The implementation of the Code on Social Security, 2020 on November 21, 2025, has fundamentally transformed the Employees’ State Insurance (ESI) and Employees’ Provident Fund (EPF) landscape in India. By consolidating nine central labour laws into a single code and extending social security coverage to previously excluded workers—including gig workers, platform workers, and those in the unorganized sector—India has achieved one of the most ambitious labour reforms in recent history. For employers, HR professionals, and compliance advisors, understanding these changes is critical for ensuring organizational compliance, managing payroll restructuring, and maintaining employee relations.
Overview: Social Security Before and After the Codes
Previously, social security coverage in India was fragmented and limited. Approximately 10-12% of the workforce (primarily in the organized sector) had access to EPF and ESI benefits. The remaining 88% of workers—particularly those in small establishments, unorganized sectors, and informal employment—were excluded from statutory social security protection.
Post-November 2025, the Code on Social Security, 2020 has extended universal coverage, bringing India’s social security coverage to over 64% of the workforce. This expansion represents a dramatic shift toward formalization and worker welfare, positioning India’s labour framework closer to global standards.
ESI Coverage Under the New Labour Code: Revolutionary Expansion
Pan-India Coverage and Elimination of “Notified Areas”
The most significant ESI reform is the elimination of the “notified areas” concept.
Previous System (ESI Act, 1948):
ESI coverage was restricted to specific geographical areas officially “notified” by state governments. Many industrial zones, small towns, and rural areas remained outside the ESI net, leaving workers in those locations without health insurance coverage.
Even establishments with sufficient employees could avoid ESI compliance simply by being located outside notified areas.
New System (Code on Social Security, 2020):
ESI coverage is now pan-India and applies universally, regardless of geographical location.
All establishments meeting eligibility criteria must provide ESI benefits, ensuring equitable access to health insurance across the country.
Impact: Millions of workers previously excluded due to location now receive statutory health insurance, maternity benefits, sickness benefits, and disability coverage.
Hazardous Occupations: Mandatory Coverage from Day One
A landmark provision in the Code extends ESI coverage to establishments with even a single employee engaged in hazardous or life-threatening work.
Previous Threshold:
ESI was mandatory only for establishments with 10 or more employees (in non-seasonal factories and certain other establishments) or 20 or more employees in other cases.
New Threshold for Hazardous Work:
For hazardous occupations (such as chemical manufacturing, mining, construction involving dangerous machinery), ESI is mandatory even if only one employee is engaged in such work.
For non-hazardous establishments, the threshold of 10 employees continues to apply.
What Constitutes Hazardous Work:
Work involving exposure to toxic chemicals, explosives, or radioactive materials.
Operations with high risk of physical injury (heavy machinery, high-altitude construction, mining).
Manufacturing processes with inherent dangers (chemical plants, foundries, etc.).
Impact: This provision ensures that workers in the most vulnerable occupations receive comprehensive health insurance from the moment they join, protecting both employees and employers from catastrophic medical expenses and workplace injury liabilities.
Voluntary ESI for Small Establishments
The Code introduces voluntary ESI coverage for establishments with fewer than 10 employees (in non-hazardous sectors).
Employers and employees can mutually agree to enroll in ESI, gaining access to health benefits, hospitalization, maternity care, and disability insurance even if not legally mandated.
This voluntary provision encourages formalization of micro-enterprises and extends social security to the smallest units of the economy.
ESI Wage Ceiling and Contribution Rates
Wage Ceiling for ESI Eligibility:
Employees earning up to Rs. 21,000 per month (or Rs. 25,000 per month for employees with disabilities) are covered under ESI.
This threshold ensures that low- and middle-income workers receive health insurance protection.
Contribution Rates (As of 2025):
Employee Contribution: 0.75% of monthly wages
Employer Contribution: 3.25% of monthly wages
Total Contribution: 4% of monthly wages
These rates were reduced from the previous 6.5% (1.75% employee + 4.75% employer) in 2019, lowering the financial burden on both parties while maintaining comprehensive benefits.
