Introduction

India’s labor landscape presents a unique challenge where approximately 93 percent of the workforce operates within the unorganized sector, comprising around 437 million workers who historically lacked access to basic social security protections.[1] The absence of formalized employment relationships left these workers vulnerable to economic shocks, health emergencies, and old-age insecurity. Recognizing this critical gap in social protection, the Indian Parliament enacted the Unorganised Workers’ Social Security Act, 2008, which received Presidential assent on December 30, 2008.[2] This legislation marked a watershed moment in India’s social security architecture by establishing the National Social Security Board as the primary institutional mechanism for recommending and monitoring welfare schemes tailored to the diverse needs of unorganized workers.

The Act came into force on May 16, 2009, through a notification issued by the Ministry of Labour and Employment.[2] Following the enactment, the National Social Security Board was formally constituted on August 18, 2009, bringing together representatives from workers, employers, civil society, and government to forge a coordinated approach toward social security coverage.[3] The Board’s establishment represented the government’s commitment to addressing the long-standing demands of labor unions and social activists who had campaigned for decades to extend social security benefits beyond the organized sector.

Legislative Framework and Definitions

The Unorganised Workers’ Social Security Act, 2008 provides the foundational legal framework for protecting unorganized workers in India. The Act defines an “unorganised worker” as a home-based worker, self-employed worker, or wage worker in the unorganized sector, and includes workers in the organized sector who are not covered by existing labor legislation mentioned in Schedule II of the Act.[2] This definition encompasses domestic workers, street vendors, agricultural laborers, construction workers, and numerous other categories of workers who operate outside formal employment structures.

A “home-based worker” under the Act means a person engaged in the production of goods or services for an employer in his or her home or other premises of choice, excluding the employer’s workplace, for remuneration, regardless of whether the employer provides equipment or materials.[2] The definition of “self-employed worker” includes individuals engaged in any occupation but excludes those covered under the organized sector provisions. A “wage worker” refers to a person employed for remuneration in the unorganized sector, directly by an employer or through a contractor, irrespective of the place of work, whether in cash or kind, and includes home-based workers, temporary workers, casual workers, migrant workers, and domestic workers.[2]

The Act established a dual-board structure consisting of the National Social Security Board at the central level and State Social Security Boards in each state. This federal structure ensures that social security schemes can be designed and implemented with appropriate consideration of regional variations in workforce composition, economic conditions, and administrative capacities. The legislation also provided for the creation of worker facilitation centers to disseminate information about available schemes and assist workers in accessing benefits.

Composition and Structure of the National Social Security Board

The National Social Security Board constitutes a tripartite body that brings together multiple stakeholders to ensure balanced representation in policy formulation. According to Section 5 of the Unorganised Workers’ Social Security Act, 2008, the Board is chaired by the Union Minister for Labour and Employment, with the Director General (Labour Welfare) serving as Member-Secretary.[2] Beyond these two ex-officio positions, the Central Government nominates thirty-four additional members representing diverse constituencies.

The nominated membership includes seven representatives from unorganized sector workers, ensuring that the voices of beneficiaries directly influence policy decisions. Seven representatives from employers of unorganized sector workers provide the perspective of those who engage informal labor. Seven eminent persons from civil society contribute independent expertise and advocacy perspectives. The Board also includes three members of Parliament, with two from the Lok Sabha and one from the Rajya Sabha, creating a legislative link that facilitates policy coordination. Five members represent Central Government Ministries and Departments concerned with social security, while five members represent State Governments, ensuring federal coordination.[2]

The Act mandates adequate representation for persons belonging to Scheduled Castes, Scheduled Tribes, minorities, and women within the Board’s composition. This affirmative action principle recognizes that marginalized communities face compounded vulnerabilities in the unorganized sector and require specific attention in policy design. The term of the National Board is set at three years, and the Board is required to meet at least three times annually to discharge its functions effectively.[2]

Members of the Board serve on terms and conditions prescribed by the Central Government, which also determines the procedure for filling vacancies and conducting Board meetings. The Board may receive prescribed allowances for attending meetings, though the exact amounts and conditions are determined through separate rules. This structure aims to balance efficiency in decision-making with comprehensive stakeholder engagement.

Powers and Functions of the National Board

The National Social Security Board exercises advisory and monitoring functions rather than executive powers, positioning it as a policy recommendation body that influences government decision-making. Section 5(8) of the Act enumerates seven core functions that define the Board’s mandate.[2] First and foremost, the Board recommends to the Central Government suitable schemes for different sections of unorganized workers, taking into account the diverse needs of home-based workers, self-employed individuals, and wage workers across various occupations and regions.

The Board advises the Central Government on matters arising from the administration of the Act, providing technical expertise and stakeholder perspectives on implementation challenges and policy refinements. It monitors social welfare schemes for unorganized workers administered by the Central Government, conducting periodic reviews to assess coverage, effectiveness, and gaps in service delivery. The Board reviews the progress of registration and issuance of identity cards to unorganized workers, which serve as the gateway to accessing various social security benefits.

Additionally, the Board reviews record-keeping functions performed at the state level, ensuring that data systems accurately capture worker information and scheme participation. It examines expenditure from funds allocated under various schemes, promoting financial accountability and efficient resource utilization. Finally, the Board undertakes any other functions assigned to it by the Central Government from time to time, allowing for flexibility in responding to emerging needs.[2]

The advisory nature of the Board’s functions has been subject to criticism from labor advocates who argue that the lack of binding decision-making authority limits its effectiveness. The government retains discretion to accept or reject Board recommendations, which can delay implementation of worker-friendly initiatives. However, the Board’s composition and mandate create a structured platform for stakeholder dialogue and evidence-based policy development that did not exist previously.

State Social Security Boards

Complementing the National Board, the Act requires every State Government to constitute a State Social Security Board to exercise powers and perform functions at the state level.[2] The composition and functions of State Boards mirror those of the National Board, with appropriate modifications to reflect state-level governance structures. State Boards are chaired by state labor ministers or designated officials and include representatives of state government departments, state legislators, and local representatives of workers, employers, and civil society.

State Boards meet at least once per quarter and follow prescribed rules of procedure for transaction of business. Their primary function is to recommend state governments in formulating suitable schemes for different sections of unorganized workers within their jurisdiction. State Boards also monitor scheme implementation, facilitate coordination among various state departments involved in social security delivery, and maintain liaison with the National Board to ensure policy coherence.

The federal structure recognizes that labor markets and social conditions vary significantly across Indian states. States with large agricultural populations face different challenges than industrialized states with concentrated urban informal sectors. State Boards can tailor recommendations to local conditions while maintaining alignment with national policy objectives. This flexibility is essential given India’s diversity in economic development, demographic patterns, and administrative capacities across states.

Registration and Eligibility

The Act establishes a registration system as the foundation for delivering social security benefits to unorganized workers. Section 10 specifies that every unorganized worker who has completed fourteen years of age is eligible for registration, subject to providing a self-declaration confirming their status as an unorganized worker.[2] This age threshold aligns with constitutional provisions regarding the minimum age for employment in hazardous occupations, though it has raised concerns about excluding younger workers engaged in certain informal activities.

Registration is conducted at the district level, with District Administrations responsible for verifying applications and issuing identity cards. The identity card serves as proof of registration and entitles the holder to access social security schemes. The card contains biometric information and a unique identification number linked to central databases. Worker facilitation centers established under the Act assist workers in completing registration formalities, processing applications, and forwarding them to district authorities.

The registration system faces practical challenges in reaching mobile workers, migrants who cross state boundaries, and workers in remote areas with limited administrative infrastructure. The reliance on self-declaration, while reducing bureaucratic barriers, also creates potential for inclusion errors where non-eligible persons might register. Balancing accessibility with accuracy remains an ongoing challenge in the registration process.

Social Security Schemes Under the Unorganised Workers’ Social Security Act, 2008

The Unorganised Workers’ Social Security Act, 2008 provides the legal framework for delivering multiple categories of social security benefits, including life and disability cover, health and maternity benefits, old age protection, and any other benefits determined by the government.[2] The Act does not itself create specific schemes but empowers the Central Government to formulate and notify schemes suitable for different worker categories. Section 3 specifies that the Central Government may formulate and notify schemes relating to life and disability cover, health and maternity benefits, old age protection, and other benefits for unorganized workers.[2]

Following the enactment, the National Social Security Board recommended extending three major existing schemes to unorganized workers: Rashtriya Swasthya Bima Yojana (RSBY), Janshree Bima Yojana (JBY), and old age pension schemes.[3] The RSBY scheme, launched in October 2007 and operational from April 1, 2008, provides health insurance coverage to below poverty line families in the unorganized sector.[4] The scheme offers hospitalization coverage up to thirty thousand rupees per family per year on a family floater basis covering up to five members.[5]

RSBY introduced smart card technology for delivering health insurance, using biometric-enabled cards containing fingerprints and photographs of beneficiaries. This innovation addressed identification challenges in populations lacking formal documentation. The scheme provides cashless hospitalization at empaneled public and private hospitals, giving beneficiaries choice in healthcare providers. By February 2014, RSBY had enrolled 36 million families, demonstrating significant reach despite implementation challenges.[5]

Janshree Bima Yojana provides life insurance coverage to persons below the poverty line, offering death and disability benefits at subsidized premium rates. The scheme aims to provide financial security to families of deceased workers and support disabled workers who lose earning capacity. Old age pension schemes address income security for elderly workers who lack retirement savings or formal pension coverage. The Indira Gandhi National Old Age Pension Scheme, operating under the National Social Assistance Programme, provides monthly pensions to elderly persons from poor households.

