by India’s social security system is composed of several schemes and programs spread throughout a variety of laws and regulations including employment and labour laws. This section discusses the government-controlled social security system in India which largely comprise of employer obligations such as Pension Schemes, Health Insurance and Medical Benefit, Disability Benefit, Maternity Benefit, and Gratuity.
The section will briefly discuss various legislation (read compliances) to provide social security cover to employees including coverage, benefits, and application to foreign expatriates.
The social security system in India has evolved in obedience to the impact of Western influence and of the modern urban industrial system. Though the non-industrial classes also are in urgent need of social security, their needs have been more acutely felt after the advent of industrialization in the 19th century. Social reformers, labor welfare organizations and many progressive employers persuaded the government to undertake social security measures as a protection for the workers at least against a few contingencies. “Social security is a major aspect of public policy today and the extent of its prevalence is a measure of the progress made by a country towards the idea of a welfare state”.
Article 43 of the Indian Constitution speaks of state’s responsibility to provide social security to the citizens of this country.
The social security strategies in India include the following:
- Social insurance with the participation of the beneficiary pooling risks and resources.
- Social assistance financed from general revenues and granting benefits on the basis of means test.
- Employers liability schemes where there is an identifiable employer and within the economic capacity of the employer.
- National Provident Funds.
- Universal schemes for social security.
The following few legislative measures have been adopted by the Government of India to promote social security schemes for industrial workers.
Workmen’s Compensation Act, 1923: The Workmen’s Compensation Act was passed in March 1923, and was put into effect on 1st July 1924. This Act followed the British model, but was adapted to suit Indian conditions. Was-time injuries were also covered by the Act. The 1962 Amendment raised the wage limit covered under the Act to Rs.500 per month. It also amended the clauses bearing on industrial diseases, and revised the rates of compensation. With effect from 1st October 1975, the wage limit coverage under this Act has been raised from Rs.500 to Rs.1000 per month.
Employees’ State Insurance Act, 1948: Two conventions on health of workers in industry, commerce and agriculture were adopted in 1927 by International Labor Conference. The question about health insurance was also discussed by the Royal Commission on Labor, and a tentative scheme of health insurance was proposed in its comprehensive report in 1931. Its recommendations on the adoption of a health insurance scheme were not accepted by the Government of India because of financial difficulties. All these built up a lot of pressure on the government.
Health Insurance and Medical Benefit
India has a national health service, but this does not include free medical care for the whole population. The Employees’ State Insurance (ESI) Act, 1948 created a fund to provide medical care to employees and their families, as well as cash benefits during sickness and maternity, and monthly payments in case of death or disablement for those working in factories and establishments with 10 or more employees. (As on March 31, 2019, the total number of ESI beneficiaries was over 130 million, with coverage extending to over 120,00,000 factories and business establishments.)
Coverage under the ESI scheme has been extended to hotels, shops, cinemas and preview theaters, restaurants, newspaper establishments, and road-motor transport undertakings. The scheme has also been extended to private educational and medical institutions that have employed 10 or more employee. This is applicable in certain states and union territories only.
The ESI scheme offers benefits to both the workers and their dependents in case of any unfortunate eventualities at work. Under the ESI Act, employees or workers employed at the above mentioned categories earning wages up to INR 21,000 per month (up to INR 25,000 per month in case of person with disability) are entitled to this social security scheme.
Eligible workers contribute 0.75 percent of their salary towards the ESI while the employer pays 3.75 percent making a total contribution of 4.5 percent. These new rates are effective from July 1, 2019. (Earlier these rates stood at 1.75 percent and 4.75 percent, respectively.) The company or establishment can apply for an ESI registration within 15 days from the time the ESI Act becomes applicable to that entity. The Employees’ State Insurance (Central) Amendment Rules, 2017 was notified on January 20, 2017 detailing new maternity benefits for women who have insurance. As of March 31, 2019, 51,20,000 women have benefitted from the scheme.
Further, daily wage earners earning an average wage of up to INR 137 are exempted from payment of contribution. Employers, however, are mandated to contribute their own share in respect of these employees.
Sickness benefit under ESI coverage is 70 percent of the average daily wage and is payable for a maximum of 91 days in a year. To qualify for sickness benefit, the insured worker is required to contribute for 78 days in a contribution period of six months. There are provisions for extended sickness benefits and corresponding eligibility criteria.
ESI also provides disablement benefit, which is applicable from day one of entering insurable employment for temporary disablement benefit. In case of permanent disablement benefit, it is paid at the rate of 90 percent of wage in the form of monthly payment, depending upon the extent of loss of earning capacity as certified by a Medical Board.
Besides sickness and disability pay outs, the ESI provides for dependents’ benefits (DB). The DB paid is at the rate of 90 percent of the wage in the form of monthly payment to the dependents of a deceased insured person in cases where the death has occurred due to employment injury or occupational hazards.
Other benefits that are offered with ESI are:
- Medical benefits;
- Maternity benefits;
- Unemployment allowance;
- Confinement expenses;
- Funeral expenses;
- Physical rehabilitation;
- Vocational training; and
- Skill upgradation training under Rajiv Gandhi Shramik Kalyan Yojana (RGSKY).
Disability Benefit
The Employee’s Compensation Act, 1923, formerly known as the ‘Workmen’s Compensation Act, 1923’, requires the employer to pay compensation to employees or their families in cases of employment related injuries that result in death or disability.
In addition, workers employed in certain types of occupations are exposed to the risk of contracting certain diseases, which are peculiar and inherent to those occupations. A worker contracting an occupational disease is deemed to have suffered an accident out of and in the course of employment, and the employer is liable to pay compensation for the same. Injuries resulting in permanent total and partial disablement are listed in parts I and II of Schedule I of the Employee’s Compensation Act, while occupational diseases have been defined in parts A, B, and C of Schedule III of the Employee’s Compensation Act.
Maternity Benefit
The Maternity Benefit (Amendment) Act, 2017 came into force on April 1, 2017, and increases some of the key benefits mandated under the previous Maternity Benefit Act of 1961. The amended law provides women in the organized sector with paid maternity leave of 26 weeks, up from 12 weeks, for the first two children. For the third child, the maternity leave entitled will be 12 weeks. India now has the third most maternity leave in the world, following Canada (50 weeks) and Norway (44 weeks).
The Act also secures 12 weeks of maternity leave for mothers adopting a child below the age of three months as well as to commissioning mothers (biological mothers) who opt for surrogacy. The 12-week period in these cases will be calculated from the date the child is handed over to the adoptive or commissioning mother.
Gratuity
The Payment of Gratuity Act, 1972 directs establishments with 10 or more employees to provide the payment of 15 days of additional wages for each year of service to employees who have worked at a company for five years or more.
Gratuity is provided as a lump sum payout by a company. In the event of the death or disablement of the employee, the gratuity must still be paid to the nominee or the heir of the employee.
The employer can, however, reject the payment of gratuity to an employee if the individual has been terminated from the job due to any misconduct. In such a case of forfeiture, there must be a termination order containing the charges and the misconduct of the employee.
Gratuity is calculated through the formula mentioned below:
Gratuity = Last Drawn Salary × 15/26 × Tenure of Service
