Monday, July 09, 2012

Social Security: Meaning and Laws


What is Social Security?
  1. any of the measures established by legislation to maintain individual or family income or to provide income when some or all sources of income are disrupted or terminated or when exceptionally heavy expenditures have to be incurred (e.g., in bringing up children or paying for health care)
  2. social security may provide cash benefits to persons faced with sickness and disability, unemployment, crop failure, loss of the marital partner, maternity, responsibility for the care of young children, or retirement from work
  3. Social security benefits may be provided in cash or kind for medical need, rehabilitation, domestic help during illness at home, legal aid, or funeral expenses
  4. It acts as a facilitator – it helps people to plan their own future through insurance and assistance.
History of Social security
  1. Social security scheme was first introduced in Germany in 1883. Under the scheme, each member of a particular trade (blacksmiths, painters, weavers etc) was required to contribute at regular intervals; such funds were originally used for hospital and funeral expenses and for food and lodging for aged and disabled members.
  2. In USA, Social Security Act came into existence in 1935. (years not important, this is only fodder material for Essay.)
Social Security in India
  1. India has always had a Joint Family system that took care of the social security needs of all the members provided it had access/ownership of material assets like land and gold.
  2. However with increasing migration, urbanization and demographic changes there has been a decrease in large family units.
  3. This is where the formal system of social security gains importance.


Social Security: Constitutional Provisions
  1. Concurrent List
A.      Social Security and labour welfare falls under Concurrent list, it means both union and state Government can make laws regarding these topics.
B.      (List III in the Seventh Schedule of the Constitution of India)
C.      Item No. 23
o   Social Security and insurance,
o   Employment and unemployment.
D.      Item No. 24
E.       Welfare of Labour including conditions of work,
F.       provident funds,
G.     employers’ liability,
H.      workmen’s compensation,
I.        Invalidity and old age pension and maternity benefits.
2.       Part IV Directive Principles of State Policy
                I. Article 41
                     Right to work, to education and to public assistance in certain cases
                     o State shall, within the limits of its economic capacity and development, make effective provision for securing the right to work, to education and to public assistance in cases of unemployment, old age, sickness and disablement, and in other cases of undeserved want.

    1.   II. Article 42
    2.       o Provision for just and humane conditions of work and maternity relief
    3.       State shall make provision for securing just and humane conditions of work and for maternity relief.

Difference between Organized and Unorganized Sectors
  1. Organized sector


o    includes primarily those establishments which are covered by the Factories Act, 1948, the Shops and Commercial Establishments Acts of State Governments, the Industrial Employment Standing Orders Act, 1946 etc.
o    This sector already has a structure through which social security benefits are extended to workers covered under these legislations.
o    Examples: employees of union and state Government, army, navy, airforce, Multinational companies, Infosys, TCS and so on.

          2.    Unorganized sector
o   Unorganized sector is characterized by the lack of labour law coverage, seasonal and temporary nature of occupations, high labour mobility, dispersed functioning of operations, casualization of labour, lack of organizational support, low bargaining power, etc

SOCIAL SECURITY LAWS in India

      1. Employees’ State Insurance Act, 1948 (ESI Act)
covers factories and establishments with 10 or more employees and provides for comprehensive medical care to the employees and their families as well as cash benefits during sickness and maternity, and monthly payments in case of death or disablement

      2. Employees’ Provident Funds Act, 1952
applies to specific scheduled factories and establishments employing 20 or more employees and ensures terminal benefits to provident fund, superannuation pension, and family pension in case of death during service.

      3. Workmen’s Compensation Act, 1923 (WC Act)
Requires payment of compensation to the workman or his family in cases of employment related injuries resulting in death or disability.

      4. Maternity Benefit Act, 1961 (M.B. Act)
provides for 12 weeks wages during maternity as well as paid leave in certain other related contingencies.

      5. Payment of Gratuity Act, 1972 (P.G. Act)
provides 15 days wages for each year of service to employees who have worked for five years or more in establishments having a minimum of 10 workers.

Social Security In India : Different From Developed Nations
  1. We do not have an existing universal social security system
  2. 92% of the workforce is in the informal sector which is largely unrecorded
  3. today 1/8th of the world’s older people live in India. The overwhelming majority of these depend on transfers from their children.
  4. Addressing social security concerns with particular reference to retirement income for worker
  5. In India the coverage gap i.e. workers who do not have access to any formal scheme for old-age income provisioning constitute about 92% of the estimated workforce of 400 million people.
Provident Fund
Here the employers to contribute to a provident scheme providing a lump-sum payment in the event of death or disability or on retirement.
Three disadvantages of Provident Fund
  1. Money is inadequate for risks occurring early in working life.
  2. Provident funds are generally invested in government stock with a rate of interest fixed in money terms that may be below market rates.
  3. Real value of the accumulated savings may thus be substantially eroded by inflation by the time of retirement.


But From the point of view of government, Provident Fund is attractive because it generates forced savings that can be used to finance national development plans.

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