Beyond these schemes recommended by the National Board, the government operates numerous other programs that benefit unorganized workers, though they may not be explicitly framed as social security schemes under the 2008 Act. These include the Pradhan Mantri Jeevan Jyoti Bima Yojana offering life insurance coverage of two lakh rupees at an annual premium of four hundred thirty-six rupees, and the Pradhan Mantri Suraksha Bima Yojana providing accidental death and disability coverage at a premium of twenty rupees annually.[6]

The Mahatma Gandhi National Rural Employment Guarantee Act provides employment security through guaranteed wage employment for rural households. Although not designed exclusively for unorganized workers, it serves as a critical social security instrument providing income support during periods of unemployment or underemployment. Similarly, the Public Distribution System under the National Food Security Act provides food security, while housing schemes like Pradhan Mantri Awas Yojana address shelter needs.

Regulation and Monitoring Mechanisms

The regulatory framework established by the 2008 Act relies primarily on administrative oversight rather than statutory enforcement mechanisms with penalties. The Act does not create labor inspectors or enforcement officers with powers to penalize non-compliance. Instead, it focuses on enabling access to voluntary schemes and monitoring their implementation through the Board structure. The Central Government exercises regulatory authority by framing rules under Section 14 of the Act, which must be laid before Parliament for scrutiny.[2]

The Unorganised Workers’ Social Security Rules, 2009 operationalize various provisions of the Act, prescribing procedures for Board composition, meeting conduct, registration processes, and scheme design parameters. These rules provide detailed guidance on administrative procedures while allowing flexibility for scheme-specific regulations. Each social security scheme notified under the Act contains its own operational guidelines specifying eligibility criteria, benefit levels, contribution requirements, and claim procedures.

Monitoring functions distributed across multiple levels create a system of checks intended to ensure accountability. The National Board monitors centrally-administered schemes, State Boards monitor state-level implementation, and district authorities oversee registration and benefit delivery at the local level. This multi-tiered monitoring creates information flows that theoretically enable identification of implementation gaps and corrective action.

However, the monitoring system faces significant limitations in practice. The advisory nature of Boards means they lack authority to compel corrective action when they identify problems. Coordination challenges between multiple government ministries administering different schemes fragment accountability. Data systems often lack interoperability, making it difficult to track individual workers across multiple schemes or identify gaps in coverage. These structural weaknesses limit the effectiveness of monitoring mechanisms.

Transition to the Code on Social Security, 2020

The Social Security Code, 2020 represents a fundamental restructuring of India’s social security legislation. Enacted by Parliament in September 2020 and receiving Presidential assent on September 28, 2020, the Code consolidates nine existing laws including the Unorganised Workers’ Social Security Act, 2008, into a unified legal framework.[7] The Code aims to extend social security to all employees and workers in organized, unorganized, and other sectors while simplifying administration through digital systems and Aadhaar linkage.

Section 142 of the Code, which came into force on May 3, 2021, marks the formal repeal and replacement of the previous legislation.[8] The Code maintains the institutional structure of National and State Social Security Boards while expanding their mandate to cover gig workers and platform workers alongside traditional unorganized workers. The definition of unorganized workers under the Code follows similar principles as the 2008 Act but introduces new categories reflecting the changing nature of work in the digital economy.

The Code establishes social security funds to be maintained by Central and State Governments for unorganized workers, gig workers, and platform workers. Funding for schemes may come from government contributions, employer contributions, and worker contributions depending on scheme design. For platform workers, the Code requires aggregators to contribute between one to two percent of their annual turnover to a social security fund, creating a new financing mechanism for emerging forms of work.[7]

Registration provisions under the Code require self-declaration by unorganized workers and provide for Aadhaar-based registration to enable portability of benefits. The Code envisions a unified database of registered workers that can interface with multiple social security schemes, reducing duplication and enabling workers to access benefits regardless of their location within India. However, full implementation of the Code awaits notification of remaining provisions and framing of comprehensive rules by the Central Government.

The transition from the 2008 Act to the 2020 Code raises important questions about continuity of existing schemes and protection of acquired rights. Workers registered under the previous system must be seamlessly transitioned to the new framework without loss of benefits or disruption in service delivery. The draft rules circulated in November 2020 provide some guidance on transition mechanisms but leave many operational details to be worked out through subsequent notifications and circulars.

Judicial Interpretation and Case Law

Judicial intervention has played a crucial role in interpreting social security legislation and enforcing rights of unorganized workers when administrative mechanisms prove inadequate. In Delhi Jal Board v. National Campaign for Dignity and Rights of Sewerage and Allied Workers, the courts examined the responsibilities of state agencies toward workers employed through contractors for hazardous work.[9] The judgment emphasized that neither lawmakers nor implementing agencies had established appropriate mechanisms for protecting persons employed by or through contractors for dangerous work outsourced by state agencies.

The judiciary recognized that constitutional mandates for social security require not just legislative frameworks but effective implementation mechanisms with adequate resources and institutional capacity. Courts have directed governments to take necessary steps for protecting rights of unorganized workers and implementing social security welfare schemes. This activist approach fills gaps left by weak enforcement provisions in the legislation itself.

However, judicial intervention has limits in addressing systemic challenges of social security delivery. In one case, the Supreme Court dismissed a public interest litigation seeking directions to compensate financial losses of unorganized sector workers during the COVID-19 pandemic, recognizing the complexity of providing universal relief and the separation of powers between judiciary and executive in policy matters.[9] This illustrates that courts balance their role in enforcing rights with recognition of institutional capacities and democratic accountability in resource allocation decisions.

The judiciary’s role in social security jurisprudence continues to evolve as courts grapple with balancing justiciability of social and economic rights against concerns about judicial overreach in policy domains. Cases involving unorganized workers often raise fundamental questions about the state’s obligations under the Directive Principles of State Policy in the Constitution, particularly Articles 41, 42, and 43 relating to work, living wages, and conditions of work.

Implementation Challenges and Critical Assessment

Despite the legislative framework and institutional mechanisms established by the 2008 Act, implementation of social security for unorganized workers faces persistent challenges that limit coverage and effectiveness. Even twelve years after enactment, only six percent of unorganized workers were covered under any form of social security, according to Parliamentary Standing Committee findings.[9] This stark gap between legislative intent and ground reality reflects multiple structural and operational barriers.

Registration remains incomplete, with many eligible workers unaware of schemes or unable to navigate registration processes. Mobile and migrant workers face particular difficulties establishing stable relationships with district authorities for registration and benefit access. The requirement for documentary proof of identity, residence, and employment status creates barriers for populations lacking formal documentation. While self-declaration simplifies some aspects, it does not address underlying documentation challenges for accessing benefits.

Scheme design often reflects bureaucratic convenience rather than worker needs, with coverage gaps, low benefit levels, and cumbersome claim procedures deterring participation. The multiplicity of schemes administered by different ministries creates confusion and administrative fragmentation. Workers must navigate separate registration and enrollment processes for health insurance, life insurance, pension schemes, and other benefits, increasing transaction costs and reducing take-up rates.

Financing remains a fundamental constraint, with limited budgetary allocations preventing expansion of coverage and benefit levels. The reliance on contributory schemes excludes the poorest workers who cannot afford premiums, even subsidized ones. The lack of employer contributions in most schemes for unorganized workers reflects the difficulty of identifying and regulating employers in informal employment relationships. This contrasts sharply with social security financing in the organized sector where employer contributions form a major funding source.

Monitoring and accountability mechanisms prove weak in practice, with Boards lacking authority to enforce recommendations and governments facing limited political pressure to prioritize unorganized worker welfare. Data systems remain inadequate for tracking coverage, identifying gaps, and evaluating scheme effectiveness. The absence of strong worker organizations in most unorganized sectors reduces collective bargaining power and political voice, allowing governments to under-invest in social security without facing organized resistance.

Conclusion

The Unorganised Workers’ Social Security Act, 2008 and its successor, the Code on Social Security, 2020, represent important milestones in India’s journey toward universal social security coverage. The establishment of the National Social Security Board created an institutional platform for stakeholder dialogue and policy coordination that previously did not exist. The Board’s tripartite composition and federal structure reflect principles of inclusive governance and recognition of India’s diversity.

However, significant gaps persist between legislative frameworks and lived realities of unorganized workers. Low coverage rates, limited benefit levels, and implementation challenges demonstrate that creating legal entitlements alone does not guarantee effective social protection. Addressing these challenges requires sustained political commitment, adequate resource allocation, administrative capacity building, and empowerment of worker organizations to demand accountability.

The transition to the Social Security Code, 2020 presents opportunities to address some structural weaknesses of the previous system through integrated databases, Aadhaar-based portability, and inclusion of gig and platform workers. However, realizing these opportunities depends on effective implementation of enabling rules, investment in digital infrastructure, and continued engagement with worker representatives in scheme design and monitoring.

Ultimately, social security for unorganized workers must be understood not as charity or welfare but as a fundamental right rooted in constitutional values of dignity, equality, and justice. Achieving this vision requires transforming social security from a fragmented collection of voluntary schemes into a comprehensive system of universal entitlements backed by adequate resources, effective administration, and meaningful accountability mechanisms.

