Code on Social Security 2020 in India (PF, ESI, Gratuity, Maternity Merged)

The 9 laws it replaces

The Code is the third of four labour codes, alongside the Wage Code, Industrial Relations Code and OSH Code. It consolidates nine social-security statutes: EPF & Miscellaneous Provisions Act 1952 (provident fund, pension, deposit-linked insurance); ESI Act 1948 (medical and cash benefits for low-wage workers); Employees Compensation Act 1923 (workplace injury compensation, formerly Workmen's Compensation); Maternity Benefit Act 1961 (26-week leave, crèche, WFH); Payment of Gratuity Act 1972 (15/26 formula, 5-year eligibility); Cine-Workers Welfare Fund Act 1981; Building & Other Construction Workers Welfare Cess Act 1996; Unorganised Workers Social Security Act 2008; and Employment Exchanges (Compulsory Notification of Vacancies) Act 1959. Central rules were notified in November 2020. State rules have been notified by most states between 2021 and 2024, and the central commencement notification took effect on 21 November 2025, so the Code is in force nationwide with state rules aligning through 2025-26.

What stays the same (mostly)

For practical HR purposes, the operational layer of EPF, ESI, gratuity and maternity remains largely intact. EPF stays at 12% employee plus 12% employer (3.67% EPF plus 8.33% EPS up to ₹15,000 wage). ESI stays at 0.75% employee plus 3.25% employer on wages up to ₹21,000 per month. Gratuity keeps the (Basic + DA) × 15/26 × years formula with 5-year eligibility for permanent employees. Maternity keeps 26 weeks for the first 2 children, 12 weeks for the third and beyond, and a crèche at 50+ employees. EDLI deposit-linked insurance keeps the capped 0.5% employer contribution. The headline changes sit at the edges: fixed-term contract workers, gig workers, and the wage definition.

The fixed-term contract gratuity rule

Section 53(2) and its proviso are the operational change most HR teams need to know. The proviso states that where an employee is on fixed-term employment, the employer pays gratuity on a pro-rata basis and not on the basis of continuous service of five years. So a fixed-term contract worker whose contract ends without renewal receives gratuity on a pro-rata basis for the actual contract period, and the 5-year continuous service rule does not apply.

Permanent employees still need 5 years of continuous service. The change applies only to fixed-term employment as defined under Section 2(o), which the Industrial Relations Code also recognises. Teams managing FTC contracts in consulting, project-based hiring and retail seasonal hiring now face a gratuity accrual from day 1 of the contract, not from year 5. Every fixed-term contract carries a gratuity liability from the start, group gratuity policies (LIC, HDFC Life, ICICI Pru) need to cover FTC workers separately, and when a contract ends the gratuity flows into the F&F sheet as a separate line with the Section 10(10) ₹20 lakh shelter applied. If the contract is renewed, service and accrual continue; if not renewed, gratuity becomes payable immediately on contract end.

Worked example: a 2-year fixed-term contract

Take a fixed-term worker on a monthly wage (Basic + DA) of ₹40,000 whose 2-year contract ends without renewal. Under Section 53(2) the gratuity is 2 × (15/26) × monthly wage. That works out to 2 × 0.5769 × ₹40,000, which is about ₹46,154. Under the old Payment of Gratuity Act framework this worker would have received nothing, because the contract fell short of the 5-year minimum. The Section 10(10) exemption cap of ₹20 lakh comfortably shelters this amount, so the payout is tax-free in the F&F.

Gig and platform workers (Chapter IX)

Chapter IX is the most novel part of the Code. It creates a specific social-security category for gig workers (Section 2(35)) and platform workers (Section 2(60)). A gig worker earns from a work arrangement outside the traditional employer-employee relationship. A platform worker is engaged through an online platform that connects organisations or individuals to solve problems or provide services for payment. The central government can frame schemes for these workers covering life and disability cover, accident insurance, health and maternity benefits, old age protection, crèche facilities, and any other notified benefits.

Under Section 114, aggregators (digital intermediaries connecting workers and customers, such as Uber, Zomato, Swiggy, Urban Company, Ola, Dunzo, Rapido) contribute 1-2% of their annual turnover or 5% of the amount paid to gig workers, whichever is lower, subject to a 5% of turnover ceiling. The contribution goes into a Social Security Fund maintained by the central government. As of early 2026 the aggregator contribution mechanism has not been fully notified, but the Rajasthan Platform-Based Gig Workers (Registration and Welfare) Act 2023 was the first state-level legislation to operationalise a similar concept, with Karnataka, Telangana and others following.

The Section 2(88) wage definition

The Code adopts the same wages definition as the Code on Wages (Section 2(88)), so the 50% rule applies: if excluded components (HRA, bonus, conveyance, overtime, employer's PF, gratuity) exceed 50% of total remuneration, the excess is added back to wages. The impact runs through EPF (12% on the new wage, which rises for employees with Basic below 50% of CTC), gratuity (15/26 of the new wage × years, so higher accrual every year), maternity benefit (100% of average daily wages × 26 weeks), and employees compensation (50% of monthly wages × the specified multiplier for permanent total disablement). See the Code on Wages 2019 guide for the 50% rule in full with a CTC restructure example.

Coverage thresholds and unified registration

The Code applies social-security provisions to establishments with 10 or more employees under Section 1(2) and Schedule I. EPF (Section 16) stays at 20 or more employees. ESI (Section 24), maternity benefit (Section 59) and gratuity (Section 53) apply at 10 or more employees. Employees compensation (Chapter VII) applies to all notified industries with no general headcount threshold. Section 3 introduces a unified electronic registration: once notified, every covered establishment registers once on a single portal and receives one registration number, replacing separate EPF, ESI, gratuity and maternity registrations. Periodic returns consolidate too. As of early 2026 the unified portal is not yet live, so the existing EPFO, ESIC and state labour department portals remain the operational reality.

Penalties

Failure to deposit EPF or ESI within the prescribed time can bring imprisonment up to 3 years (minimum 1 year) and a fine up to ₹1 lakh. A false statement or non-payment of dues can attract a fine of ₹50,000 to ₹3 lakh plus 6 months imprisonment. Failure to pay gratuity attracts simple interest at the rate notified by the central government, currently 10% per annum. Denial of maternity benefit can bring imprisonment of 3 months to 1 year plus a fine of ₹50,000 to ₹1 lakh.

Work it out / Related tool

To size the gratuity liability a fixed-term or permanent exit creates, run the numbers through the gratuity calculator. Pair it with the Code on Wages 2019 guide to see how the Section 2(88) 50% rule lifts the wage base that feeds every statutory computation.