50 lakh EXEMPT
Inspector-cum-Facilitator Powers
CHANGEDWide powers for inspection and compliance facilitation.
- •Inspect establishments for compliance
- •Facilitate employer understanding of requirements
- •Power to compound offences
- •Compounding available for: fines only OR imprisonment <1 year + fine
- •Emphasis on compliance facilitation over penalization
Welfare Scheme Funding Sources
NEWMultiple funding sources for welfare schemes.
- •Central Government contributions
- •State Government contributions
- •CSR (Corporate Social Responsibility) funds
- •Beneficiary contributions
- •Aggregator contributions (for gig workers)
- •Construction cess for BOCW
Definitions
Gig Worker
A person who performs work or participates in work arrangement and earns from such activities outside of traditional employer-employee relationship.
First-time legal recognition of gig economy workers
Platform Worker
A worker outside of the traditional employer-employee relationship who accesses other organizations or individuals through an online platform, provides services or work, and earns from such services.
Specifically covers app-based service providers
Aggregator
A digital intermediary or marketplace for a buyer or user of a service to connect with seller or service provider.
Thresholds: Must contribute 1-2% of annual turnover OR 5% of amount paid to gig/platform workers (whichever is lower)
Examples: Ride-sharing apps, food delivery platforms, e-marketplaces, logistics services
Wages (Social Security)
All remuneration by way of salaries, allowances or otherwise, expressed in terms of money.
Thresholds: If exclusions exceed 50% of total remuneration, excess is added back
Same 50% rule as Code on Wages - impacts EPF, ESI, gratuity calculations
Unorganised Worker
A home-based worker, self-employed worker, or wage worker in the unorganised sector.
Includes domestic workers, agricultural workers, home-based workers
Unorganised Sector
An enterprise with less than 10 workers, owned by individuals or self-employed workers.
Vast majority of Indian workforce falls in this category
Fixed-Term Employment (for Gratuity)
Employment for a fixed period regardless of duration.
Thresholds: Gratuity on pro-rata basis for fixed-term employees; Working journalists: 3 years
Fixed-term employees are eligible for gratuity on a pro-rata basis
Inspector-cum-Facilitator
Official appointed to inspect establishments and facilitate compliance with the Code.
Has wide powers including compounding of offences for fines-only or imprisonment <1 year + fine
What Changed
| Aspect | Before | After |
|---|---|---|
| Gig/Platform Worker Coverage | No social security coverage | Central Government may notify social security schemes; aggregators must contribute |
| Aggregator Contribution | Not applicable | 1-2% of turnover OR 5% of payments to gig workers (whichever is lower) |
| Gratuity for Fixed-Term | 5 years minimum service required | For fixed-term employees, on a pro-rata basis; for regular employees, a minimum of 5 years of service is required |
| Gratuity Calculation Base | Basic + DA only | Wider wage definition (50% rule applies) |
| ESIC Coverage | Specified establishments only | Can be extended to any establishment by notification |
| EPF/ESIC Below Threshold | Mandatory only above threshold | Voluntary opt-in available for smaller establishments |
| Aadhaar Linkage | Not mandatory | Mandatory for claiming benefits (effective 3 May 2021) |
| BOCW Exemption | All construction covered | Residential construction <₹50 lakh exempt |
| Accident Coverage | During employment only | Travel to/from work also covered if deemed during employment |
Practical Impact
Wage Definition Impact
- •50% rule affects EPF, ESI, gratuity calculations
- •Review compensation structures for compliance
- •Higher employer outgo likely if allowances exceed 50%
- •Update payroll software for new wage calculation
Gig Economy Compliance
- •Aggregators must track payments to gig/platform workers
- •Calculate contribution: 1-2% turnover OR 5% of payments
- •Maintain records of gig worker engagements
- •Comply with scheme notifications as issued
Gratuity Administration
- •Calculate gratuity for fixed-term employees on a pro-rata basis