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Introduction

The Employees’ State Insurance Corporation stands as one of India’s pioneering social security institutions, established through the Employees’ State Insurance Act of 1948. This legislative framework emerged from recommendations made by Professor B.P. Adarkar in 1944, who envisioned creating a protective shield for workers against financial hardships arising from sickness, maternity, and employment injuries. Recent developments indicate a proposed increase in the ESIC wage ceiling, which promises to expand coverage to millions of additional workers across India, marking a transformative phase in the nation’s social security landscape.

The government’s consideration to increase the wage ceiling for mandatory inclusion under ESIC reflects growing recognition that existing thresholds have become outdated in light of inflation, rising minimum wages, and changing economic realities. This article examines the proposed changes, the legal framework governing ESIC, landmark judicial interpretations, and the broader implications for India’s workforce.

Historical Context and Legislative Framework

Origins of the ESI Act

The Employees’ State Insurance Act, 1948, was enacted on April 19, 1948, with the primary objective of providing certain benefits to employees in case of sickness, maternity, and employment injury. The Act represented India’s first major attempt at creating a comprehensive social security system for industrial workers. The scheme was first implemented in Kanpur and Delhi on February 24, 1952, under the leadership of Prime Minister Jawaharlal Nehru [1].

The legislative intent behind the Act was clearly articulated in its preamble, which states that it is expedient to provide benefits to employees in case of sickness, maternity, and employment injury. The Act aimed to create an integrated need-based social insurance scheme protecting workers’ interests in contingencies such as sickness, maternity, temporary or permanent physical disablement, and death due to employment injury resulting in loss of wages or earning capacity.

Constitutional Underpinnings

The ESI Act seeks to achieve the goal of socio-economic justice enshrined in the Directive Principles of State Policy under Part IV of the Constitution of India. This alignment with constitutional principles underscores the Act’s significance in fulfilling the state’s obligation to secure social and economic justice for all citizens, particularly the working class.

Current Wage Ceiling and Proosed Changes in ESIC Wage Ceiling

Existing Wage Thresholds

Currently, the wage ceiling for ESIC stands at Rs. 21,000 per month, last revised in 2016 when it was increased from Rs. 15,000 [2]. For persons with disabilities, a higher wage ceiling of Rs. 25,000 per month applies. This ceiling determines the salary threshold up to which ESI contributions are mandatory under law. Any employee earning wages up to this limit in establishments with ten or more employees falls under the compulsory coverage of ESIC.

The contribution structure requires employees to contribute 0.75% of their wages, while employers contribute 3.25% of wages paid to employees. These contributions fund the comprehensive range of benefits provided under the scheme, including medical care, cash benefits during sickness, maternity benefits, and compensation for employment injuries.

Proposed Wage Ceiling Revision

Recent reports suggest that the government is considering raising the ESIC wage ceiling, as well as the EPF limit, to bring them at par, with proposed limits ranging from Rs. 25,000 to Rs. 30,000 per month [3]. A final decision on the proposed increase in the ESIC wage ceiling is expected by early 2025. This proposed hike would represent the first significant revision to the ESIC wage ceiling in nearly a decade.

The rationale behind the ESIC wage ceiling increase is multifaceted. First, the current minimum wage for Central Government employees is Rs. 18,000, meaning the existing ESIC wage ceiling of Rs. 21,000 sits only slightly above minimum wage levels in many sectors. Second, inflation and the rising cost of living have eroded the real value of the ceiling, making an increase necessary. Third, many workers earning between Rs. 21,000 and Rs. 30,000 currently fall outside the social security net a gap that the proposed ESIC wage ceiling increase aims to address.

Expected Impact on Coverage

Experts estimate that the proposed wage ceiling increase could bring approximately 10 million additional employees under the ambit of the ESI Act [4]. This expansion would significantly enhance India’s social security coverage, particularly benefiting workers in the organized sector who currently earn just above the existing threshold. The move would also benefit over 37 million existing insured persons by ensuring continuity of coverage as their wages increase over time, making the ESIC wage ceiling increase a transformative step toward universal social security.

Regulatory Framework Under the ESI Act, 1948

Applicability and Coverage

The ESI Act applies to all factories employing ten or more persons, excluding seasonal factories. The definition of “factory” under Section 2(12) of the Act means any premises where ten or more persons are employed and where a manufacturing process is being carried on. The Act also extends to establishments that the appropriate government may notify, provided they employ ten or more persons.

Section 2(9) of the Act defines an “employee” comprehensively to include any person employed for wages in or in connection with the work of a factory or establishment. This includes persons directly employed by the principal employer, those employed through immediate employers, and those whose services are temporarily lent on hire. The definition specifically excludes members of the armed forces and persons whose wages exceed the prescribed wage ceiling.

Principal Employer’s Obligations

Section 40 of the Act places the primary responsibility for paying contributions on the principal employer. The principal employer must pay both the employer’s contribution and the employee’s contribution in respect of every employee, whether directly employed or employed through an immediate employer. The Act permits the principal employer to recover the employee’s contribution through deduction from wages, but importantly, Section 40(3) prohibits the principal employer from deducting or recovering the employer’s contribution from employees.

The Act mandates that any sum deducted by the principal employer from wages under the Act shall be deemed to have been entrusted to him by the employee for paying the contribution. This legal fiction creates a trust relationship and forms the basis for criminal liability in cases of non-payment despite deduction.

Benefits Under the ESI Act

Section 46 of the Act enumerates six primary benefits available to insured persons and their dependents. These include sickness benefit, which provides periodical payments to insured persons during certified sickness; maternity benefit for insured women covering confinement, miscarriage, or pregnancy-related sickness; disablement benefit for temporary or permanent disablement resulting from employment injury; dependants’ benefit as periodical payments to dependants of deceased insured persons; medical benefit covering treatment and attendance; and funeral expenses to cover costs related to the death of an insured person.

The Act takes a progressive approach by extending medical benefits to the families of insured persons at the request of the appropriate government. This family coverage significantly enhances the social security value of the scheme, protecting not just workers but their dependents from health-related financial stress.

Contribution Mechanism

Section 39 establishes the contribution framework, specifying that contributions shall comprise both employer and employee shares. The rates of contribution are prescribed by the Central Government through rules. Currently, as per the Employees’ State Insurance (Central) Rules, the employer contributes 3.25% while the employee contributes 0.75% of wages.

Section 42 provides relief for low-wage workers by exempting employees whose average daily wages fall below a prescribed threshold from paying the employee’s contribution. However, the employer’s contribution remains payable even for such exempt employees. This provision ensures that the poorest workers receive full ESI benefits without bearing the contribution burden.

Enforcement and Recovery

The Act contains robust enforcement mechanisms. Section 45 empowers the Corporation to appoint Social Security Officers who can inspect establishments, examine records, and require employers to furnish information. Section 45-A grants the Corporation authority to determine contributions where returns are not submitted or officers are obstructed, creating a presumptive basis for recovery.

Recovery of contributions can be effected through multiple mechanisms. Section 45-B allows recovery as arrears of land revenue, while Sections 45-C to 45-I provide detailed procedures for certificate-based recovery through Recovery Officers, including attachment and sale of property, arrest and detention of employers, and appointment of receivers.

The Code on Social Security, 2020

Consolidation and Modernization

The Code on Social Security, 2020, represents a landmark reform consolidating nine existing labour laws, including the ESI Act, 1948 [5]. The Code was notified and implemented on November 21, 2025, marking a new era in India’s labour and social security framework. This consolidation aims to simplify compliance, enhance enforcement efficiency, and extend social security coverage to previously uncovered categories of workers.

The Code maintains the core structure of ESIC while introducing several progressive changes. It extends ESIC coverage to all establishments with ten or more employees on a nationwide basis, eliminating the earlier restriction to notified areas. This geographic expansion ensures that workers in all parts of India can access ESI benefits, removing the urban-rural divide that characterized the earlier regime.

Coverage of Gig and Platform Workers

One of the most significant innovations in the Code is the recognition of gig and platform workers as a distinct category deserving social security protection. Section 114 of the Code empowers the Central Government to frame schemes for providing social security benefits to unorganized workers, gig workers, and platform workers [6]. These schemes may cover life insurance, disability insurance, health benefits, maternity benefits, old age protection, and any other benefit as determined by the government.

The Code establishes a Social Security Fund for unorganized, gig, and platform workers, funded by contributions from the Central Government, State Governments, and aggregators. Aggregators are required to contribute between 1% and 2% of their annual turnover to this fund. This provision acknowledges the changing nature of work in the digital economy and ensures that workers in the gig economy are not left outside the social security net.

Enhanced Women-Centric Provisions

The Code significantly strengthens provisions related to women workers. It mandates 26 weeks of paid maternity leave, up from the 12 weeks provided under the earlier Maternity Benefit Act. The Code also provides 12 weeks of maternity benefit for adoptive and commissioning mothers, recognizing diverse family formations. Additionally, establishments with 50 or more employees must provide crèche facilities, ensuring that working mothers can balance professional and family responsibilities.

Commuting Accidents as Employment Injuries

Section 51-E of the Code, as incorporated into the ESI framework, introduces a groundbreaking provision treating commuting accidents as employment injuries. The section states that an accident occurring to an employee while commuting from residence to workplace for duty, or from workplace to residence after performing duty, shall be deemed to have arisen out of and in the course of employment if the nexus between the circumstances, time, and place of the accident and the employment is established [7].