Payment and Compliance:
ESI contributions must be remitted to the Employees’ State Insurance Corporation (ESIC) by the 15th of the following month after wages are paid.
Employers must deduct the employee’s share and deposit both contributions together via the unified ESIC portal.
ESI Benefits Available to Covered Employees
Employees covered under ESI receive comprehensive health and social security benefits:
Medical Benefits: Free medical care for the employee and their family (spouse, children, and dependent parents) at ESIC hospitals and dispensaries.
Sickness Benefits: Cash compensation at 70% of wages for up to 91 days per year during illness or injury (subject to contribution conditions).
Extended Sickness Benefit (ESB): For 34 specified long-term and malignant diseases, sickness benefits can be extended for up to 2 years at 80% of wages.
Maternity Benefits: Female employees receive cash benefits for up to 26 weeks (for the first two children) and 12 weeks for subsequent children.
Disablement Benefits: Temporary or permanent disablement due to employment injury entitles workers to monthly payments or lump-sum compensation.
Dependents’ Benefit: In case of death due to employment injury, dependents receive monthly pensions.
Funeral Expenses: Rs. 15,000 payable to the family in the event of the insured person’s death.
Rehabilitation Allowance: Support for employees undergoing vocational rehabilitation after disablement.
EPF Coverage Under the New Labour Code: Expanded Applicability and Wage Restructuring
Universal EPF Applicability Across Sectors
The Code on Social Security, 2020 removes the industry-specific EPF coverage list (Schedule 1 of the EPF Act, 1952) and establishes universal applicability.
Previous System:
EPF coverage was restricted to specific industries listed in Schedule 1 (such as factories, mines, plantations, etc.).
Many service-sector establishments and emerging industries were not covered, leaving workers without retirement benefits.
New System:
EPF now applies to all establishments with 20 or more employees, regardless of industry type.
This universal approach ensures that workers in IT services, retail, hospitality, logistics, e-commerce, and other modern sectors receive provident fund benefits.
Impact: The removal of industry-specific restrictions brings millions of service-sector and gig-economy-adjacent workers into the formal retirement savings system.
EPF Wage Ceiling and Contribution Rates
Mandatory EPF Coverage Wage Ceiling:
All employees earning up to Rs. 15,000 per month are mandatorily covered under EPF.
This threshold was increased from Rs. 6,500 in 2014, significantly expanding coverage.
Contribution Rates:
Employee Contribution: 12% of basic salary + dearness allowance (DA)
Employer Contribution: 12% of basic salary + DA (of which 8.33% goes to the Employees’ Pension Scheme and 3.67% to EPF)
Total Contribution: 24% of basic salary + DA
Wage Ceiling for Contribution Calculation:
Even if an employee earns more than Rs. 15,000 per month, mandatory contributions are calculated only on Rs. 15,000 (unless the employee and employer voluntarily agree to contribute on the actual higher salary).
Example:
An employee earning Rs. 30,000 basic salary per month:
Mandatory EPF contribution base: Rs. 15,000
Employee contribution: 12% of Rs. 15,000 = Rs. 1,800
Employer contribution: 12% of Rs. 15,000 = Rs. 1,800
However, if both parties agree, contributions can be calculated on the full Rs. 30,000.
Proposed Increase in EPF Wage Ceiling to Rs. 30,000
Recent government statements indicate that the EPF wage ceiling may be increased from Rs. 15,000 to Rs. 25,000 or even Rs. 30,000 in the near future.
Rationale for Increase:
The current Rs. 15,000 ceiling was set in 2014. Since then, urban salaries have risen significantly, and many employees earning above Rs. 15,000 are not enrolled in any pension scheme.
Labour unions have demanded a revision to Rs. 30,000, arguing that the old cap is outdated given inflation and rising living costs.
An internal labour ministry assessment estimates that raising the limit by Rs. 10,000 could bring over 1 crore additional workers into mandatory EPF and pension coverage.
Impact of Potential Increase:
For Employees: Higher retirement savings and pension eligibility; slightly reduced monthly take-home pay due to increased PF deductions.
