Social security benefits: a quick introduction
Social security benefits in India: Social Security is a system designed to help individuals and their families maintain their standard of living/family income, even in the face of involuntary loss of revenue, unexpected major expenses, or interruption in income. Often established by legislation, social security is based on contributions from employers, the state, and workers.
Although its components vary by country and sector, social security benefits generally include insurance, health care, retirement, disability, and maternity benefits. These benefits are often offered to employees and, by extension, their families.
The International Toil Organization (ILO), the United Nations (UN), and other conventions consider social security a fundamental human right. It provides financial security to individuals and their families, helping them manage the risks of socioeconomic contingencies.
The social security system in India
The government provides and mandates social security through various programs and schemes under multiple laws and regulations in India. It is provided by the government as a form of social insurance to individuals and families, providing them with financial security in the event of the breadwinner’s death, illness, hospitalization, natural disasters, work accidents, etc.
Social security in India differs from other countries where social security is simply compulsory payments into government-controlled funds (China) or statutory cash benefits (UK). It is a contributory system where employers and employees contribute through voluntary and mandatory fees, and the exact contribution varies from plan to plan.
1. Pension
A pension, a retirement in some areas, is a fund or plan to which an employer, employee, and government pool monetary contributions over a person’s working years. The benefits of these contributions are available to the individual or their family upon the individual’s retirement or death. Pensions are a crucial source of retirement and survival income for many.
In India, the pension is available through the Employees Provident Fund (EPF) scheme. It was create by the Employees Provident Fund and Miscellaneous Provisions Act of 1952. This scheme is regulate by the Ministry of Labor and Employment, Government of India, and administere by the Employees Provident Fund Organization (EPFO).
Under this scheme, contributions are compulsory for the employer and the employee whose monthly income does not exceed Rs 15,000. When the employee earns more and is already a member of EPFO, the employer only needs to contribute the first Rs.15000. If the employee makes more than Rs.15000 and is not a member of EPFO, EPF contributions are voluntary. The employee contribution is deduct from their monthly salary and credited to their PF account.
The employer contribution is 12% of the employee’s base salary (plus living and retention allowance). Employees must also contribute 12% of their base salary but may choose to contribute more. The EPF is mandatory for establishments with 20 or more employees and voluntary for those with less than 20 employees.
The pension in India, provided by the EPF, includes retirement benefits and survivors’ income. When an EPFO member dies, their dependents, including the widow(er) and children, receive monthly pensions.
2. Health care benefits
Health care benefits include health insurance, sickness benefits, disability benefits, etc. Allow people and their families to access adequate health care and ensure their general well-being.
In India, the Employees State Insurance (ESI) scheme established through the Employees State Insurance Act of 1948 gives employees access to integrated healthcare benefits. Benefits allow employees to protect themselves and their families against the consequences of illness, disability, maternity or death.
If an employee is enrolled in ESIC, he can enroll all her dependents in the scheme and receive free medical treatment with no spending limit at any ESIC hospital/clinic. They can access free outpatient consultations, including specialist consultation, hospitalization, medication, laboratory analysis, imaging, vaccination, etc. In general, the ESI system reduces medical costs borne by employees.
Employees earning Rs 21,000 or less (Rs 25,000 or less in case of disability) are eligible for the ESI scheme. This plan also requires employer and employee contributions. While employers pay 3.25% of wages paid/payable, employees pay 0.75% of wages paid/payable.
3. Disability benefits
When employees are injured on the job, temporary or permanent disability seriously affects them and their families. First, the family faces a loss of income, and then they must bear immediate and long-term medical expenses, rehabilitation expenses, etc.
The ESI scheme also extends disability benefits to employees in the event of temporary or permanent disability. An ESI member receives a disability allowance in addition to free medical expenses.
Also, India has the Employees Compensation Act of 1923, which obliges employers to pay stipulated compensation to employees if they are injured or contract an occupational disease.
4. Maternity benefits
Maternity benefits allow women to access appropriate medical care in the prenatal and postnatal stages. It provides income security during pregnancy and after when they cannot participate in work.
An employee registered in the ESI scheme can benefit from maternity allowances. Under this regime, maternity benefits are extended up to 26 weeks and stipulated periods in case of a miscarriage, childbirth, medical termination of pregnancy, or other complications.
Women in India are entitled to various maternity benefits under the Maternity Benefits (Amendment) Act 2017. Insured women are allowed 26 weeks of paid maternity leave for the first two children. There are provisions for paid maternity leave for child adoption, medical termination of pregnancy, and miscarriage. The law also mandates the establishment of childcare/daycare centers and the provision of remote work arrangements, among others.
5. Insurance benefits
Insurance helps individuals and their families cope with uncertainties such as a layoff, involuntary loss of income, sudden expenses, or the death of a salaried member.
When a salaried member dies, families struggle to make ends meet. For this, survivor benefits are essential. The EPF and ESI plans offer several survivor benefits in the event of a member expiration.
Life insurance benefits up to Rs 7 lakhs under EPF
Monthly pensions for dependents
Funeral expenses, etc.
In the event of dismissal, involuntary loss of income, or other essential expenses (studies, marriage, etc.), EPF affiliates can benefit from partial quotas.
6. Council
Through the provisions of the Bonus Pay Act of 1972, employees who have worked more than five years in an organization receive 15 days’ pay for each year of service. Tipping is a lump sum payment paid by establishments with ten or more employees. In case of death or disability of an employee, the amount of the gratuity is paid to his legal heir or his representative.
Can these benefits extend beyond formal employees?
Yes. While most laws only impose social security benefits on those in formal employment (white-collar and blue-collar workers), employers can voluntarily provide these benefits to their employees. In India, 93% of the labor force is informally employed as domestic workers, drivers, temporary workers, platform workers, etc. struggling to make ends meet.
If there is a natural disaster or a sudden hospitalization of a family member, you will be pushed deeper into poverty. In this context, employers’ voluntary payment of social security has significant value. It helps to formalize the work of informal workers and provides them with financial security against socio-economic risks.
How can you start paying social security to your informal workers?
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