This provision addresses a long-standing gap in worker protection. Previously, the “going and coming rule” generally excluded commuting accidents from coverage unless the employee was in the course of employment during travel. The new provision recognizes that commuting is an integral part of modern employment and that workers deserve protection during this vulnerable period.

Simplified Compliance and Penalty Structure

The Code introduces several compliance-friendly measures. It provides a 30-day improvement notice to employers before initiating prosecution for violations, allowing them an opportunity to rectify non-compliance. The Code also establishes a five-year limitation period for ESIC inquiries related to contributions, providing certainty to employers. Additionally, many offenses have been decriminalized, with imprisonment replaced by monetary fines for 13 offenses, reflecting a more calibrated approach to enforcement.

Landmark Judicial Pronouncements

ESIC vs. Sameer Gupta (2023)

In the case of Employees State Insurance Corporation versus Sameer Gupta, the Chief Judicial Magistrate of Chandigarh delivered a significant verdict on October 4, 2023, sentencing Sameer Gupta to three months of simple imprisonment and imposing fines for non-compliance with ESI Act requirements [8]. The case involved systematic failure to maintain and produce statutory records during multiple inspections conducted in 2017.

The court’s decision emphasized that the burden of maintaining proper records and ensuring compliance lies squarely with the principal employer. The judgment reinforced that claims of business closure without documentary evidence cannot be accepted as defense against statutory obligations. This case serves as an important precedent demonstrating the judiciary’s firm stance on enforcing compliance with labour laws and the serious consequences of persistent non-compliance.

Ajay Raj Shetty vs. Director and Ors. (2025)

The Supreme Court of India in Criminal Appeal No. 2036 of 2025 addressed crucial questions regarding personal liability under the ESI Act. The case involved Ajay Raj Shetty, who was identified as the general manager and principal employer of a company where employees’ ESI contributions were deducted but not deposited with ESIC between February and December 2010 [9].

The Supreme Court held that a person need not hold a formal title to be deemed a principal employer under Section 2(17) of the Act. The determining factor is whether the individual was effectively responsible for the supervision and control of the establishment. The Court emphasized that functional responsibility, rather than mere designation, determines liability under the Act. This judgment clarifies that managerial personnel cannot escape liability by claiming they were not formally designated as principal employers if they exercised effective control over establishment operations.

C.E.S.C. Ltd. vs. Subhash Chandra Bose (1991)

In this landmark case, the Supreme Court examined whether employees paid through contractors fall within the definition of “employee” under Section 2(9) of the ESI Act. The Court held that workers employed through contractors on the premises of the principal employer and performing work that is ordinarily part of the principal employer’s business are employees within the meaning of the Act. This interpretation ensured that principal employers cannot evade ESI obligations by engaging workers through intermediaries.

The judgment established the principle of looking beyond formal employment arrangements to the substance of the working relationship. It recognized that contract labour is often used to circumvent labour law obligations and held that the ESI Act’s protective provisions must be interpreted liberally to effectuate the legislative intent of providing social security to all workers.

E.S.I. Corporation vs. Endocrinology and Immunology Lab (2023)

The Supreme Court in this case determined that pathological laboratories in Kerala were covered under the ESI Act from 2007 and not from 2002 as claimed by ESIC. The judgment illustrates the importance of proper notification procedures for extending the Act’s coverage to new categories of establishments. The Court emphasized that coverage under the Act must be based on clear legal notification and cannot be retrospectively applied without proper authority.

Regulatory Compliance and Employer Obligations

Registration Requirements

Section 2-A of the ESI Act mandates that every factory or establishment to which the Act applies must be registered within the time and manner specified in regulations. Registration is the first step in bringing an establishment under the ESIC framework and triggers all subsequent obligations regarding contributions, returns, and record-keeping.

Employers must register on the ESIC online portal by providing details about their business, employees, and wage structure. Upon registration, the establishment receives a unique code number that must be used in all future correspondence with ESIC. The registration creates a legal relationship between the employer, employees, and ESIC, establishing mutual rights and obligations.

Return Submission and Record Maintenance

Section 44 of the Act requires every principal and immediate employer to submit returns in prescribed forms containing particulars relating to persons employed. These returns must be submitted periodically, typically monthly, showing details of all employees, their wages, and contributions deducted and paid. Additionally, employers must maintain registers and records as specified in regulations.

The importance of accurate record-keeping cannot be overstated. Records serve multiple purposes including verification of contributions paid, determination of benefit eligibility, calculation of benefit amounts, and audit trails for compliance verification. Failure to maintain proper records can result in determination of contributions on a presumptive basis under Section 45-A, often resulting in higher liability than actual.

Payment of Contributions

Contributions must be paid within 15 days from the end of the month in which they fall due. Payment is made through designated bank branches authorized to receive ESI contributions. Employers who fail to pay contributions on time become liable for interest at 12% per annum or at higher rates specified in regulations under Section 39(5). This interest provision serves as both a deterrent against delayed payment and compensation to ESIC for loss of use of funds.

Section 40(4) creates a trust relationship by deeming any sum deducted from employee wages as entrusted to the employer for paying contributions. This legal construct has significant implications because misappropriation of such amounts can attract criminal liability under Section 406 of the Indian Penal Code for criminal breach of trust, in addition to penalties under the ESI Act itself.

Benefits for Workers and Challenges

Medical Infrastructure

ESIC operates an extensive network of hospitals, dispensaries, and medical facilities across India. As of recent data, the Corporation runs seven ESIC Medical College and Post Graduate Institutes of Medical Sciences and Research in Bangalore, Chennai, Kolkata, Faridabad, Hyderabad, Gulbarga, and Jaipur. Additionally, an ESIC Medical College and Hospital operates in Patna. These institutions provide both medical education and treatment services.

However, the medical infrastructure faces challenges. The Parliamentary Standing Committee on Labour noted that ESIC has approximately 14,000 staff vacancies across its medical facilities. In areas where ESIC does not have its own medical infrastructure, the Corporation enrolls Insurance Medical Practitioners who provide care to insured persons and their families. Currently, 1,003 private medical practitioners serve as IMPs, each permitted to register up to 2,000 insured person family units.

Cash Benefits During Sickness

Insured persons who fall sick and obtain a medical certificate are entitled to sickness benefit at rates prescribed by the Central Government. The benefit compensates for wage loss during illness, typically providing 70% of wages subject to certain conditions and limitations. To qualify, an insured person must have contributed for a minimum period and must be certified as sick by an authorized medical practitioner.

Sickness benefit serves as crucial income protection, preventing workers from falling into financial hardship during periods of illness. The benefit recognizes that health emergencies should not push families into poverty and that workers deserve support during periods when they cannot work due to illness.

Maternity Benefits

The ESI Act provides comprehensive maternity benefits to insured women. Under current provisions, pregnant women are entitled to periodical payments for 26 weeks, which can be divided before and after confinement as per regulations. The benefit also covers miscarriage and pregnancy-related sickness. Women who have contributed for a specified minimum period and satisfy other conditions are eligible for these benefits.

Maternity benefit serves multiple objectives including ensuring adequate rest before and after childbirth, preventing premature return to work that could harm maternal or child health, and providing financial security during a period when women cannot work. The extension of maternity leave to 26 weeks under the Code on Social Security represents progressive legislation that aligns India with international best practices.

Disablement and Dependent Benefits

Workers who suffer employment injuries resulting in temporary or permanent disablement are entitled to disablement benefits. Temporary disablement benefit provides periodical payments for the duration of disablement lasting more than three days. Permanent disablement benefit, whether total or partial, provides compensation based on the degree of earning capacity loss as assessed by Medical Boards.

In tragic cases where an employment injury results in death, dependents of the deceased worker are entitled to dependants’ benefit. The Act defines dependants in Section 2(6-A) to include the widow, legitimate or adopted children below 25 years, unmarried daughters, widowed mothers, and other specified relatives who were wholly or partially dependent on the deceased worker’s earnings.

Conclusion

The proposed increase in the ESIC wage ceiling marks a major move toward building universal social security coverage in India. Raising the limit to ₹25,000 or ₹30,000 a month could bring nearly 10 million more workers into the ESIC safety net. This update reflects current economic conditions especially inflation and rising minimum wages which have made the existing ₹21,000 threshold outdated and insufficient.

The ESI Act, 1948, has served as the cornerstone of India’s social security architecture for over seven decades. Its framework of compulsory insurance funded by employer and employee contributions has provided medical care and income security to millions of workers and their families. The Act’s evolution through judicial interpretation and legislative amendment demonstrates its adaptability to changing economic and social conditions.

The Code on Social Security, 2020, marks a new chapter by consolidating and modernizing social security laws. Its provisions extending coverage to gig workers, recognizing commuting accidents as employment injuries, and strengthening women-centric benefits reflect progressive policy thinking aligned with contemporary workplace realities. The Code’s emphasis on simplified compliance and digitization promises to reduce the burden on employers while improving benefit delivery to workers.

However, challenges remain. ESIC’s medical infrastructure requires substantial strengthening with thousands of vacant positions needing to be filled. The quality of medical services must improve to make the scheme more attractive to higher-wage workers who may opt out. The expansion of coverage must be accompanied by enhanced administrative capacity to handle increased volumes while maintaining service quality.

