Truly securing social security for gig workers

By William Vivian John and Rishabh Shah,L&L Partners
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The gig economy offers temporary contractual jobs on a short-term or freelance basis, with remuneration based on the tasks completed. India provides 40% of the freelance jobs offered globally, with transportation firms like Ola, Uber, Zomato and Swiggy contributing to a majority of this value. The covid-19 pandemic, however, caused significant disruption, first rendering gig workers unemployed during lockdown, and then increasing competition as under-employed workers attempted to supplement their income by joining the gig economy.

William Vivian John,L&L Partners,gig workers
William Vivian John
Partner
L&L Partners

The gig economy operates outside traditional employment constructs, excluding workers from minimum-wage protection and social security, which renders them vulnerable when they are out of work. One solution could be to simply treat gig workers as employees of the aggregators. They would then be covered in existing social security schemes such as provident fund (PF) and employee state insurance (ESI), where both the employer and employee contribute to a government fund. While PF is intended to offer retirement benefits, eligible employees can withdraw up to 75% of their balance after one month of unemployment.

To qualify as employees, gig workers must satisfy existing judicial tests, which essentially determine whether an employer exercises effective control over the workers. In deciding this, courts have considered the employer’s ability to take disciplinary action, fix work hours and provide equipment, whether the worker is integral to the business, and whether the employer exercises such economic control over the worker, that if they cease business, the worker is virtually laid off. Some gig jobs such as food delivery may exhibit some of these tests, while others such as taxi service providers may not.

Rishabh Shah,L&L Partners,gig workers
Rishabh Shah
Managing associate
L&L Partners

Labour laws, however, do not address situations unique to the gig economy, such as the question of dual employment when a gig worker works for two different platforms. It is unclear how minimum wage protection would apply when they are paid per task, and what should be their social security contributions, as PF and ESI contributions are not applicable on commissions. Bringing gig workers under the legal regime of employees would also hamper the economic and operational flexibility that the gig economy offers.

The Social Security Code, 2020, attempts to address this issue for gig workers by providing a framework for establishing schemes for life and disability cover, accident insurance, health, maternity and other such benefits. The government is to establish a social security fund to be funded by central or state governments, gig worker and aggregator contributions, the corporate social responsibility fund, or other sources. Aggregator contributions are capped at 1-2% of their turnover, subject to contributions per worker not exceeding 5% of the amount payable to such workers. The administration of the schemes is delegated to the executive. In this context, the labour ministry has proposed it will provide social security to gig workers under existing PF and ESI schemes for regular workers.

The government must learn from past mistakes such as the Unorganised Sector Workers’ Social Security Act, 2008, which provided no timeframe for implementation and limited coverage. The most crucial social security for gig workers is medical and accident insurance cover, and retirement and unemployment benefits. During the pandemic, several e-commerce firms provided medical and accident insurance for their gig workers and the government should move quickly to set statutory minimum insurance cover for them and formalize this practice. Since such insurance costs are tax deductible, they would not be passed by the aggregators to gig workers. The code presently does not envisage this laissez-faire approach and prescribes that all schemes be financed through the social security fund, and therefore appropriate statutory amendments are needed to enable this.

Since gig workers have no minimum wage entitlement, aggregators may pass the cost of funding retirement and unemployment benefits to them, as with PF. There is therefore no real advantage in mandating aggregators to contribute. The government should consider prescribing bands for contributing for such benefits, such that gig workers contribute only when aggregate monthly commissions from an aggregator exceed a basic minimum and then for increasing contributions when crossing successive thresholds, as with income taxation. This will mitigate the impact on their take home pay. Given the reality of workers frequently switching between formal and gigs jobs, these schemes should also allow for the transfer of balances in the social security fund to PF or ESI when entering formal employment. These measures will meet the objectives of the code and ensure gig workers have social security without affecting the flexibility that the gig economy offers.

William Vivian John is a partner and Rishabh Shah is a managing associate at L&L Partners.

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