The Indian Parliament recently passed The Code on Social Security, 2020 (the Code) and it received the assent of the President on 29th September, 2020. The Code consolidates among other legislations, the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 and the Employees’ State Insurance Act, 1948. The criteria for applicability of the said legislations are provided in Schedule 1 of the Code. As per the Schedule, the provisions relating to the Employees’ Provident Fund Scheme, as contained in the Code, are applicable to every establishment in which 20 or more employees are employed, while the provisions relating to the Employees’ State Insurance are applicable to every establishment in which 10 or more persons are employed, other than a seasonal factory.
Interestingly, the Code provides an option to the employer of an establishment to opt in and out of the provisions relating to Employee Provident Fund and Employee State Insurance framework. The leverage of such voluntary coverage and withdrawal is provided in Section 1 of the Code itself.
EPF AND ESI SCHEMES – OPTING-IN FLEXIBILITY FOR EMPLOYERS
As regards to opting in, the Code stipulates that employers which have a smaller number of employees in their establishments than the prescribed threshold for coverage under the provisions of the Employees’ Provident Fund (EPF) and the Employees’ State Insurance (ESI) Scheme, as contained in the Social Security Code may make an application for making such provisions applicable to the Central Provident Fund Commissioner or the Director General of the ESI Corporation, as the case may be. The application to the Central PF Commissioner or the DG of the ESI Corporation must essentially support the fact that the employer and majority of the employees have arrived into an agreement that the provisions of the EPF and the ESI Scheme, as contained in the SS Code, must be made applicable to them. The relevant authority, as the case may be, on receipt of such application and satisfaction to the above effect, may make the provisions of the EPF and the ESI Scheme, as the case may be, applicable to such establishment by way of a notification. The said provisions will be made applicable to the applicant-establishment on and from the date of the said agreement or from any subsequent date specified in the agreement.
EPF AND ESI SCHEMES – OPTING–OUT FLEXIBILITY FOR EMPLOYERS
As regards to opting out, the Code provides that in the event the employer of an establishment to which the provisions relating to the EPF and the ESI Scheme, as contained in the Code, have been made applicable and desire to come out of such applicability, an application may be made by the employer to the Central Provident Fund Commissioner or the Director General of the ESI Corporation, as the case may be, for making such provisions inapplicable. In such a situation as well, the submitted application must corroborate that there is an agreement between the employer and majority of the employees to the above effect. The relevant authority, as the case may be, on receipt of such an application and satisfaction to the above effect, may make the provisions relating to the EPF and the ESI Scheme inapplicable to such establishment, subject to such conditions as may be prescribed by the Central Government.
The mechanism introduced by way of the above provision affords the much-needed flexibility for employers to avail benefits of the EPF and the ESI Scheme, which otherwise are not available to them. At the same time, a safe haven is provided to such employers to withdraw themselves from coverage of the Scheme.
– Sunil Arya, Advocate & Principal Associate