For Employers: Increased statutory contribution obligations, raising payroll costs.
For Compliance Professionals: Need to monitor official notifications and adjust payroll systems promptly when the ceiling is revised.
The “50% Wage Rule” and Its Impact on EPF and ESI
Understanding the New Definition of “Wages”
One of the most controversial aspects of the new labour codes is the redefinition of “wages” under the Code on Wages, 2019.
The Code mandates that basic salary + dearness allowance + retaining allowance must constitute at least 50% of total remuneration (CTC).
If allowances (such as HRA, conveyance, special allowances, etc.) exceed 50% of total salary, the excess amount must be reclassified as “wages” for statutory purposes.
Previous Practice:
Many companies structured salaries with a small basic component (e.g., 30-40% of CTC) and inflated allowances (HRA, special allowances, etc.).
This reduced the base for EPF, gratuity, and ESI calculations, lowering statutory obligations.
New Requirement:
Basic salary must be at least 50% of CTC.
Statutory contributions (EPF, ESI, gratuity) are calculated on this expanded wage base.
Impact on Take-Home Salary and Statutory Benefits
The 50% rule has created significant confusion and concern among employees regarding take-home pay.
Key Clarification from the Labour Ministry:
Take-home salary will NOT reduce for most employees if EPF contributions remain capped at the statutory Rs. 15,000 ceiling.
If an employee’s basic salary is restructured upward to meet the 50% threshold but remains below Rs. 15,000, EPF contributions increase proportionately, reducing take-home pay.
If an employee’s basic salary exceeds Rs. 15,000, EPF contributions are calculated only on Rs. 15,000 (unless voluntarily higher), so take-home pay remains largely unchanged.
Example 1: Employee with Basic Salary Below Rs. 15,000
Old Structure:
Total CTC: Rs. 25,000
Basic: Rs. 10,000 (40% of CTC)
Allowances: Rs. 15,000
EPF (12% of Rs. 10,000): Rs. 1,200
Take-home (after EPF): Rs. 23,800
New Structure (50% Rule):
Total CTC: Rs. 25,000
Basic: Rs. 12,500 (50% of CTC)
Allowances: Rs. 12,500
EPF (12% of Rs. 12,500): Rs. 1,500
Take-home (after EPF): Rs. 23,500
Impact: Take-home reduced by Rs. 300 due to higher EPF deduction.
Example 2: Employee with Basic Salary Above Rs. 15,000
Old Structure:
Total CTC: Rs. 50,000
Basic: Rs. 20,000 (40% of CTC)
Allowances: Rs. 30,000
EPF (12% of Rs. 15,000 ceiling): Rs. 1,800
Take-home (after EPF): Rs. 48,200
New Structure (50% Rule):
Total CTC: Rs. 50,000
Basic: Rs. 25,000 (50% of CTC)
Allowances: Rs. 25,000
EPF (12% of Rs. 15,000 ceiling): Rs. 1,800
Take-home (after EPF): Rs. 48,200
Impact: No change in take-home salary, as EPF is still calculated on the Rs. 15,000 ceiling.
The EPF Act Overlap: Two Wage Systems Operating Simultaneously
A significant compliance challenge is that the EPF Act, 1952 has not been repealed, creating a dual-framework system.
Code on Social Security, 2020: Uses the new “wages” definition (50% rule) for gratuity, ESI, and other benefits.
EPF Act, 1952: Continues to use the older, narrower definition of “basic wages” (excluding HRA, overtime, bonuses) for EPF contributions.
Practical Impact:
Employers must maintain two separate wage calculation systems—one for EPF and another for gratuity and ESI.
Payroll systems require careful configuration to ensure accurate computation and avoid errors during audits.
Expected Resolution:
The government is expected to harmonize the wage definitions by either repealing the EPF Act or amending it to align with the Code on Wages. Until then, employers must navigate this overlap carefully.
Social Security for Gig and Platform Workers: A Historic Expansion
Formal Recognition and Legal Definition
For the first time in Indian labour law, gig workers and platform workers are formally recognized and defined under the Code on Social Security, 2020.