As India aspires to become a developed nation by 2047, ensuring comprehensive social security for all workers becomes not just a moral imperative but an economic necessity. Healthy, secure workers are more productive and contribute more effectively to economic growth. The proposed ESIC wage ceiling Increase, combined with the progressive provisions of the Code on Social Security, positions India to move closer to the goal of universal social security coverage that leaves no worker behind.

References

[1] Official Website of ESIC. About Us – Employees’ State Insurance Act, 1948: India’s Turning Point in Worker Welfare. Available at: https://esic.gov.in/about-us 

[2] TeamLease Services. (2016). ESIC raises wage threshold to Rs.21,000, aims to add 50 lakh workers. Available at: https://group.teamlease.com/esic-raises-wage-threshold-to-rs-21000-aims-to-add-50-lakh-workers/ 

[3] Business Today. (2024). Centre considers increasing monthly wage ceiling for EPFO and ESIC to Rs 25,000. Available at: https://www.businesstoday.in/personal-finance/news/story/centre-considers-increasing-monthly-wage-ceiling-for-epfo-and-esic-to-rs-25000-436789-2024-07-11 

[4] People Manager. (2024). India Set for Major Hike in EPS, EPF and ESIC Wage Ceilings. Available at: https://peoplemanager.co.in/india-set-for-major-hike-in-eps-epf-and-esic-wage-ceilings/ 

[5] Press Information Bureau, Government of India. Code on Social Security, 2020: Towards Universal and Inclusive Social Protection. Available at: https://www.pib.gov.in/FactsheetDetails.aspx?id=150473 

[6] Lakshmikumaran & Sridharan Attorneys. Code on Social Security, 2020 – An overview. Available at: https://www.lakshmisri.com/insights/articles/code-on-social-security-2020-an-overview/ 

[7] Static PIB Document. Code on Social Security, 2020. Available at: https://static.pib.gov.in/WriteReadData/specificdocs/documents/2025/nov/doc20251122702601.pdf 

[8] Prakash Consultancy Services. (2024). Understanding the ESIC vs. Sameer Gupta Case – A Landmark Judgment. Available at: https://blog.pcsmgmt.com/2024/06/understanding-the-esic-vs-sameer-gupta-case-a-landmark-judgment.html 

[9] Lexology. (2025). Liability by functional responsibility: Supreme Court affirms conviction under ESI act. Available at: https://www.lexology.com/library/detail.aspx?g=2c39f445-7657-40ce-9f9b-0ca7658c7866 

The post ESIC Wage Limit 2026: ₹25,000 to ₹30,000 Hike — Latest Circular & Impact on Employers appeared first on Bhatt & Joshi Associates.

The digital revolution has fundamentally transformed India’s employment landscape, creating a vast ecosystem of gig and platform workers who power the country’s urban economy. From delivering hot meals to your doorstep to providing ride-hailing services, these workers form the backbone of India’s modern service sector. Yet until recently, millions of these workers operated in a legal vacuum, devoid of the social security protections that traditional employees take for granted. The implementation of the Code on Social Security, 2020 in November 2025 marks a watershed moment in Indian labour law, formally recognizing gig and platform workers for the first time at the national level. [1]. This recognition comes after years of sustained advocacy by worker unions and follows pioneering state-level legislation that demonstrated the urgent need for legal protections in this rapidly expanding sector.

The Gig Economy in India: Scale and Significance

India’s gig economy has witnessed exponential growth over the past decade, transforming from a nascent concept into a critical component of the nation’s economic infrastructure. According to estimates from NITI Aayog, the sector employed approximately 7.7 million workers in 2020, a figure projected to surge to 23.4 million by 2029-2030 [2]. This remarkable expansion reflects not only technological advancement but also the harsh reality of limited formal employment opportunities for India’s youth. The platforms facilitating this economy, including Uber, Ola, Swiggy, Zomato, Urban Company, and numerous others, have created a new category of work that exists in the grey zone between traditional employment and independent contracting. These workers typically lack steady wages, paid overtime, healthcare benefits, or any form of job security, despite performing essential services that keep India’s cities functioning.

Legislative Framework: The Code on Social Security, 2020

The cornerstone of social security protection for gig and platform workers in India is the Code on Social Security, 2020, which Parliament passed on September 23, 2020 [3]. This legislation represents one of four labour codes designed to consolidate and modernize India’s complex web of labour laws, amalgamating nine previous enactments into a single framework. The Code came into force on November 21, 2025, finally bringing legal recognition to the millions of workers in the gig economy. The Code explicitly defines a “gig worker” as a person who performs work or participates in a work arrangement and earns from such activities outside of traditional employer-employee relationships. Similarly, it defines “platform work” as work arrangements outside conventional employment where organizations or individuals use online platforms to access services in exchange for payment. Most significantly, the Code defines “aggregator” as a digital intermediary connecting buyers and sellers, explicitly bringing platform companies under regulatory oversight.

The legislative framework mandates several critical protections. Aggregators must contribute between one and two percent of their annual turnover, capped at five percent of the amount payable to gig and platform workers, into a dedicated social security fund [4]. This fund, administered by the Central and State Governments, aims to finance various welfare schemes including life insurance, disability insurance, health benefits, maternity benefits, and old-age protection. The Code establishes a National Social Security Board responsible for recommending schemes for different categories of workers and monitoring their implementation. State governments must similarly constitute State Unorganised Workers’ Boards to oversee welfare programs at the regional level. Each worker receives an Aadhaar-linked Universal Account Number, ensuring portability of benefits when moving across states or between platforms.

Key Provisions and Benefits Under the Code on Social Security, 2020

The social security provisions extend across multiple dimensions of worker welfare. The Code provides for health insurance coverage, ensuring that gig workers can access medical care without facing financial catastrophe. Maternity benefits protect women workers during pregnancy and childbirth, addressing a critical gap in protection for female gig workers. Disability and accident insurance offers a safety net when workers face occupational injuries, while life insurance provides support for workers’ families. Perhaps most importantly, old-age pension schemes recognize that gig workers, like traditional employees, need income security in their later years. The Code also introduces novel protections, such as deeming accidents occurring while commuting between residence and workplace as arising in the course of employment, a provision that acknowledges the realities of gig work where the boundaries between work and personal time often blur [5].

State-Level Pioneering: The Rajasthan Model

Even before the central legislation took effect, several states took proactive steps to protect gig workers within their jurisdictions. Rajasthan led this movement by passing the Rajasthan Platform-Based Gig Workers (Registration and Welfare) Act, 2023 on July 24, 2023, becoming the first state to specifically legislate for platform-based gig workers [6]. This groundbreaking legislation established the Rajasthan Platform-Based Gig Workers Welfare Board, mandated registration of all gig workers and aggregators, and created a dedicated welfare fund financed through a welfare cess ranging from one to two percent of each transaction value. The Act requires aggregators to deposit this cess by the fifth day of each month and introduced a Central Transaction Information and Management System to monitor all platform payments transparently. Registered workers receive unique identification numbers valid across all platforms, enabling comprehensive tracking of their employment history and entitlements. The legislation also established a grievance redressal mechanism, allowing workers to petition designated authorities regarding violations of their rights. Non-compliant aggregators face substantial penalties, including fines up to five lakh rupees for first contraventions and fifty lakh rupees for subsequent violations.

Evolution and Expansion: Karnataka, Bihar, and Jharkhand

Following Rajasthan’s example, Karnataka enacted the Karnataka Platform-Based Gig Workers (Social Security and Welfare) Act, 2025 in August 2025, incorporating all provisions of the Rajasthan law while introducing several improvements [7]. Karnataka’s legislation increased the welfare fee range to between one and five percent based on aggregator categories and expanded social security benefits beyond insurance to include health coverage, accident protection, and financial assistance. The Act established a two-tiered grievance procedure, requiring aggregators to maintain Internal Dispute Resolution Committees while allowing escalation to the Welfare Board if issues remain unresolved within fourteen days. Karnataka also mandated that aggregators provide workers with a human point of contact for queries, addressing the frustration many gig workers experience when dealing with algorithm-driven management systems. Bihar and Jharkhand followed suit in August 2025, bringing the total number of states with dedicated gig worker legislation to four. These state laws have created parallel frameworks that, while aligned with central legislation, provide more detailed implementation mechanisms and stricter enforcement provisions.

Judicial Interpretation and Worker Classification

Indian courts have played a crucial role in shaping the legal status of gig workers, often stepping in where legislation lagged. The landmark case of Indian Federation of App-Based Transport Workers v. Union of India, filed before the Supreme Court in September 2021, directly challenges the classification of gig workers as independent contractors rather than employees [8]. The petitioners, representing thousands of Uber, Ola, Swiggy, and Zomato workers, argue that their exclusion from traditional labour protections violates Articles 14, 21, and 23 of the Constitution, which guarantee equality, right to life, and protection from forced labour. The case remains pending, but its significance cannot be overstated. If the Court rules that gig workers qualify as employees, it would fundamentally reshape the legal landscape, potentially extending minimum wage protections, the right to unionize, and comprehensive labour law coverage to millions of workers.

