Definitions under the Social Security Code

Four things in that clause repay attention. It reaches a person engaged through a contractor, so contract labour is not outside the Code. It covers managerial and supervisory work, so seniority does not put a person outside it. It covers implied terms, so the absence of a letter of appointment proves nothing. And the only excluded categories are apprentices under the 1961 Act and the Armed Forces.

The proviso is where the money is. For the purposes of Chapter III, except in the case of the Employees' Provident Fund Scheme, and for Chapter IV, "employee" means only an employee drawing wages less than or equal to the wage ceiling notified by the Central Government. So provident fund and employees' state insurance are, by design, wage capped benefits. A second proviso deals with counting: for deciding whether an establishment is covered at all under Chapters III and IV, employees earning more than the ceiling are still counted.

Do not carry the wage ceiling across into gratuity, maternity benefit or compensation. It belongs to Chapters III and IV alone.

"Employer", section 2(27). A person who employs one or more employees in his establishment, whether directly or through any person. The clause then names five people who are included, and it is the inclusion list that gets examined:

For a Government department it is the authority specified by the head of the department or, if none is specified, the head of the department; for a local authority, its chief executive.

"Unorganised worker", section 2(86), and the definitions it depends on. An unorganised worker is a home-based worker, a self-employed worker or a wage worker in the unorganised sector, and it also includes a worker in the organised sector who is not covered by the Industrial Disputes Act 1947 or by Chapters III to VII of this Code.

That definition is a chain, so follow it:

• "Unorganised sector", section 2(85): an enterprise owned by individuals or self-employed workers, engaged in producing or selling goods or providing service of any kind, and where it employs workers, fewer than ten of them.
• "Organised sector", section 2(54): an enterprise which is not an unorganised sector. The Code defines it by exclusion and nothing more.
• "Home-based worker", section 2(36): a person engaged in producing goods or services for an employer in his own home or other premises of his choice, other than the employer's workplace, for remuneration, whether or not the employer supplies the equipment, materials or inputs.

"Gig worker", section 2(35). A person who performs work, or participates in a work arrangement, and earns from such activities outside of traditional employer-employee relationship. This is the first time an Indian statute has defined the term.

"Platform work", section 2(60), and "platform worker", section 2(61). Platform work is a work arrangement outside a traditional employer employee relationship in which organisations or individuals use an online platform to access other organisations or individuals to solve specific problems or provide specific services, in exchange for payment. A platform worker is a person engaged in or undertaking platform work.

"Aggregator", section 2(2). A digital intermediary or a marketplace for a buyer or user of a service to connect with the seller or the service provider. This is the entity that pays the contribution under section 114(4).

The relationship between the last three is worth stating plainly, because it is a favourite short question. Every platform worker is a gig worker; not every gig worker is a platform worker. Gig work is defined by being outside the traditional employment relationship. Platform work is the subset of it that is mediated by an online platform. A freelance electrician found by word of mouth is a gig worker. The same electrician taking jobs through an app is also a platform worker, and the app is the aggregator.

"Inter-State migrant worker", section 2(41). A person employed in an establishment who either was recruited, directly by the employer or through a contractor, in one State for employment in an establishment in another State; or who came on his own from one State and obtained employment in an establishment in another State, or afterwards changed establishments within that destination State, under an agreement or arrangement, and draws wages not exceeding eighteen thousand rupees a month or such higher amount as the Central Government may notify.

The wage limit attaches only to the second limb, the self-migrant. Read the clause carefully in a problem question: a worker recruited across State lines by a contractor falls in the first limb and no wage limit is stated for him.

"Fixed term employment", section 2(34). The engagement of an employee under a written contract for a fixed period. The provisos matter more than the definition: his hours, wages, allowances and other benefits must not be less than those of a permanent employee doing the same or similar work, and he is entitled to all benefits available to a permanent employee proportionately to the service he has rendered, even where his employment does not last the qualifying period. That second proviso is what makes gratuity payable to a fixed term employee without five years' service.

2. Where the Code applies: establishment, factory and the rest

"Establishment", section 2(29). Three limbs. A place where any industry, trade, business, manufacture or occupation is carried on; or a factory, motor transport undertaking, newspaper establishment, audio-visual production, building and other construction work or plantation; or a mine, port or vicinity of a port where dock work is carried out. An Explanation adds that for Chapter III, departments and branches, whether in the same place or different places, are all parts of the same establishment.

