The labour market in India has begun to evolve considerably due to reforms to labour laws. In recent years, social security reforms and employee benefits have been undertaken to increase the number of people covered under social security laws, improve protections at work and provide a more inclusive framework for employment in India. These reforms will ultimately affect the following groups of people: employers, HR Managers, Gig Workers, fixed-term employees and the overall workforce.
For organizations, these reforms are not just amendments to existing legislation; they constitute an improvement in compliance frameworks, more effective workforce planning and a move towards greater transparency when administering employee benefit programmes. For employees, these reforms will offer greater protection, quicker access to accrued gratuity, and greater health and financial security.
As an HR Manager, it is important to understand the new provisions that have been introduced into social security law. As an HR Manager, you must also ensure that your HR policies reflect the changes to the social security system. This is now a priority for your compliance work, whether this involves running payroll software, managing attendance or managing employee leave.
What is the Social Security Framework?
The new extended social security framework aims to create universal social security access regardless of the type of employment (whether traditional or non-traditional). Typically, formal employees who had structured benefit plans received social security coverage, while workers in the gig economy and on platforms received no coverage through statutory benefits.
Under this new reform, previously excluded working people in gig or on-platform positions will receive all forms of social security as well. Some examples of benefits available include welfare schemes, various forms of insurance, and potentially retirement-related benefits, dependent upon both the applicable government notifications and the structures in place associated with the schemes.
Employers doing business with individuals who work in the gig economy will have the following requirements to fulfil as employers and aggregators, consistent with the new reform:
- Mandatory contributions to specific social security funds;
- Required retention of accurate records; and
- Required compliance reporting on a periodic basis.
- Databases available online to record social security-related benefit and contribution data.
What Does Universal Coverage for Gig and Platform Workers Mean Under the New Social Security Reforms?
With the addition of gig workers to the social security system, we have accomplished a significant step towards establishing a complete framework for debunking the myths around gig work participation and labour market policies.
Here are reasons why this event will have lasting effects on workers who participate in gig work:
1. Legal Recognition
Gig workers now have legal recognition through social security laws that provide a framework for the structured inclusion of gig workers in statutory employment benefits and welfare programmes.
2. Financial Protection for Workers
Workers will have access to insurance, healthcare, pensions, and financial safety nets that were previously unavailable to gig workers before the passage of this legislation.
3. Employer Contribution
Companies or platforms, such as aggregators and multi-employer models, are now responsible for contributing to social security funds for the benefit of their workers. This advancement in partnerships will help formalise the accountability of employers towards providing protection for their workers.
4. Long-Term Stability in Income Security
The benefits of workers provided by the structured approach of social security, when receiving wages, provide additional income protection for gig workers when they are unable to work due to unforeseen circumstances, such as accidents, illness, disability, or economic conditions that may affect gig work.
5. Assurance of Long-Term Stability in the Workforce
Greater social security coverage will improve the long-term stability of gig worker income, leading to greater workforce participation and productivity, as well as promoting trust in the digital workplace for gig workers.
6. Regulatory Requirements
Regulatory requirements for compliance with social security programs will create transparency through measurable contribution tracking, administration of benefits, and reporting requirements for gig-based business models.
For businesses to comply with regulations, they will need to have high-quality payroll software and employee tracking systems in place. Even though many gig workers are not treated as regular employees, recording and reporting their contributions will still be important. Automated processing of payroll makes it so that funds can be deposited on time, and statutory deductions can be taken from an employee’s pay automatically.
Businesses that integrate technology systems for Human Resource management will have a much simpler way to determine how much they should contribute, what benefits each employee will receive, and also generate compliance reports.
How Does the Reduction of Gratuity Eligibility to One Year Impact Fixed-Term Employees?
One of the biggest changes arises from how gratuities are calculated. Until recently, employees needed to work for five continuous years to qualify for a gratuity; however, under the new rules, fixed-term (temporary) employees will be able to receive a gratuity after they have completed just one year of service.
Key Highlights
1. To Fixed-Term Employees
The reduced eligibility timeframe applies only to employees employed on fixed-term (continuous) employment contracts.
2. One Year
Eligibility for gratuity is based on the completion of one year of continuous service.
3. Pro Rata Calculation of Gratuity
Gratuity will be calculated on a pro-rata basis for those with actual periods in which the employee worked, rather than requiring a long-term period of service before gratuity can be earned.