Gig Worker: A person performing work or services outside of a traditional employer-employee relationship (e.g., freelance consultants, delivery personnel, ride-share drivers).
Platform Worker: A person engaged in work arranged through an online platform or aggregator (e.g., Uber, Zomato, Swiggy, Urban Company).
Aggregator: An entity that operates a digital platform connecting service providers with customers.
Previous Status:
Gig and platform workers were excluded from the Payment of Wages Act, EPF Act, ESI Act, and Minimum Wages Act.
They had no legal identity or statutory social security coverage, bearing all employment risks themselves.
New Status:
Gig and platform workers are recognized as a distinct worker category with statutory rights and benefits.
They are entitled to government-notified social security schemes, funded through contributions from aggregators, workers, and the government.
Social Security Fund and Aggregator Contributions
The Code mandates that aggregators contribute to a Social Security Fund for gig and platform workers.
Contribution Requirements:
Aggregators must contribute 1% to 2% of their annual turnover toward the Social Security Fund.
This contribution is capped at 5% of the total payments made to gig and platform workers.
Example:
An aggregator with annual turnover of Rs. 100 crore and total worker payments of Rs. 30 crore:
1% of turnover = Rs. 1 crore
5% of worker payments = Rs. 1.5 crore
Contribution = Lower of the two = Rs. 1 crore
Funding Sources for the Social Security Fund:
Contributions from aggregators (1-2% of turnover, capped at 5% of worker payments)
Contributions from gig and platform workers themselves (rates to be notified)
Grants-in-aid from central and state governments
Donations, CSR contributions, and other sources
Benefits for Gig and Platform Workers
Once enrolled, gig and platform workers are eligible for:
Life and Disability Insurance: Coverage against death or permanent disablement.
Health and Maternity Benefits: Access to medical care, hospitalization, and maternity leave compensation.
Accident Insurance: Protection against employment-related injuries and accidents.
Old-Age Protection and Pension Schemes: Retirement savings and pension benefits.
Provident Fund Schemes: Voluntary enrollment in EPF for long-term retirement planning.
Crèche Facilities: Support for child care, particularly for female gig workers.
Skill Upgradation and Training: Access to government-sponsored training programs for professional development.
Aadhaar-Linked Social Security Accounts
Each gig and platform worker will be issued a unique Aadhaar-linked Social Security ID through the e-Shram portal.
Benefits of Unique ID:
Portability: Workers can carry their social security benefits across platforms and employers without losing coverage.
Continuity: Even if workers switch between multiple platforms or take up different gigs, their benefits remain intact.
Unified Access: A single ID enables access to all government welfare schemes, subsidies, and social security programs.
Impact: This system addresses the fragmentation problem faced by gig workers who previously lost benefits when changing platforms or locations.
Challenges in Implementation
Awareness and Communication: Many gig workers are unaware of their new rights and how to register for benefits. Effective communication and outreach are critical.
Registration Complexity: Registering millions of informal and mobile workers requires robust digital infrastructure and simplified processes.
Enforcement: Ensuring aggregators comply with contribution requirements and that funds are utilized effectively requires strong regulatory oversight.
Dispute Resolution: Establishing mechanisms for gig workers to file grievances and resolve disputes with platforms is essential.
Compliance Obligations for Employers Under the New Codes
Immediate Actions Required
- Salary Restructuring:
Audit current salary structures to ensure compliance with the 50% basic wage rule.
Reclassify allowances exceeding 50% of CTC as basic wages.
Communicate changes transparently to employees, explaining the rationale and impact on take-home pay and retirement benefits.
- ESI Registration and Coverage:
Verify ESI applicability based on:
- Number of employees (10+ for non-hazardous; even 1 for hazardous occupations)
- Geographic location (now pan-India; no exemptions for non-notified areas)
Register eligible establishments with ESIC and enroll covered employees.
Ensure timely monthly contributions by the 15th of each month.
- EPF Registration and Compliance:
Confirm EPF applicability for establishments with 20 or more employees across all sectors.