Another significant case, X v. Internal Complaints Committee, ANI Technologies Pvt. Ltd., decided by the Karnataka High Court in 2019, demonstrated how courts can expand worker protections even within existing legal frameworks [9]. When a female passenger experienced sexual harassment by an Ola driver, the court had to determine whether the driver qualified as an “employee” under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. The court conducted a detailed analysis of the control Ola exercised over its drivers, examining how the platform determined rates, charges, service standards, vehicle maintenance requirements, booking acceptance policies, and payment methods. Finding that this level of control went far beyond that of a mere technological intermediary, the court ruled that Ola drivers do qualify as employees for purposes of the POSH Act. While this decision does not automatically extend employment status across all labour laws, it established an important precedent that courts will examine the substance of the relationship rather than accepting platform companies’ self-characterization as mere intermediaries.

Challenges in Implementation

Despite these legislative and judicial advances, significant implementation challenges persist. The division of labour policy between the central and state governments creates potential for uneven access to protections. State governments bear responsibility for designing, notifying, and administering many schemes needed to make the Code operational, raising the possibility that workers in some states will enjoy robust protections while those in other states face delays or inadequate support. The experience of Rajasthan illustrates this challenge. Although the state passed its gig worker legislation in July 2023, the change in government following the December 2023 elections has stalled implementation, with the new administration yet to notify the rules necessary to operationalize the Act [2]. This demonstrates how political will and administrative capacity critically influence whether legal protections translate into real-world benefits.

The actual benefits available to workers remain unclear. While the Code creates the framework for social security schemes, neither the central legislation nor most state laws specify the exact nature, quantum, or eligibility criteria for benefits. Workers registering on the government’s E-Shram portal often find little incentive to do so, as the system does not address their immediate concerns regarding fluctuating earnings, arbitrary account suspensions, or sudden terminations. Trade unions have criticized this gap, noting that without addressing fundamental issues like minimum wages and employment security, social security benefits alone cannot substantially improve workers’ lives. The requirement that aggregators contribute based on turnover or transaction values also raises questions about how contributions will be tracked across multiple platforms and how the system will prevent companies from underreporting to minimize their obligations.

Constitutional and Rights-Based Perspectives

Beyond statutory provisions, gig workers’ claims to social security rest on constitutional foundations. Article 21 of the Indian Constitution, which guarantees the right to life, has been interpreted expansively to include the right to livelihood and dignified working conditions. Workers’ advocates argue that the denial of social security to gig workers violates this fundamental right, as it leaves them vulnerable to poverty, ill-health, and destitution despite their labour contributing significantly to the economy. Article 23, which prohibits forced labour, provides another constitutional basis for worker protections. When platform companies exercise extensive control over workers’ activities, compensation, and working conditions while denying them the benefits associated with employment, some commentators argue this creates a form of exploitative labour that Article 23 was designed to prevent. Article 14’s guarantee of equality before the law supports the argument that gig workers should not receive inferior protections compared to traditional employees performing similar work under similar conditions of subordination and economic dependence.

Comparative Analysis: International Approaches

India’s approach to gig worker regulation sits within a broader global conversation about how to balance the flexibility that platforms and workers value against the need for adequate protections. The United Kingdom’s Supreme Court decision in Uber BV v. Aslam established that Uber drivers qualify as “workers” entitled to minimum wage and paid leave, rejecting the company’s argument that drivers operated as independent contractors. The court examined the degree of control Uber exercised and concluded that this control, combined with drivers’ economic dependence on the platform, made them workers in substance if not in form. California’s Assembly Bill 5, which reclassified many gig workers as employees using an “ABC test,” represented an even more aggressive approach, though it faced significant pushback and subsequent modifications. These international precedents demonstrate different strategies for addressing the gig worker challenge, each with distinct implications for platform business models, worker welfare, and market flexibility.

The Path Forward: Gaps and Recommendations

While India’s new labour codes represent significant progress, substantial work remains to ensure gig workers receive meaningful protection. First and most urgently, both central and state governments must finalize and notify the rules necessary to operationalize the Code’s provisions. Without these implementing regulations, the statutory framework remains largely aspirational. Second, the definition of benefits must be clarified and standardized across jurisdictions to prevent a patchwork system where workers’ protections depend on their geographic location or the specific platform they work for. Third, the legislation must address income security more directly. Current provisions focus on insurance and pension schemes, but they do not establish minimum wages, maximum working hours, or protections against arbitrary deactivation or unfair termination. Trade unions have consistently emphasized that social security, while important, cannot substitute for fair compensation and job security.

Fourth, the grievance redressal mechanisms need strengthening. Many gig workers report that algorithmic management systems make it difficult or impossible to appeal decisions or resolve disputes, as they have no human contact point within the platform companies. State legislation like Karnataka’s requirement for human points of contact represents progress, but this must be implemented uniformly and backed by strict enforcement. Fifth, workers must have genuine opportunities to participate in collective bargaining and union activity. The Code and state laws establish boards with worker representation, but the selection of these representatives must be democratic and transparent rather than being controlled by governments or platforms. Finally, penalties for non-compliance must be enforced consistently. Legislation that imposes substantial fines for violations means little if regulatory agencies lack the resources or political support to conduct inspections and pursue enforcement actions against powerful platform companies.

Conclusion

The recognition of gig and platform workers under India’s Code on Social Security, 2020 marks a critical turning point in the evolution of labour law. After years of operating in legal limbo, millions of workers now have formal status and, at least in principle, access to social security protections. The pioneering efforts of states like Rajasthan, Karnataka, Bihar, and Jharkhand demonstrate that subnational governments can drive innovation in worker protection even when central action lags. Judicial interventions, particularly in cases examining the nature of platform control over workers, continue to refine our understanding of employment relationships in the digital age. Yet recognition alone does not ensure protection. The gap between legislative frameworks and lived reality remains substantial. Many workers report that the new codes have not yet improved their daily working conditions, earnings, or security. Implementation challenges, including the need for detailed implementing rules, adequate funding for social security schemes, effective grievance mechanisms, and robust enforcement, must be addressed if the promise of these reforms is to be realized. The coming years will determine whether India’s legal framework for gig workers represents a genuine transformation in labour relations or merely a symbolic gesture that fails to translate into meaningful change in workers’ lives. The answer will depend on political will, administrative capacity, judicial interpretation, and the continued mobilization of workers themselves demanding that the laws on paper become reality on the ground.

References

[1] Ministry of Labour and Employment. (2025). S.O. 5319(E) – Code on Social Security, 2020 Notification. Government of India. Retrieved from https://labour.gov.in/sites/default/files/ss_code_gazette.pdf 

[2] Labour Review. (2025). Beyond Welfare in India’s Gig Sector. Retrieved from https://labourreview.org/beyond-welfare/ 

[3] Parliament of India. (2020). The Code on Social Security Act, 2020 (Act No. 36 of 2020). India Code. Retrieved from https://www.indiacode.nic.in/handle/123456789/16823 

[4] Business Standard. (2025). From gig workers to factories: What India’s new labour codes really mean. Retrieved from https://www.business-standard.com/economy/news/labour-codes-india-worker-rights-gig-workers-wages-social-security-125112400388_1.html 

[5] The Week. (2025). No more job safety anxiety: How India’s new social security law reforms help gig workers, contract employees. Retrieved from https://www.theweek.in/news/biz-tech/2025/11/22/no-more-job-safety-anxiety-how-india-s-new-social-security-law-reforms-help-gig-workers-contract-employees.html 

[6] Government of Rajasthan. (2023). The Rajasthan Platform Based Gig Workers (Registration and Welfare) Act, 2023. PRS Legislative Research. Retrieved from https://prsindia.org/files/bills_acts/acts_states/rajasthan/2023/Act29of2023Rajasthan.pdf 

[7] PRS Legislative Research. (2025). The Karnataka Platform Based Gig Workers (Social Security and Welfare) Bill, 2025. Retrieved from https://prsindia.org/bills/states/the-karnataka-platform-based-gig-workers-social-security-and-welfare-bill-2025 

[8] Supreme Court Observer. (2022). Gig Workers’ Access to Social Security – The Indian Federation of App Based Transport Workers v. Union of India. Retrieved from https://www.scobserver.in/cases/gig-workers-access-to-social-security-the-indian-federation-of-app-based-transport-workers-ifat-v-union-of-india/ 

[9] Economic and Political Weekly. (2024). Gig Workers under the POSH Act. Retrieved from https://www.epw.in/journal/2024/42/law-and-society/gig-workers-under-posh-act.html 

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Introduction

The landscape of employment in India has undergone a fundamental transformation with the recent notification of the four Labour Codes on November 21, 2025. Among the various reforms introduced, the provisions relating to gratuity for fixed-term employees represent one of the most significant departures from traditional employment law. While the Payment of Gratuity Act, 1972 has governed retirement benefits for over five decades, the newly implemented Code on Social Security, 2020 and the Industrial Relations Code, 2020 have introduced provisions that fundamentally alter gratuity entitlements for workers engaged on fixed-term contracts. This change reflects the evolving nature of work in modern India, where temporary and contractual employment has become increasingly prevalent across sectors. The tension between providing adequate social security to temporary workers and maintaining flexibility for employers has created what can only be described as a gratuity conundrum, one that requires careful examination of both legislative frameworks and their practical implications for India’s workforce.

