Labour Codes: #22 Inclusion of Unorganised Sector in the Labor Codes and its Impacts.
A. Introduction
The Code on Social Security 2020 (“SS Code”) and Code on Wages, 2019 (“Wage Code”), consolidates several labor laws to provide a conclusive framework which widens the coverage of workers in the unorganised/informal sector this includes gig/platform workers and certain contract workers, who within the new framework are now brought within statutory definitions of “worker/employee” for certain selective protections.
As per section 2 (85) of the SS Code “unorganised sector” means an enterprise owned by individuals or self-employed workers and engaged in the production or sale of goods or providing service of any kind whatsoever, and where the enterprise employs workers, the number of such workers is less than ten.
B. Impact of Including the Unorganized Sector within the Purview of the SS Code and Wage Code:
1. The new Codes explicitly broaden the notion of “employee/worker” in a way that can includes gig workers, platform workers and unorganized sector workers for the purposes of wages and social security.
2. The Code on Wages removes many earlier ceilings and introduces a central role for a national/floor wage and periodic review, intended to make minimum wages universal for both organized + unorganized sector.
3. The benefits under the different labor laws have been complied under the labor codes which creates a mechanism for funds, boards, registration, contribution frameworks to extend provident fund, insurance, pension, maternity and other benefits to previously uncovered groups including unorganized/gig workers.
4. It contemplates contributions that may come from multiple sources (employer, worker, Government) and institutional delivery via state/center and social security boards.
5. The new inclusive approach emphasis on simplified registration, single-window filings and digital processes – aiming to reduce compliance friction for small employers and for the new categories of workers. States have begun issuing draft rules and local initiatives
C. Comparison of the new and old provisions of the unorganized sector.
| Pointers | Before labor codes | After labor codes |
| Scope | Different definitions of “employees” under different Acts (PF/ESI thresholds, shops/establishments rules, etc.); gig and platform workers generally fell outside statutory schemes | Widens scope of applicability of laws after inclusion of unorganized/gig workers for wages and social security (subject to rules and implementation). |
| Wages | Separate wage laws with different coverage and ceilings (Minimum Wages Act, Payment of Wages etc. | Single framework under the Code on Wages for all categories of employees with universal minimum wage principle. |
| Social security benefits | Multiple separate laws (EPF, ESI, Maternity Benefit Act, Gratuity, etc.) with different thresholds and exclusions. | Consolidated social security umbrella intended to cover more categories of persons in common framework introduces mechanism to include contributions for unorganized workers |
| Compliance & administration
|
Fragmented filings, multiple registrations, state-wise variations | Move toward single-window digital registration/filings, common licenses, and model rules to be issued by Centre and States but states retain rule making for implementation |
D. Impact on Employers:
1. Employers will need to re-examine whether their engagement models fall within these broader definitions, considering that the employee definition is not restricted to the organized sector and hence the inclusions may be extended to contractors freelance, or aggregator-based labour for wage and social security obligations, increasing statutory costs.
2. Employer will need to review existing wage structures and adjust pay roll, for the contractors freelance, or aggregator-based labour to ensure compliance with the minimum wages as provided in the code.
3. Lastly, employers are encouraged to ensure compliance with the increased compliance structures for contract/casual workers; mandatory registration of smaller contractors.