The Code on Social Security, 2020: A Practical Guide for Employers and Employees

Published by PP & Associates

The Code on Social Security, 2020 consolidates nine central labour enactments governing provident fund, Employees’ State Insurance, gratuity, maternity benefit, employee compensation and social security for organised, unorganised, gig and platform workers. The principal provisions of the Code came into force on 21 November 2025.

The Code must be read with the Social Security (Central) Rules, 2026, which came into force on 8 May 2026, being the date of their publication in the Official Gazette.

Understanding the Legal Framework

The three components perform different functions:

• The Code is the principal legislation. It creates substantive rights, liabilities, benefits and obligations.
• The Central Rules are subordinate legislation. They prescribe the procedure, forms, registers, notices, applications and timelines required to implement the Code.
• Schemes, regulations and notifications specify operational matters such as contribution rates, wage ceilings, benefits and administrative mechanisms.

Accordingly, social-security compliance must be examined under:

The Code on Social Security, 2020, read with the Social Security (Central) Rules, 2026 and the applicable schemes, regulations and Central or State Government notifications.

The Rules supplement the Code but cannot override or dilute its provisions.

1. Determine Statutory Coverage

An employer must first identify which chapters of the Code apply to the establishment. Broadly:

• Provident Fund provisions apply to establishments employing 20 or more employees.
  • ESI provisions ordinarily apply to establishments employing 10 or more persons.
  • Gratuity provisions apply to specified establishments and shops or establishments employing 10 or more employees.
  • Maternity-benefit provisions ordinarily apply to establishments employing 10 or more employees.

The employer should count direct, temporary, casual, contractual and fixed-term employees while examining statutory coverage. The actual nature of employment is relevant; merely describing a person as a consultant, trainee, casual worker or contractor does not conclusively exclude statutory liability.

Employer’s responsibility

The employer should maintain a coverage chart stating:

• the number and category of employees;
  • the applicable chapters of the Code;
  • the date on which the statutory threshold was crossed;
  • contractor-supplied manpower; and
  • registration and contribution requirements.

Employee’s responsibility

Employees should preserve their appointment letters, attendance records, payslips and bank statements and verify whether they have been correctly registered under the applicable social-security system.

2.  Review the Definition of “Wages”

Under Section 2(88), “wages” primarily include:

• basic pay;
  • dearness allowance; and
  • retaining allowance, where applicable.

Certain components such as house-rent allowance, overtime, commission and specified bonuses may be excluded. However, where the statutory exclusions exceed 50% of the total remuneration, the excess amount must be added back to wages for statutory calculations.

For employers

Employers should:

• audit salary structures;
  • avoid artificially reducing basic wages;
  • identify allowances paid uniformly to employees;
  • revise payroll calculations where necessary; and
  • clearly disclose salary components in appointment letters and payslips.

For employees

Employees should examine whether regular remuneration has been divided into artificial allowances merely to reduce PF, gratuity or other statutory benefits.

Relevant case law

In Regional Provident Fund Commissioner (II), West Bengal v. Vivekananda Vidyamandir, (2019) 17 SCC 643, the Supreme Court held that allowances which are ordinarily, necessarily and universally paid to employees may form part of basic wages. Genuine variable incentives connected with additional output may be treated differently.

3.  Provident Fund and ESI Compliance

Employers must register eligible employees and deposit contributions within the prescribed period. Deductions made from an employee’s salary but not deposited may expose the employer to recovery proceedings, interest, damages and penal consequences.

For employers

Employers should:

• complete employee registration promptly;
  • deposit contributions within time;
  • reconcile payroll and statutory portal records;
  • verify contractor compliance employee-wise;
  • preserve challans, attendance and wage records; and
  • provide employees with their UAN and ESI particulars.

A principal employer should not rely solely upon a contractor’s general compliance certificate. Employee-wise proof of payment should be obtained.

For employees

Employees should periodically verify:

• PF passbook entries;
  • UAN details;
  • ESI registration;
  • wage amounts on which contributions are calculated; and
  • whether deductions shown in payslips have actually been deposited.

Relevant case law

In Royal Western India Turf Club Ltd. v. Employees’ State Insurance Corporation, (2016) 4 SCC 521, the Supreme Court rejected the contention that casual workers were outside ESI coverage merely because of the casual or short-duration nature of their engagement.

4.  Gratuity

Gratuity is ordinarily payable upon superannuation, retirement, resignation, death, disablement or expiry of fixed-term employment.

The normal qualifying period is five years. The qualifying period does not apply in cases of death, disablement or expiry of fixed-term employment, subject to the provisions of the Code and Rules.

