Code on Social Security, 2020: What Employers Owe Now That It Is in Force

The Code on Social Security, 2020 has been in force since 21 November 2025. It is the Code that most directly touches money: PF, ESI, gratuity, maternity benefit and the new categories of gig and platform workers all live here. In June 2026 the government operationalised major parts of it — the EPF Scheme 2026, Pension Scheme 2026 and EDLI Scheme 2026 were notified in the Gazette on 29 June 2026, replacing the 1952/1995/1976 scheme framework. If your payroll provider has not briefed you on this, that is a signal in itself.

What the Social Security Code Replaced

The Code consolidates nine central laws, including:

• Employees’ Provident Funds & Miscellaneous Provisions Act, 1952
• Employees’ State Insurance Act, 1948
• Payment of Gratuity Act, 1972
• Maternity Benefit Act, 1961
• Employees’ Compensation Act, 1923
• Building and Other Construction Workers’ Welfare Cess Act, 1996
• Unorganised Workers’ Social Security Act, 2008
• Plus the Employment Exchanges (CNV) Act, 1959 and Cine Workers Welfare Fund Act, 1981

Key Employer Obligations Now in Force

1. PF and ESI on the new wage base

Contributions continue at the standard national rates — PF 12% employer + 12% employee, ESI 3.25% employer + 0.75% employee for employees earning up to ₹21,000/month — but the base they apply to is the Code’s “wages” definition (basic + DA + retaining allowance, minimum 50% of total pay). Low-basic salary structures no longer suppress contributions.

The PF statutory wage ceiling stands at ₹15,000/month, confirmed by gazette notification S.O. 2702(E) dated 29 May 2026 under the Code — meaning mandatory PF is capped at ₹1,800/month per side, with voluntary contributions permitted above it.

2. Gratuity — including for fixed-term employees

Gratuity accrues at approximately 4.81% of basic as a costing rule of thumb. Two changes matter:

• Fixed-term employees earn gratuity pro-rata with no five-year minimum. If you engage someone on a one-year fixed-term contract, gratuity is payable for that year.
• The wider “wages” base raises the gratuity accrual for everyone.

If you have been treating gratuity as a liability that only crystallises at five years, your provisioning is now understated.

3. Gig workers, platform workers and aggregators

The Code creates statutory categories for gig workers and platform workers, funded partly by an aggregator contribution of 1–2% of annual turnover (capped at 5% of amounts paid to gig/platform workers) — scheme-level implementation notifications are still rolling out. If your business model uses freelancers or platform-mediated labour at scale, watch this line — the boundary between “gig worker” and “employee in disguise” is a classification question with real cost attached.

4. New EPF/EPS/EDLI Schemes 2026 — immediate action item

The schemes notified on 29 June 2026 include a requirement for employers to file a consolidated return in Form V within fifteen days of the scheme taking effect — i.e., by mid-July 2026 — capturing Aadhaar, PAN, UAN and wage details for employees; check EPFO circulars for format and establishment-level applicability. Withdrawal categories were simplified from thirteen to three. Confirm your payroll team or provider has this in hand.

5. Registration, Aadhaar seeding and career centres

Single registration concepts, Aadhaar-based identification for benefits, and reporting of vacancies to career centres (for establishments covered by the Code’s career-centre provisions) are part of the operational fabric of the Code.

What Changes for Contract and Outsourced Workforces

Social security for contract labour is the principal employer’s problem — unless it genuinely isn’t

For contract workers, the contractor (staffing company) is responsible for PF, ESI and gratuity as the employer. But the enforcement reality has always been: if the contractor defaults, recovery proceedings and claims find their way to the principal employer. The Code does not change that gravitational pull — it strengthens the documentation trail (UAN, Aadhaar-seeded accounts, electronic challans) that makes defaults visible faster.

Questions to put to any staffing vendor today:

1. Are all deployed employees’ PF/ESI contributions deposited on the new wage base?
2. Is gratuity being provisioned — including for fixed-term deployees?
3. Can they show challans and ECR filings for your deployed workforce, monthly?
4. Who absorbs the cost correction from the 50% wages rule — you, them, or the worker’s take-home?

How TMS carries this risk for clients

When TMS runs your contract workforce, the deployed employees are on TMS’s payroll, under TMS’s PF and ESI codes, with TMS as the employer bearing the statutory obligations. Every client gets monthly compliance proof — challans, ECR, contribution registers — as standard reporting, not on request. We restructured every deployed salary to the Code’s wage definition ahead of enforcement with zero cost impact for TMS clients through the transition, across our 8,500+ employees on payroll in contract staffing engagements.

Compliance Checklist — Social Security Code

• Recompute PF and ESI on the “wages” base (basic + DA ≥ 50% of total pay)
• Confirm PF ceiling treatment (₹15,000; mandatory ₹1,800 cap; voluntary above)
• Re-provision gratuity at ~4.81% of basic on the corrected base — including fixed-term staff
• Track the EPF/EPS/EDLI Scheme 2026 transition — Form V consolidated return due within 15 days of the 29 June 2026 commencement
• Verify ESI applicability for all locations and the ₹21,000 eligibility ceiling per employee
• Classify gig/freelance engagements honestly; monitor aggregator contribution notifications
• Demand monthly challan/ECR proof from every staffing contractor
• Check maternity benefit (applies to establishments with 10+ employees) and creche obligations (50+ employees) for your establishment sizes

The Four Labour Codes

Read alongside the Code on Wages guide, the Industrial Relations Code guide and the OSH Code & contract labour guide. For the month’s deadlines, see the India HR compliance update.

Frequently Asked Questions

Is the Code on Social Security in force?

Yes — since 21 November 2025. Operational schemes are being notified under it, most recently the EPF, Pension and EDLI Schemes 2026 gazetted on 29 June 2026.

Did PF or ESI rates change?

No. PF remains 12% + 12% and ESI remains 3.25% employer / 0.75% employee (for wages up to ₹21,000/month). What changed is the wage base they are computed on, and the scheme rules around them.

Do fixed-term employees really get gratuity in one year?

Yes — pro-rata gratuity without the five-year qualifying period is a defining feature of the Codes for fixed-term employment. Provision for it from day one.

What is the PF wage ceiling now?

₹15,000/month, confirmed by gazette notification S.O. 2702(E) of 29 May 2026. Mandatory contributions are capped at that ceiling; employees may contribute voluntarily above it.

My contract workers are on a vendor’s payroll. Am I safe?

Only as safe as your vendor’s compliance. If the contractor defaults on PF/ESI, exposure travels to the principal employer. Insist on monthly deposit proof — or use a partner like TMS that provides it by default.

What is the aggregator contribution for gig workers?

Aggregators are to contribute 1–2% of annual turnover (capped at 5% of payments to gig/platform workers) towards social security funds under Section 114 of the Code; scheme-level notifications are still being operationalised.

What is Form V under the new EPF Scheme 2026?

A consolidated return employers must file within fifteen days of the scheme taking effect on 29 June 2026, with employee Aadhaar, PAN, UAN and wage details — watch EPFO circulars for the prescribed format.

Does the 50% wages rule apply to ESI too?

Contributions across the social security framework are computed on the Code’s uniform “wages” definition, so structures must be corrected once, consistently, across PF, ESI and gratuity — though component-level treatment (for example, overtime for ESI) should be checked against scheme-level guidance as EPFO and ESIC operationalise the new schemes.

Is Your Provisioning Right?

PF, ESI and gratuity are now calculated on a bigger base. Get a compliance review of your contribution math and your vendors’ deposits, or move the whole obligation onto TMS payroll. Call +91-22-4896-7640