- •Pro-rata gratuity payable on death/disability regardless of service period
- •Higher gratuity base due to wider wage definition
- •Working journalists: 3-year threshold retained
EPF/ESIC Management
- •Consider voluntary opt-in for establishments below threshold
- •Requires employer + majority employee agreement
- •Apply to Director-General of ESIC for voluntary coverage
- •Track Aadhaar linkage for all employees
Welfare Scheme Funding
- •Sources: Central Govt, State Govt, CSR funds, beneficiaries, aggregators
- •BOCW cess continues for construction
- •Track and remit applicable cess/contributions
- •Residential construction <₹50 lakh exempt from BOCW
Compliance Checklist
- ☐Review compensation structures for 50% exclusion rule compliance
- ☐Recalculate EPF/ESIC contributions per new wage definition
- ☐Implement pro-rata gratuity calculation for fixed-term employees
- ☐Handle pro-rata gratuity for death/disability cases regardless of service period
- ☐Link all employee records with Aadhaar (mandatory for benefits)
- ☐If aggregator: Calculate 1-2% turnover contribution
- ☐Track payments to gig/platform workers for 5% calculation
- ☐Consider voluntary EPF/ESIC opt-in for smaller establishments
- ☐Update ESIC registration for any extended coverage notifications
- ☐Verify BOCW cess exemption for residential projects <₹50 lakh
- ☐Register unorganised workers on designated portal
- ☐Maintain records for inspector-cum-facilitator inspections
- ☐File EPF returns by 15th of following month
- ☐File ESIC contributions by 15th of following month
- ☐Update nomination records for death benefits to nominees
Penalties
Non-payment of EPF/ESI contributions
Imprisonment up to 3 years and fine up to ₹1 lakh
Serious penalty for contribution default
Non-payment of gratuity
Imprisonment up to 1 year and/or fine up to ₹50,000 or both; for subsequent offence, imprisonment ranging from 2-3 years
Employer liability for timely gratuity payment
False statement for benefits
Imprisonment up to 6 months and/or fine up to ₹50,000
Applies to both employers and employees
Frequently Asked Questions
Who are gig workers and platform workers?
Gig workers perform work outside the traditional employer-employee relationship, often on short-term contracts or task basis. Platform workers specifically access work through online platforms or apps (like ride-sharing, food delivery, etc.). Both are now eligible for social security schemes under this Code for the first time.
How much must aggregators contribute for gig workers?
Aggregators must contribute 1-2% of their annual turnover OR 5% of the amount paid to gig/platform workers, whichever is LOWER. This creates a funding mechanism for gig worker welfare schemes.
How does the 50% wage rule affect social security?
If allowances and exclusions exceed 50% of total remuneration, the excess is added back to 'wages'. This affects EPF contributions (12%+12%), ESI contributions, and gratuity calculations, potentially increasing employer costs.
Is Aadhaar mandatory for social security benefits?
Yes, Aadhaar linkage became mandatory from 3 May 2021 for claiming any social security benefits. This enables digital verification and prevents duplicate claims.
How does gratuity work for fixed-term employees?
Fixed-term employees are entitled to gratuity on a pro-rata basis. The calculation is 15 days' wages for each completed year of service. Regular employees need 5 years continuous service except in cases of death or disability.
Can small establishments opt into EPF/ESIC voluntarily?
Yes, establishments below the mandatory threshold can opt into EPF/ESIC coverage. This requires agreement between the employer and majority of employees, with application to the Director-General of ESIC.
What is the BOCW exemption for residential construction?
Residential construction projects with cost below ₹50 lakh are exempt from the Building and Other Construction Workers (BOCW) provisions. Higher thresholds may be prescribed by the government.
How does employee compensation work for commuting accidents?
Under the new Code, travel to and from the place of work may be covered if it is deemed to be during the course of employment. This extends protection beyond just workplace accidents.
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