"Factory", section 2(32). Premises, including the precincts, where either ten or more employees work or worked on any day of the preceding twelve months and a manufacturing process is carried on with the aid of power, or twenty or more where the manufacturing process is carried on without the aid of power. It excludes a mine, a mobile unit of the Armed Forces, a railway running shed, and a hotel, restaurant or eating place. Explanation 1 requires all employees in different groups and relays in a day to be counted.

Ten with power, twenty without. Reversing those two numbers is the single commonest mistake in this paper.

"Seasonal factory", section 2(74). A factory exclusively engaged in one or more of cotton ginning, cotton or jute pressing, decortication of ground-nuts, or the manufacture of indigo, lac or sugar including gur, or any manufacturing process incidental to or connected with those; and it includes a factory engaged for a period not exceeding seven months in a year in a manufacturing process notified by the Central Government. The definition matters because the Chapter IV threshold in the First Schedule excludes a seasonal factory.

"Contract labour", section 2(19), and "contractor", section 2(20). Contract labour means a worker deemed to be employed in or in connection with the work of an establishment when he is hired for that work by or through a contractor, with or without the knowledge of the principal employer, and it includes an inter-State migrant worker. It does not include an employee, other than a part time employee, who is regularly employed by the contractor for an activity of the contractor's own establishment, whose employment is governed by mutually accepted standards including engagement on a permanent basis, and who gets periodical increments, social security coverage and other welfare benefits.

A contractor is a person who either undertakes to produce a given result for the establishment through contract labour, other than by merely supplying goods or articles of manufacture, or supplies contract labour for any work of the establishment as mere human resource; and it includes a sub-contractor.

The exclusion in section 2(19) is the important half. A contractor's own permanent, properly benefited workforce is not "contract labour" merely because it is deployed at somebody else's premises. What the clause targets is the supply of people as a commodity.

3. What triggers a benefit: injury, disablement and dependant

"Employment injury", section 2(28). A personal injury to an employee caused by accident or an occupational disease arising out of and in the course of his employment. The clause then says, for both Chapter IV and Chapter VII, that it applies whether the accident occurs or the disease is contracted within or outside the territorial limits of India.

The phrase "arising out of and in the course of" is the most litigated in this subject and is worked in full in the employer's liability chapter of Module II.

Three kinds of disablement. Learn these together, because they are distinguished from each other and the distinctions carry marks.

"Dependant", section 2(24), decides who receives compensation when the employee dies. It is a graded list rather than a single class, and it is set out in the key concepts chapter of Module II where it is applied.

"Social security", section 2(78). The Code defines its own subject. Social security means the measures of protection afforded to employees, unorganised workers, gig workers and platform workers to ensure access to health care and to provide income security, particularly in old age, unemployment, sickness, invalidity, work injury, maternity or loss of a breadwinner, by means of rights conferred and schemes framed under the Code. It is a good sentence to open an essay with.

4. The money: wages

"Wages", section 2(88), is the most important definition in all four labour Codes, because the same wording appears in each of them. A single wage base now runs across wages, industrial relations, social security and occupational safety.

The clause has three parts.

The general words. Wages means all remuneration, whether by way of salaries, allowances or otherwise, expressed in money or capable of being so expressed, which would be payable to a person employed in respect of his employment or of work done in that employment if the terms of employment, express or implied, were fulfilled.

What is included: basic pay; dearness allowance; and retaining allowance, if any. Three items only.

What is excluded: eleven items. Statutory bonus not forming part of contractual remuneration; the value of house accommodation, light, water, medical attendance or other amenity excluded by order of the appropriate Government; employer's contribution to a pension or provident fund and interest on it; conveyance allowance or the value of a travelling concession; sums paid to defray special expenses entailed by the nature of the employment; house rent allowance; remuneration under an award, settlement or order of a court or Tribunal; overtime allowance; commission; gratuity payable on termination; and retrenchment compensation, other retirement benefit or ex gratia payment on termination.

Then the proviso that changes everything. If the payments falling under exclusions (a) to (i) exceed one half of all remuneration, or such other percentage as the Central Government may notify, the amount exceeding that half is deemed to be remuneration and is added back into wages.

A second proviso provides that for equal wages to all genders and for payment of wages, the excluded items at (d), (f), (g) and (h), that is conveyance, house rent, award remuneration and overtime, are taken into account. An Explanation adds that remuneration in kind, up to fifteen per cent of total wages, is deemed to form part of wages.

Why the proviso exists. Because employers had learned to shrink the wage base. If provident fund is payable on basic pay and dearness allowance, an employer can pay a small basic and a large bundle of allowances, and the contribution shrinks with it. The courts had attacked this by construction.