4. No Waiting Period of Five Years
There will be no five-year wait period that presently exists for fixed-term workers to be eligible for a gratuity payment.
5. Statutory Compliance
Employers must ensure they comply with changes to the law regarding gratuity to avoid incurring fines or experiencing legal liability.
6. Equitable Benefit Entitlement
The amendments to the law provide equitable considerations regarding employee benefit eligibility for both fixed-term and permanent employees.
This change clarifies that fixed-term employees can no longer have their benefits conditioned upon their working for a minimum of five years, and, as such, prevents employers from creating short-term employment contracts designed to avoid payment of gratuity benefits.
Impact on Employers
Organizations must now:
1. Revise Employment Contracts
Amend the terms of the employment contracts to reflect the amended statutory obligations and the amended gratuity qualification.
2. Clarification of HR Policies
Ensure that company policies are consistent with amended Gratuity Regulations and amended compliance standards.
3. Payroll System Configuration
Update payroll systems to calculate gratuity accruals after 1 year of Service.
4. Accurate Tracking of Employee Tenure
Maintain service records for the period of Service in accordance with the Attendance Management systems for eligibility purposes.
5. Budgeting for Increased Gratuity Liability
Include associated increased financial obligations (i.e. payments) in the cost of the workforce planning process and the related forecasts.
6. Documenting Statutory Compliance
Maintain compliance documentation and records in order to be available to meet the requirements of audits and inspections in relation to labour legislation.
7. Train HR and Finance Team
Educate and train both HR and Finance on the amended rules regarding gratuity to avoid errors in calculating gratuity and gaps in compliance.
HR departments need strong payroll software capable of automated gratuity calculations based on tenure and wage structure. Manual tracking increases the risk of errors and non-compliance penalties.
For employees, this reform provides financial security and recognises shorter employment cycles in modern workplaces.
Are Annual Health Check-Ups Mandatory for Employees Over 40?
The focus on health and safety in workplaces is being prioritised again. Employers must now offer their employees a free annual health check-up if they are over the age of 40.
Why Does This Matter?
- Detecting health concerns early with preventative screenings.
- Reducing the long-term costs of medical and hospitalisations
- Increasing the productivity and performance of employees.
- Minimizing employee absences with timely medical treatment.
- Creating employee trust and commitment.
- Strengthening the company’s brand and the overall reputation of the workplace.
This law provides employers with the opportunity to align their workplace policy to the goals of the public health system. Employers now need to create a budget for the annual screenings and keep proper documentation of the employees’ health.
HR departments need to provide integrated health tracking features in their employee database system and attendance management system to track the employee’s eligibility for the annual health screenings and maintain proper documentation.
From a strategic standpoint, wellness programs increase employee retention and reduce absenteeism while supporting the company’s employer branding and reputation in the workplace.
What are the Compliance Responsibilities for Employers?
1. Preventative Healthcare
Annual health screenings, by diagnosing medical issues at an early stage, provide timely treatment options to prevent complications and help to maintain long-term health (employee stability).
2. Cost Reduction
Preventative health screenings create long-term lower costs to medical care through fewer hospital admissions. The result is less financial burden placed on both the employer and the employee.
3. Increased Productivity
Employers can depend on a healthy employee to perform consistently and with greater enthusiasm, all while meeting the goals of their organisation and contributing to the efficiency of working processes.
4. Reduction of Absenteeism
Providing early diagnosis and treatment for employees prevents longer-term sick leave by creating fewer interruptions to daily work activities.
5. Enhanced Employer Brand
Providing a health benefits program will improve an organisation’s reputation within the industry, enhance employee trust and establish an organisation as being responsible and people-oriented.
What is the Role of HR Technology in Managing Social Security Compliance?
Manual HR processes are no longer sustainable in a rapidly developing compliance environment. Technology plays an essential role in managing expanded social security obligations.
1. Payroll Systems
Today’s payroll systems facilitate payroll functions, including HR and compliance, by incorporating automation into these systems:
- Calculating the standard deductions (e.g., Provident Fund, ESI, Professional Tax, Income Tax) accurately.
- Calculating both the employer and employee contributions according to the most recent Social Security legislation.
- Calculating gratuity revenue based on service time and pay scales.
- Producing compliance reports that are required for auditing and statutory filing.
- Ensuring that paychecks are generated promptly so that employees receive their paychecks on time.
- Eliminating payroll inaccuracies through reducing manual intervention and decreasing compliance risks.
