The landscape for gig workers and online platform employees in India is set for a significant transformation as the government deliberates on the contribution rules for their social security. Under the Social Security Code, 2020, aggregator companies like Ola, Uber, and various delivery platforms are now mandated to contribute to a dedicated social security fund designed for gig and platform workers. The Ministry of Labour and Employment is currently evaluating the specific formula to determine these contributions, focusing on whether they should be based on the annual turnover of the companies or the total payments made to the workers.
Two Proposed Models for Contribution
According to industry analysts and sources close to the Ministry of Labour and Employment, two primary methods are under consideration for calculating the social security contribution. The first option involves a standard based on per-transaction or total payments made to the workers, while the second option is to base the contribution on the annual turnover of the aggregator companies. Experts suggest that a model linked to per-transaction or worker payments could impose a heavier financial burden on businesses characterized by high transaction volumes but low individual transaction values, such as ride-hailing services. The impact of these two systems could vary Notably depending on the specific business model of each platform.
Understanding the Social Security Code 2020
The Social Security Code, 2020, makes it mandatory for aggregator companies to contribute to a social security fund for gig and platform workers. According to the rules, a gig worker becomes eligible to receive benefits under this scheme after working for 90 days with a single aggregator within a financial year, or for a total of 120 days across multiple aggregator companies. Aggregators are required to assess their annual contribution and deposit it every year. The current discussions are focused on the technical arrangements and the specific basis on which this contribution will be calculated.
Contribution Rates and Financial Caps
Under Section 114(4) of the Code, aggregators are expected to contribute between 1 to 2 percent of their annual turnover. However, there is a critical safeguard in place: this contribution amount can't exceed 5 percent of the total payments made to gig and platform workers. The Ministry is also considering an alternative formula based directly on the payments made to workers, where the contribution could be up to 5 percent of those payments. Analysts believe that such a payment-based system could be particularly taxing for ride-hailing businesses, including cab, auto, and bike services, where the frequency of transactions is very high.
Impact on Ride-Hailing and Delivery Services
The choice between a turnover-based model and a payment-based model is crucial for the industry. For companies like Ola and Uber, where millions of small-value transactions occur daily, a payment-based contribution might lead to a higher cumulative cost compared to a flat percentage of annual turnover. The government is carefully weighing these options to ensure that the social security fund is well-supported without placing an unsustainable financial strain on the digital aggregator ecosystem, while the final decision on the contribution formula will determine how the social security benefits are funded and distributed to the millions of workers who form the backbone of India's gig economy.