The Code on Social Security, 2020 consolidates the EPF Act and ESI Act. While the contribution rates largely remain similar, the enforcement mechanism and penalties for non-compliance have become significantly stricter, targeting the “Person in Charge” directly.

1. Criminal Liability for Non-Payment

The most critical update is the treatment of the Employee’s Share of contribution. If an employer deducts the employee’s share but fails to deposit it with the authorities:

• It is treated as Criminal Breach of Trust.
• Penalty: Imprisonment for a term not less than one year (extendable to three years).
• Fine: Up to INR 1,00,000.
• Non-Compoundable: This offence cannot be settled by paying a fine; prosecution is mandatory.

2. Expansion of Coverage

The Code aims to widen the social security net. Key changes include:

Voluntary Coverage

Establishments with less than 20 employees (for PF) or less than 10 (for ESI) can now opt for Voluntary Coverage. Once opted, they cannot exit the scheme unless the employer and majority of employees agree.

Gig & Platform Workers

For the first time, aggregators (e.g., Ride sharing, Food delivery) are brought under the social security net. They must contribute 1-2% of their annual turnover to a designated fund.

3. Director’s Liability

4. Compliance Checklist

To mitigate risk, organizations must ensure:

• Timely Deposit: Remit contributions by the 15th of the following month without fail.
• Aadhaar Seeding: Ensure 100% UAN-Aadhaar linking for all employees to avoid challan rejection.
• Inspection Readiness: Under the new “Inspector-cum-Facilitator” regime, digital records must be ready for web-based random inspections.