Calculate EPF contributions accurately:
- On basic + DA for employees earning up to Rs. 15,000
- Cap contributions at Rs. 15,000 unless voluntary higher contributions are agreed
Monitor government notifications for potential increases in the wage ceiling to Rs. 25,000 or Rs. 30,000.
- Gig and Platform Worker Registration (for aggregators):
Identify and classify gig and platform workers engaged through your platform.
Calculate and contribute 1-2% of annual turnover (capped at 5% of worker payments) to the Social Security Fund.
Facilitate worker registration on the e-Shram portal with Aadhaar-linked IDs.
Provide transparent communication to workers about their entitlements and how to access benefits.
- Maintain Digital Records:
All records, returns, and compliance documentation must be maintained electronically as per the Code.
Implement payroll software capable of handling dual wage calculations (EPF under old Act vs. gratuity and ESI under new Code).
- Regular Audits and Reviews:
Conduct periodic compliance audits to ensure adherence to ESI and EPF contribution schedules.
Review salary structures annually to maintain 50% basic wage compliance as salaries increase.
Stay updated on state-specific rules and amendments expected in the coming months.
Benefits and Challenges of the New ESI and EPF Framework
Benefits
Universal Coverage: Extension of social security to all workers—organized, unorganized, gig, and platform—creates a more equitable labour ecosystem.
Simplified Compliance: Unified registration, licensing, and return systems reduce administrative burden for employers.
Improved Worker Welfare: Enhanced health insurance, retirement savings, and pension coverage improve quality of life and financial security for workers.
Formalization of the Economy: Recognition of gig and platform workers brings millions into the formal economy, improving tax compliance and economic data accuracy.
Employer Protection: Comprehensive ESI coverage reduces employer liability for workplace injuries and medical expenses.
Challenges
Increased Payroll Costs: Higher EPF and ESI contributions (due to expanded coverage and wage restructuring) increase employer expenses.
Dual Wage Systems: The overlap between EPF Act, 1952 and the new Code creates complexity in payroll calculations and compliance.
Employee Concerns: Workers fear reduced take-home pay due to higher statutory deductions, requiring transparent communication and education.
Implementation Gaps: Absence of finalized state-specific rules creates uncertainty for employers regarding exact compliance requirements.
Gig Worker Enrollment: Registering and providing benefits to millions of mobile, informal gig workers requires robust digital infrastructure and coordination between platforms, workers, and government agencies.
Conclusion
The Code on Social Security, 2020 represents a transformative shift in India’s social security landscape. By extending ESI coverage pan-India, eliminating geographical and industry-specific restrictions, and bringing gig and platform workers into the formal safety net, the government has taken a major step toward universal social protection.
For employers and compliance professionals, the new framework brings both opportunities and obligations. While simplified compliance mechanisms reduce bureaucratic burden, the expansion of coverage, wage restructuring under the 50% rule, and dual wage systems for EPF create new challenges requiring careful planning and execution.
Key Takeaways for Business Advisors and HR Professionals:
ESI is now pan-India with mandatory coverage for hazardous occupations even with one employee, dramatically expanding health insurance access.
EPF applies universally to all sectors with 20+ employees; the wage ceiling may soon increase from Rs. 15,000 to Rs. 25,000 or Rs. 30,000, bringing millions more workers into retirement savings.
The 50% basic wage rule reshapes salary structures, increasing statutory contributions for gratuity, ESI, and potentially EPF (though take-home salary remains largely protected by the Rs. 15,000 EPF ceiling for now).
Gig and platform workers receive formal recognition and social security for the first time, funded by aggregator contributions and government support.
Dual wage systems (EPF Act vs. new Code) create compliance complexity until harmonization occurs.
Proactive compliance audits, transparent employee communication, and continuous monitoring of government notifications are essential for navigating this transformative reform successfully. By embracing these changes and implementing robust compliance frameworks, organizations can not only meet their statutory obligations but also enhance employee welfare, build trust, and contribute to India’s vision of a formalized, secure, and equitable employment ecosystem.