The Traditional Gratuity Framework Under the Payment of Gratuity Act, 1972

The Payment of Gratuity Act, 1972 was enacted by Parliament on August 21, 1972 and came into force on September 16, 1972[1]. The Act established a mandatory framework requiring employers to provide a lump-sum gratuity payment to employees as a reward for long-term service upon termination of employment. Under Section 4 of the Act, gratuity becomes payable to an employee on the termination of employment after rendering continuous service for not less than five years. The termination can occur due to superannuation, retirement or resignation, death or disablement due to accident or disease. However, the completion of continuous service of five years is not required where termination results from death or disablement. The Supreme Court of India in Indian Hume Pipe Co Ltd v Its Workmen held that the general principle underlying a gratuity scheme is that by service over a long period, the employee is entitled to claim a certain amount as a retirement benefit[2]. This landmark judgment established gratuity as distinct from retrenchment compensation, recognizing it as a legitimate claim arising from sustained employment rather than a discretionary payment.

The Payment of Gratuity Act applies to every factory, mine, oilfield, plantation, port, and railway company. For shops and establishments, the Act applies to those organizations employing ten or more persons on any day during the preceding twelve months. Once an establishment becomes covered under the Act, it continues to be governed even if the number of employees subsequently falls below ten. Gratuity is calculated at the rate of fifteen days’ wages for every completed year of service or part thereof in excess of six months, based on the wages last drawn by the employee. The formula for calculation is derived by dividing the last drawn wages by twenty-six and multiplying the result by fifteen. Under Section 4(3) of the Act, the maximum gratuity payable was originally capped, and this ceiling was revised to twenty lakh rupees through the Payment of Gratuity (Amendment) Act, 2018. This calculation methodology has remained consistent since the Act’s inception, providing a clear and predictable framework for both employers and employees to determine retirement benefits.

Fixed-Term Employment and the Changing Nature of Work

The concept of fixed-term employment represents a significant evolution in Indian labour law. Fixed-term employment was first introduced through a Central Government Notification in February 2017, initially applicable only to employees working in Apparel Manufacturing Units. The provision was subsequently extended to leather industries and other sectors in January 2018, and eventually to all sectors through the Industrial Employment (Standing Orders) Central Amendment Rules, 2018. The Industrial Relations Code, 2020 formally codifies fixed-term employment and defines it as “the engagement of a worker on the basis of a written contract of employment for a fixed period,” with the proviso that the worker’s hours of work, wages, allowances and other benefits shall not be less than that of a permanent employee doing the same work or work of a similar nature[3]. This definition marked a deliberate policy shift towards formalizing temporary employment relationships that had previously operated in grey zones, where employers frequently used short-term contracts to avoid extending statutory benefits to workers.

The rationale for introducing fixed-term employment stems from economic realities facing Indian businesses, particularly in sectors characterized by seasonal demand, project-based work, or fluctuating market conditions. Before the formal recognition of fixed-term employment, employers often relied on contract labour supplied through intermediaries to maintain workforce flexibility. However, this arrangement frequently resulted in exploitation of workers who were denied basic statutory benefits despite performing work identical to permanent employees. The formalization of fixed-term employment under the Industrial Relations Code, 2020 aims to eliminate this disparity by mandating that fixed-term employees receive statutory benefits including provident fund, employee state insurance, bonus, and wages on par with permanent workers. The Code specifically provides that fixed-term employees will be eligible for gratuity if they render service under the contract for a period of one year. Importantly, the termination of service resulting from completion of the tenure of fixed-term employment is explicitly excluded from the definition of retrenchment, meaning such employees do not receive retrenchment compensation when their contracts naturally expire.

The Code on Social Security, 2020 and Gratuity Provisions for Fixed-Term Employees

The Code on Social Security, 2020 consolidates nine existing labour laws related to social security, including the Payment of Gratuity Act, 1972. Section 53 of the Code on Social Security, 2020 sets forth the conditions for payment of gratuity, largely replicating the framework of the 1972 Act but with crucial modifications for fixed-term employees. Under Section 53(1), gratuity shall be payable to an employee on the termination of employment after rendering continuous service for not less than five years, upon superannuation, retirement or resignation, death or disablement due to accident or disease, or termination of contract period under fixed-term employment, or upon happening of any event as may be notified by the Central Government[4]. The second proviso to this subsection explicitly states that the completion of continuous service of five years shall not be necessary where the termination of employment of any employee is due to death, disablement, or expiration of fixed-term employment.

Section 53(2) of the Code on Social Security, 2020 provides that for an employee employed on fixed-term employment or a deceased employee, the employer shall pay gratuity on a pro-rata basis. This pro-rata calculation represents a fundamental departure from the traditional gratuity framework, which required completion of five years of service except in cases of death or disability. The practical effect of this provision is that a fixed-term employee who completes even one year of service becomes entitled to receive gratuity proportionate to the period worked. For instance, a fixed-term employee who works for two years would receive gratuity calculated as fifteen days’ wages multiplied by two years divided by twenty-six, without needing to complete the traditional five-year threshold. This change significantly expands the pool of employees eligible for gratuity and imposes additional financial obligations on employers who engage workers on fixed-term contracts. The Code further stipulates that the amount of gratuity payable to an employee shall not exceed such amount as may be notified by the Central Government, though the specific ceiling under the Code remains to be clarified through subordinate legislation.

The Intersection of Two Codes and Regulatory Ambiguity

A significant source of confusion arises from the interaction between the Code on Social Security, 2020 and the Industrial Relations Code, 2020, both of which contain provisions relating to gratuity for fixed-term employees. The Industrial Relations Code, 2020 defines fixed-term employment and explicitly states that such workers will be eligible for gratuity if they complete a one-year contract. Meanwhile, the Code on Social Security, 2020 provides that gratuity is payable on expiration of fixed-term employment on a pro-rata basis, without specifically mentioning a one-year threshold. This apparent discrepancy has led to interpretative challenges regarding whether a fixed-term employee with a contract of less than one year would be entitled to gratuity under the Code on Social Security, 2020[5]. The PRS Legislative Research analysis of the Code on Social Security, 2020 highlighted this inconsistency, noting that the two Bills contain different provisions on gratuity for fixed-term workers and it is unclear whether a fixed-term employee with a contract of less than one year will be entitled to gratuity.

The resolution of this ambiguity likely requires harmonious construction of both Codes, reading them together to give effect to the legislative intent. A reasonable interpretation would suggest that the one-year threshold mentioned in the Industrial Relations Code, 2020 should apply as a minimum qualifying period for fixed-term employees to claim gratuity, while the pro-rata calculation methodology prescribed in the Code on Social Security, 2020 would determine the quantum of payment for those who satisfy the one-year requirement. This interpretation aligns with the overall policy objective of providing social security to fixed-term employees while maintaining some threshold to prevent administrative complexity and excessive compliance burden for very short-term contracts. However, until the Central Government issues clarificatory rules or judicial precedents emerge from disputes arising under these provisions, employers and employees navigate this uncertainty with limited guidance. The Draft Industrial Relations (Central) Rules, 2020 and related subordinate legislation will play a crucial role in resolving these interpretative questions when they are finalized and notified.

Judicial Precedents on Gratuity and Their Relevance to Fixed-Term Employment

While specific judicial pronouncements on gratuity for fixed-term employees under the new Codes are yet to emerge, given their recent implementation, the extensive jurisprudence developed under the Payment of Gratuity Act, 1972 provides valuable guidance for interpreting the new provisions. The Supreme Court’s decision in Indian Hume Pipe Co Ltd v Their Workmen established foundational principles distinguishing gratuity from other forms of compensation. The Court held that gratuity is a kind of retirement benefit akin to provident fund or pension, intended to help employees after retirement whether due to superannuation or physical disability. The judgment emphasized that by length of service, workmen are entitled to claim a certain amount as a retirement benefit, establishing gratuity as a legitimate right rather than an ex gratia payment subject to employer discretion. This precedent remains relevant to understanding gratuity for fixed-term employees, as it establishes that even temporary workers who render service over a period should be entitled to retirement benefits proportionate to their tenure.

The Karnataka High Court’s judgment in Bharat Gold Mines Ltd v Regional Labour Commissioner (1986) addressed the circumstances under which gratuity can be forfeited[6]. The Court examined whether theft, being an offence involving moral turpitude, justified complete forfeiture of gratuity under Section 4(6)(b)(ii) of the Payment of Gratuity Act, 1972. The Court held that when an employee is found guilty of theft, which involves dishonest conduct, it constitutes an offence involving moral turpitude, and the gratuity payable stands wholly forfeited. However, subsequent judicial developments have clarified that forfeiture of gratuity requires adherence to principles of natural justice. Courts have consistently held that before passing an order forfeiting gratuity, whether wholly or partially, the employee must be given notice and an opportunity to be heard. This procedural safeguard ensures that the statutory right to gratuity, once vested, cannot be arbitrarily denied without due process. These principles apply equally to fixed-term employees, protecting them from unjust forfeiture of their pro-rata gratuity entitlements.

Calculation Methodology and Practical Implementation for Fixed-Term Employees

The calculation of gratuity for fixed-term employees follows the same basic formula as permanent employees but with pro-rata adjustment for the shorter service period. Under Section 53 of the Code on Social Security, 2020, gratuity is calculated at the rate of fifteen days’ wages or such number of days as may be notified by the Central Government, based on the rate of wages last drawn by the employee, for every completed year of service or part thereof in excess of six months. For a fixed-term employee who has worked for one year and eight months, the calculation would be as follows: the last drawn monthly wages divided by twenty-six, multiplied by fifteen, multiplied by two years (since eight months exceeds six months and counts as a completed year). For piece-rated employees engaged on fixed-term contracts, the Code provides that daily wages shall be computed on the average of the total wages received for a period of three months immediately preceding the termination of employment, excluding wages paid for overtime work.