Regional Provident Fund Commissioner (II) West Bengal v. Vivekananda Vidyamandir, (2019) 6 SCC 240, is the leading modern decision.

Facts. A group of appeals raised one question: whether allowances such as canteen, conveyance, management, medical, night shift, rent, special and travel allowances formed part of "basic wages" under section 2(b) of the Employees' Provident Funds and Miscellaneous Provisions Act 1952, so that provident fund had to be paid on them. The provident fund authority and the appellate authority had found, as a fact, that the allowances were essentially part of the basic wage camouflaged as allowances so as to avoid contribution.

Held. Those wages which are universally, necessarily and ordinarily paid to all employees across the board are basic wages. The crucial test is one of universality. Where a payment is available only to those who avail an opportunity more than others, or is variable, or is linked to an incentive for production beyond the norm, it falls outside: overtime and leave encashment are the Court's own examples. The establishments had produced no material to show the allowances were variable, incentive linked, or not paid across the board, and the concurrent findings of fact were not disturbed.

Why it matters here. Twice over. It explains the mischief the first proviso to section 2(88) now meets by arithmetic instead of by construction: an employer who loads more than half the package into excluded allowances has the excess added back automatically, with no need to prove universality. But note the limit of the case. It was decided under the 1952 Act, which item 3 of section 164(1) has repealed, and on the phrase "basic wages", which the Code does not use. Cite it for the reasoning and the history, not as the current test. The current test is the proviso.

5. Who administers: the organisations and officers

These are worth knowing by name so that later Chapters read easily. "Social Security Organisation", section 2(79), is the collective term. "Central Board", section 2(10), is the Board of Trustees of the Employees' Provident Fund. "Corporation", section 2(22), is the Employees' State Insurance Corporation. "National Social Security Board", section 2(49), and "State Unorganised Workers' Board", section 2(81), are the unorganised sector bodies, and "Building Workers' Welfare Board", section 2(8), the construction one. "Inspector-cum-Facilitator", section 2(37), is the enforcement officer. "Competent authority", section 2(16), decides compensation claims; "Authorised Officer", section 2(5), and "Recovery Officer", section 2(68), handle assessment and recovery.

"Appropriate Government", section 2(3), decides which Government makes the rules and runs the scheme. It is the Central Government for an establishment carried on by or under the authority of the Central Government, for a notified controlled industry, and for railways including metro railways, mines, oilfields, major ports, air transport service, telecommunication, banking and insurance companies, bodies established by a Central Act, central public sector undertakings and their subsidiaries, autonomous bodies owned or controlled by the Central Government, any company in which the Central Government holds not less than fifty-one per cent of the paid up share capital, and establishments of contractors for any of those; and for an establishment with departments or branches in more than one State. Otherwise it is the State Government.

A worked example

Ravi drives for a ride hailing app in Mumbai. He owns his car, logs in when he likes, and the app takes a percentage of each fare. Separately he spends two evenings a week doing accounts for a neighbourhood shop that employs six people, for a fixed monthly payment.

Is Ravi an employee under section 2(26) in his driving work? Almost certainly not. Section 2(26) requires a person employed on wages by an establishment. He chooses his own hours, supplies his own vehicle and is paid per fare.

Is he a gig worker under section 2(35)? Yes. He performs work and earns from it outside a traditional employer-employee relationship, which is exactly the clause.

Is he a platform worker under section 2(61)? Yes. The work reaches him through an online platform, which is platform work under section 2(60).

What is the app? An aggregator under section 2(2), a digital intermediary connecting the user of a service with the provider. If it falls within a category in the Seventh Schedule it may be required to contribute under section 114(4).

What about the shop work? The shop employs six people, so it is an enterprise employing fewer than ten and is an unorganised sector enterprise under section 2(85). Ravi is a wage worker in it, and therefore an unorganised worker under section 2(86).

So what does Ravi actually get? Registration under section 113 and the benefit of any scheme framed under section 109 or section 114. Note what he does not get: Chapters III to VII, the mandatory benefits, do not reach him, because those attach to an employee of a covered establishment. This is the honest answer and it is the one that earns marks. The Code brings Ravi inside the statute; it does not by itself put money in his hand.

What these definitions do NOT mean

"Employee" is not confined to workmen. Managerial, supervisory and administrative work is expressly inside section 2(26). The old habit of asking whether someone is a "workman" belongs to industrial dispute law, not here.

The wage ceiling is not general. It appears in the first proviso to section 2(26) and governs Chapters III and IV only.