Employer’s obligations

The employer must:

• obtain and preserve nominations;
  • calculate gratuity when it becomes payable;
  • issue notice of the amount determined;
  • pay gratuity within the statutory period;
  • pay interest for unjustified delay; and
  • pass a reasoned order where gratuity is disputed or proposed to be forfeited.

The Rules prescribe the applicable forms and procedure. An employee may initially claim gratuity from the employer and, in the event of rejection, short payment or failure to respond, approach the competent authority in the prescribed form. Rule 33 permits such an application to the competent authority within the prescribed period.

Employee’s responsibilities

Employees should preserve:

• appointment and confirmation letters;
  • salary records;
  • resignation or termination documents;
  • nomination details; and
  • proof of the gratuity claim submitted to the employer.

Relevant case laws

In Allahabad Bank v. All India Allahabad Bank Retired Employees Association, (2010) 2 SCC 44, the Supreme Court held that gratuity is a statutory entitlement and that the employer is required to determine and arrange payment once it becomes due.

In Union Bank of India v. C.G. Ajay Babu, (2018) 9 SCC 529, the Supreme Court held that forfeiture of gratuity is not automatic merely because an employee has been dismissed. Forfeiture must fall strictly within the statutory grounds and, where based on financial loss, must ordinarily be limited to the loss proved.

5.  Maternity Benefit

An eligible woman employee is entitled to maternity benefit in accordance with the Code. The maximum period is generally:

• 26 weeks where the employee has fewer than two surviving children; and
  • 12 weeks where she has two or more surviving children.

Separate provisions apply to adopting and commissioning mothers, miscarriage, medical termination of pregnancy and illness arising from pregnancy or delivery.

For employers

Employers should:

• maintain a written maternity-benefit policy;
  • process applications without unnecessary technical objections;
  • avoid dismissal or adverse treatment due to maternity-related absence;
  • maintain the prescribed records;
  • make statutory payments within time; and
  • consider work-from-home arrangements where the nature of work permits.

For employees

Employees should submit written notice with the required medical records and preserve acknowledgement of the application.

Relevant case law

In Deepika Singh v. Central Administrative Tribunal, (2023) 13 SCC 681, the Supreme Court held that maternity-related provisions should receive a purposive and beneficial interpretation consistent with dignity, family life and women’s continued participation in employment.

6.  Fixed-Term, Gig, Platform and Unorganised Workers

The Code expressly recognises fixed-term employees, gig workers, platform workers and unorganised workers.

Fixed-term employees

A fixed-term employee is entitled to statutory benefits proportionately according to the period of service, subject to the Code, Rules and applicable conditions. The appointment letter should clearly state:

• the fixed duration;
  • commencement and expiry dates;
  • wages and benefits;
  • duties and place of posting; and
  • termination conditions.

Repeated short-term contracts should not be used merely to defeat statutory benefits.

Gig, platform and unorganised workers

Eligible workers should complete registration under the prescribed system. Benefits depend upon the schemes notified by the Central or State Government and may include accident, health, maternity, disability and old-age protection.

Aggregators and establishments should preserve accurate records of worker engagement, payments, assignments and statutory contributions.

7.  Essential Employer Compliance Checklist

Every employer should:

1. Determine statutory coverage and employee classification.
2. Review the wage structure under Section 2(88).
3. Update appointment letters, HR policies and payroll systems.
4. Register all eligible employees.
5. Deposit PF, ESI and other statutory contributions within time.
6. Maintain prescribed registers, forms and digital records.
7. Verify contractor compliance employee-wise.
8. Calculate gratuity and maternity benefits correctly.
9. Issue reasoned orders where any statutory claim is rejected.
10. Monitor applicable schemes, regulations and Central or State notifications.

8.  Essential Employee Checklist

Every employee should:

1. Preserve the appointment letter and salary records.
2. Check the salary structure and statutory deductions.
3. Verify PF and ESI deposits periodically.
4. Keep UAN, ESI and nomination details updated.
5. Submit maternity, gratuity or other claims in writing.
6. Retain acknowledgements and copies of all communications.
7. Approach the competent authority where the employer rejects or fails to process a lawful claim.
8. Monitor statutory notifications affecting eligibility and benefits.

Conclusion

The Code on Social Security, 2020 creates the substantive legal framework, while the Social Security (Central) Rules, 2026 provide the procedure for its implementation. Both must be read together with applicable schemes, regulations and government notifications.

For employers, compliance requires correct employee classification, lawful wage structuring, timely contributions, proper documentation and prompt payment of benefits. For employees, protection depends upon awareness, verification of contributions and preservation of employment records.

Social-security compliance is therefore not merely a payroll exercise. It is a continuing statutory responsibility that protects employee welfare and reduces avoidable disputes and financial exposure for employers.