Employers engaging fixed-term employees must maintain accurate records of contract periods, wages paid, and service rendered to correctly calculate gratuity obligations. The requirement to pay gratuity on a pro-rata basis means that employers can no longer rely on the five-year threshold to avoid gratuity liability for short-term workers. This change has significant financial implications, particularly for sectors that extensively use fixed-term contracts for project-based work or seasonal operations. From an administrative perspective, employers must implement systems to track fixed-term contract expirations and ensure timely payment of gratuity. Under Section 7 of the Payment of Gratuity Act, 1972, which continues to apply through the Code on Social Security, 2020, the employer must determine the amount of gratuity and pay it within thirty days from the date it becomes payable. Failure to make timely payment attracts interest at the rate notified by the Central Government, and the Controlling Authority can issue recovery certificates to enforce payment through the Collector as arrears of land revenue.

Impact on Employers and Compliance Challenges

The extension of gratuity benefits to fixed-term employees after completion of just one year of service substantially increases the cost of engaging workers on temporary contracts. For small and medium enterprises, which comprise over ninety percent of India’s business establishments and often face constrained cash flows, the mandatory gratuity payments for fixed-term employees add to deferred compensation liabilities that must be provisioned in financial planning. While the policy objective of ensuring social security for all workers is laudable, critics argue that increasing the financial burden on employers may paradoxically discourage formal employment and push businesses toward more informal arrangements. The requirement to maintain parity in wages, allowances, and benefits between fixed-term and permanent employees performing similar work further constrains the cost advantages that employers previously enjoyed through temporary hiring arrangements.

Compliance with the new gratuity provisions requires employers to revise their human resource policies, payroll systems, and financial accounting practices. The Code on Social Security, 2020 mandates that employers issue wage slips to all employees and file returns with authorized officers. For organizations managing large numbers of fixed-term employees with varying contract periods and expiration dates, implementing systems to track gratuity eligibility and calculate pro-rata payments adds administrative complexity. The Draft Rules under the Code on Social Security, 2020 circulated in November 2020 provide detailed procedures for application and payment of gratuity, including prescribed forms for employees to claim their entitlements. Employers must familiarize themselves with these procedural requirements to ensure compliance and avoid penalties for non-payment. The increase in penalties under the new Codes, though accompanied by provisions for compounding certain offences, creates additional compliance risk for organizations that fail to accurately calculate and timely disburse gratuity to fixed-term employees.

Benefits and Protections for Fixed-Term Employees

From the perspective of workers engaged on fixed-term contracts, the new gratuity provisions represent a significant advancement in social security protection. Prior to these reforms, contractual and temporary workers were systematically excluded from gratuity benefits due to the five-year continuous service requirement, despite often performing the same work as permanent employees. The reduction of the eligibility threshold to one year for fixed-term employees recognizes the legitimate expectation that all workers, regardless of their employment status, should receive some form of retirement benefit proportionate to their service. This change particularly benefits workers in industries characterized by project-based employment, such as construction, information technology, and manufacturing sectors where the nature of work does not always permit long-term permanent employment relationships.

The pro-rata calculation method ensures that even workers engaged for relatively short periods receive fair compensation for their service. For example, a fixed-term employee working for two years at a monthly wage of fifty thousand rupees would receive gratuity calculated as follows: fifty thousand divided by twenty-six, multiplied by fifteen, multiplied by two, resulting in approximately fifty-seven thousand six hundred ninety-two rupees. While this amount may seem modest compared to gratuity received by permanent employees with decades of service, it provides meaningful financial support to workers transitioning between jobs or facing unemployment after contract expiration. The mandatory nature of these payments, backed by enforcement mechanisms through Controlling Authorities and appellate forums, ensures that employers cannot arbitrarily deny benefits to fixed-term workers. The statutory framework creates enforceable rights that workers can pursue through labour authorities without depending on employer goodwill or discretion.

Comparative Analysis with Permanent Employment

The new gratuity regime for fixed-term employees achieves near-parity with permanent workers in terms of benefit calculation methodology while maintaining some distinctions based on the temporary nature of the employment relationship. Both categories of employees receive gratuity calculated at fifteen days’ wages per completed year of service. The key difference lies in the qualifying period: permanent employees must complete five years of continuous service, while fixed-term employees become eligible after one year. This differential treatment reflects the legislative recognition that fixed-term contracts by their nature involve shorter tenure and greater job insecurity for workers. However, fixed-term employees do not receive retrenchment compensation when their contracts expire, since contract termination is not classified as retrenchment under the Industrial Relations Code, 2020. This distinction partially offsets the enhanced gratuity entitlement, as permanent employees facing retrenchment receive both statutory retrenchment compensation and gratuity.

Another important distinction relates to job security and conversion to permanent status. Under the previous legal framework, the Industrial Employment Standing Orders Central Rules, 1946 provided for conversion of temporary employees to permanent status after completion of three months of service in certain circumstances. However, the new Codes do not incorporate similar provisions for automatic conversion of fixed-term employees to permanent status upon completion of contract periods[7]. Employers retain the discretion to renew fixed-term contracts or allow them to lapse without creating permanent employment relationships. Critics argue that this flexibility, while beneficial for employers managing workforce fluctuations, creates a category of perpetually temporary workers who receive statutory benefits but lack long-term job security. The absence of limits on the number of times fixed-term contracts can be renewed potentially enables employers to maintain workers in temporary status indefinitely through repeated contract renewals, denying them the enhanced protections and career advancement opportunities associated with permanent employment.

Future Outlook and Policy Considerations

The implementation of gratuity provisions for fixed-term employees under the new Labour Codes represents an ongoing experiment in balancing worker welfare with employer flexibility in India’s evolving labour market. As businesses and workers adapt to these new requirements, several policy considerations warrant attention. The Central Government must issue clear and comprehensive rules clarifying ambiguities in the interaction between the Code on Social Security, 2020 and the Industrial Relations Code, 2020, particularly regarding the minimum qualifying period for gratuity eligibility. The Draft Rules under both Codes should harmonize provisions to eliminate interpretative disputes and provide certainty to stakeholders. Additionally, the government should consider establishing sector-specific guidelines recognizing that different industries face distinct challenges in managing fixed-term employment relationships.

From a broader policy perspective, the extension of gratuity to fixed-term employees aligns with international labour standards emphasizing equal treatment for all workers regardless of employment status. The International Labour Organization has consistently advocated for eliminating discrimination between temporary and permanent workers in access to social security benefits. However, the effectiveness of these provisions in achieving their intended objectives will depend on robust enforcement mechanisms and adequate resources for labour administration. The appointment of sufficient numbers of Controlling Authorities and Appellate Authorities, along with capacity building for labour officers, will be essential to ensure that fixed-term employees can effectively assert their rights under the new framework. The success of these reforms will ultimately be measured not merely by the statutory provisions enacted, but by the extent to which they translate into tangible improvements in the living standards and economic security of India’s temporary workforce.

Conclusion

The gratuity conundrum for fixed-term employees reflects broader tensions inherent in modern labour regulation: how to protect workers’ rights and ensure social security while maintaining sufficient flexibility for businesses to respond to market dynamics. The Code on Social Security, 2020 and the Industrial Relations Code, 2020 attempt to navigate this challenge by extending gratuity benefits to fixed-term employees on a pro-rata basis after one year of service, while preserving employers’ ability to engage workers on temporary contracts without creating permanent employment relationships. This represents a significant advancement in social security protection for temporary workers, who have historically been excluded from retirement benefits despite performing work equivalent to permanent employees. However, the regulatory framework remains incomplete, with ambiguities in the interaction between the two Codes and pending rules that will shape practical implementation. The coming years will reveal whether this balance struck by the new Labour Codes succeeds in achieving the twin objectives of worker welfare and economic efficiency, or whether further refinements will be necessary to address emerging challenges in India’s dynamic labour market. What remains clear is that the days of treating fixed-term employment as a means to evade statutory obligations have ended, and employers must now factor gratuity costs into their decisions regarding temporary hiring arrangements.

References

[1] Wikipedia. (2025). The Payment of Gratuity Act, 1972. Retrieved from https://en.wikipedia.org/wiki/The_Payment_of_Gratuity_Act,_1972

[2] Indian Kanoon. (1959). Indian Hume Pipe Co. Ltd vs The Workmen And Another. Supreme Court of India. Retrieved from https://indiankanoon.org/doc/1154235

[3] GreytHR. (2025). Industrial Relations Code, 2020. Retrieved from https://www.greythr.com/wiki/acts/industrial-relations-code-2020/

[4] GreytHR. (2025). The Code on Social Security, 2020. Retrieved from https://www.greythr.com/wiki/acts/code-on-social-security-2020/

[5] PRS Legislative Research. (2025). The Code on Social Security, 2020. Retrieved from https://prsindia.org/billtrack/the-code-on-social-security-2020

[6] Indian Kanoon. (1986). Bharath Gold Mines Ltd. vs Regional Labour Commissioner. Karnataka High Court. Retrieved from https://indiankanoon.org/doc/32629/

[7] Centre for Labour Laws. Fixed-Term Employment Under the Industrial Relations Code: Analysing the Legal Flaws and Limitations. National Law Institute University. Retrieved from https://cll.nliu.ac.in/fixed-term-employment-under-the-industrial-relations-code-analysing-the-legal-flaws-and-limitations/

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