"Unorganised sector" is not simply "small". It is an enterprise owned by individuals or self-employed workers which, if it employs anyone, employs fewer than ten. A ten person subsidiary of a large company is not an unorganised sector enterprise.

"Wages" is not "everything the employer pays". Eleven categories are excluded. But neither is it merely basic pay, because the first proviso adds the excess back once the excluded items pass one half.

Limits and criticism

The definitions are common across the four Codes but the thresholds are not. A worker can be an employee for one Code and outside the benefit chapters of this one.

Two definitions point at repealed Acts. Section 2(86) defines an unorganised worker partly by reference to a worker "not covered by the Industrial Disputes Act, 1947", and the Industrial Disputes Act was itself repealed by the Industrial Relations Code 2020. The reference has to be read through section 8 of the General Clauses Act 1897, which construes a reference to a repealed enactment as a reference to the corresponding provision of the re-enacting law.

"Gig worker" is defined negatively. It tells you what the relationship is not, rather than what it is, which leaves the boundary between a gig worker and a disguised employee to be worked out case by case.

The wage ceiling is not in the Code. Section 2(89) leaves it to be notified, so the coverage of Chapters III and IV is set by executive action.

Quick revision

• Section 2 has ninety-one definitions and opens "unless the context otherwise requires".
• Employee, 2(26): any person employed on wages, directly or through a contractor, on work of any kind including managerial; excludes apprentices under the 1961 Act and the Armed Forces; wage ceiling proviso for Chapters III and IV only.
• Employer, 2(27): includes the occupier of a factory, the owner or manager of a mine, the person with ultimate control, the contractor, and a deceased employer's legal representative.
• Factory, 2(32): ten with power, twenty without.
• Establishment, 2(29): three limbs; branches are one establishment for Chapter III.
• Wages, 2(88): includes basic pay, dearness allowance, retaining allowance; excludes eleven items; first proviso adds back the excess over one half.
• Gig worker 2(35) is outside the traditional relationship; platform worker 2(61) is the online subset; the aggregator 2(2) is the intermediary.
• Unorganised sector 2(85): owned by individuals or self-employed workers, employing fewer than ten.
• Inter-State migrant worker 2(41): recruited across States, or self-migrated and drawing not more than eighteen thousand rupees a month.
• Three disablements: temporary 2(83), permanent partial 2(55), permanent total 2(56).

Test yourself

1. Define "employee" under the Code and state the one limit that applies to provident fund. Section 2(26): any person, other than an apprentice under the Apprentices Act 1961, employed on wages by an establishment, directly or through a contractor, to do skilled, semi-skilled or unskilled, manual, operational, supervisory, managerial, administrative, technical, clerical or other work, on express or implied terms; excluding members of the Armed Forces. For Chapter III, except the Employees' Provident Fund Scheme, and for Chapter IV, only an employee drawing wages up to the notified wage ceiling is an employee.

2. A unit has fifteen workers and does its manufacturing entirely by hand. Is it a factory? No. Without the aid of power section 2(32)(b) requires twenty or more. With power, ten would have sufficed.

3. Distinguish a gig worker from a platform worker. A gig worker under section 2(35) is anyone who works and earns outside a traditional employer-employee relationship. A platform worker under section 2(61) is a person doing platform work under section 2(60), that is work reaching him through an online platform. Platform workers are a subset of gig workers.

4. An employer pays basic pay of 10,000 rupees and allowances of 20,000 rupees, all of which fall within the exclusions in section 2(88). What are the wages? Total remuneration is 30,000 rupees and one half of it is 15,000. The excluded payments are 20,000, which exceeds that half by 5,000. Under the first proviso that 5,000 is deemed to be remuneration and added back, so wages are 15,000 rupees.

5. Is a contractor's own permanent workforce "contract labour"? No, provided the exclusion in section 2(19) is satisfied: the worker must be regularly employed by the contractor for an activity of the contractor's establishment, on mutually accepted standards including permanence, with periodical increments, social security coverage and other welfare benefits. A part time employee is outside the exclusion.

6. Who is the "employer" of a factory for the purposes of the Code? Under section 2(27)(a), the occupier of the factory.

7. Why can Vivekananda Vidyamandir not simply be quoted as the present law on wages? Because it construed "basic wages" in section 2(b) of the Employees' Provident Funds and Miscellaneous Provisions Act 1952, and that Act stands repealed by item 3 of section 164(1) of the Code. The Code uses a different word, "wages", defined in section 2(88), and settles the same problem by the arithmetic of the first proviso rather than by the universality test. The case explains why the proviso exists.