The reduction of payroll error is achieved by ensuring procedure correctness, payroll accuracy, and timely submission of statutory deductions.
2. Time and Attendance System
Accurate time and attendance systems enable organisations to establish a reliable employee record:
- Effectively tracking daily work hours and shift times.
- Recording daily overtime to allow for accurate calculation of double wages.
- Tracking patterns of employee attendance and absenteeism.
- Synchronising leave records with payroll processing.
- Identifying eligibility for benefits-related continuity of service.
- Providing timely data for compliance audits and inspections.
An accurate time and attendance system is important for calculating hours worked, as well as for compliance with statutory obligations.
3. Leave Management
Leave Management systems are built to follow the procedures set by labour laws. They provide automation and facilitate the following functions.
- Automated leave accruals, based on applicable statute and company policy
- Correctly tracks three types of leave: Paid, Unpaid and Sick and Earned Leave Balances.
- Complies with mandatory leave requirements to comply with legislation.
- Interfaces leave records directly into payroll for accurate salary payment.
- Provides access to clearly defined leave information to employees and supervisors.
- Generates periodic leave records for audit and compliance purposes.
Leave Management ensures payroll is processed accurately and transparently; it also supports regulatory compliance.
What are the Benefits for Employees?
1. Increased Access to Social Security
Employees will have increased access to social security programs, which gives them financial security, welfare benefits and long-term stability across types of employment.
2. Faster Gratuity Eligibility
Employees hired on fixed-term contracts will be eligible for gratuities after one year, which will provide them greater financial security and recognition for their contributions much earlier in their careers.
3. Better Access to Health Care
Annual health check-ups will be required by employers to promote preventative health care, which will allow for early detection of health issues, as well as provide long-term health and well-being for employees.
4. Greater Income Protection
Employees will have structured benefit plans that will provide income protection for illnesses, disabilities, accidents, or any unexpected disruptions in employment.
5. Enhanced Job Security
Statutory provisions protect against the exploitation of employees and provide them with more confidence in their employment agreements, whether they are working as employees or independent contractors.
6. More Accurate Benefit Administration
Employers will use digital payroll systems and attendance systems to ensure that benefits are paid quickly and accurately.
7. Increase Trust in the Workplace
The new labour-law reforms will create a more trusting and engaged workplace and improve the relationship between employers and employees.
What are the Challenges in Implementation and their solutions?
| Challenge | Solution |
| Increased compliance complexity | Implement an integrated HRMS with automated payroll software and compliance tracking. |
| Higher financial liabilities | Plan budgets proactively and forecast gratuity and contribution expenses. |
| Payroll calculation errors | Automate statutory deductions and filings using reliable payroll software. |
| Inaccurate attendance tracking | Use digital attendance management systems for real-time records. |
| Low employee awareness | Conduct training sessions and share clear policy communication. |
| Data management issues | Centralize employee records through secure HR platforms. |
| Health compliance monitoring | Integrate health tracking and automated reminders within HR systems. |
What are the Strategic Advantages of Compliance?
1. Enhanced Corporate Identity
Complying with the social security laws fully, it increases your company’s credibility, as well as showing your commitment to being a good employer to your workforce.
2. Increased Employer Loyalty
Employees will have confidence in their employer and increased levels of loyalty if they know their employer has placed an emphasis on being transparent regarding benefits administration. This will lead to engaged employees who will continue working with you for an extended period of time.
3. Decreased Risk of Legal Action
By complying with updated regulations, there is less risk of being penalised or being exposed to the development of litigation and reputational harm caused by not being compliant.
4. Improved Operational Efficiency
The use of automated payroll software, as well as automated timekeeping, allows for greater accuracy, as well as reducing the administrative burden on staff
5. Better Financial Planning
Being compliant will allow for predictable budgeting of employee gratuities, statutory contributions and employee welfare programs
6. Superior Competitive Advantage
Employers providing secure, reliable and consistent social security benefits to employees will be able to attract the best talent from a competitive employment marketplace.
Conclusion
In India, social security and employee benefit reforms create additional protections for the workforce by providing gig workers with coverage, accelerated eligibility for gratuities, and requiring health check-ups. Compliance with these reforms is contingent upon meeting specific standards for workforce management, which include attendance and leave management in a timely manner, and is facilitated through the use of integrated payroll solutions, such as Savvy HRMS, that allow organizations to automate compliance processes, properly manage employee benefit programs, and keep informed of changing labour laws.
