Section 164 of the Code on Social Security, 2020 is a transitional and savings provision; intended to ensure smooth migration from the earlier social security legislations to the new unified labour code framework.
The Code repeals 9 Acts with an objective to consolidate multiple social security laws into one comprehensive code. The repealed act includes EPF and ESIC Acts.
In this regard, Clause 2(b) specifically ensures continuity of existing EPF and ESI subordinate legislations until new schemes/rules are framed under the Code.
The provision states that:
- the Employees' Provident Funds Scheme, 1952,
- the Employees' Deposit Linked Insurance Scheme, 1976,
- the Employees' Pension Scheme, 1995,
- the Tribunal (Procedure) Rules, 1997, and
- all rules/regulations/schemes under the Employees' State Insurance Act, 1948
shall continue to remain operational to the extent they are not inconsistent with the Code on Social Security, 2020, for one year from commencement of the Code.
Objective of Section 164 (2)(b)
The intention is:
- To avoid a legal vacuum after repeal of the:
- EPF & MP Act, 1952
- ESI Act, 1948
- To continue the operational framework until new schemes, rules, regulations are notified under the Code.
- To automatically override provisions of old schemes wherever they conflict with the Code.
Thus, after enforcement of the Code:
- consistent provisions survive temporarily;
- inconsistent provisions become unenforceable immediately.
Meaning of “to the extent they are not inconsistent”
This phrase is legally significant to mean-
- Old schemes are not repealed in entirety immediately.
- Only conflicting provisions become inoperative.
- Remaining provisions continue.
Therefore, administrative procedures, contribution mechanisms, forms, pension calculations, inspections, electronic filing systems, etc. continue unless contrary to the Code.
Important Inconsistencies between EPF Schemes and the Code on Social Security, 2020
The following areas are considered inconsistent or modified by the Code:
- The unified definition of “wages” under Section 2(y) of the Code on Social Security, 2020 departs materially from the traditional EPF/ESI wage constructs. Long-standing compensation structures permitting extensive exclusions and allowance bifurcation may not align with the statutory 50% inclusion threshold, thereby impacting contribution computations founded upon the earlier wage architecture.
- PF-centric identification and fragmented employee authentication mechanisms may not seamlessly align with the Aadhaar-integrated and technology-driven social security identification framework envisaged under the Code.
- Legacy forms, notices, registers and procedural formats prescribed under the earlier schemes may require substantial modification in light of the electronically driven compliance ecosystem and digital filing architecture introduced through the Central Rules.
- The conventional inspection regime under the EPF and ESI framework stands substantially transformed under the “Inspector-cum-Facilitator” model contemplated by the Code. Likewise, manual and physical inspection practices may gradually yield to risk-based, web-enabled and electronically administered compliance verification systems.
- The erstwhile EPF Appellate Tribunal structure and the Tribunal (Procedure) Rules, 1997 may no longer operate harmoniously with the revised adjudicatory and Industrial Tribunal framework established under the Code, necessitating procedural and institutional realignment.
- Independent registration mechanisms maintained separately under the EPF and ESI regimes may not remain fully compatible with the integrated and common registration framework envisioned under the consolidated social security regime.
- Distinct return filing structures under the EPF and ESI systems may require harmonisation with the unified electronic return and compliance reporting framework proposed under the Code and corresponding Central Rules.
- Traditional paper-based and semi-manual compliance processes may become progressively incompatible with the Code’s emphasis on digitised governance, electronic maintenance of records and technology-enabled filings.
- The prosecution, penalty and compounding mechanisms operating under the earlier EPF and ESI legislations may require recalibration in view of the consolidated offences, adjudication and compounding framework introduced under the Code.
- Recovery proceedings and adjudicatory mechanisms derived from the earlier enactments may warrant reinterpretation to align with the revised enforcement and compliance structure under the new legislative regime.
- Administrative authorities and powers originating from the repealed Employees' Provident Funds and Miscellaneous Provisions Act, 1952 and Employees' State Insurance Act, 1948 may undergo structural transition upon full operationalisation of the Code.
- The geographically phased implementation approach traditionally followed under the ESI framework may require reconsideration in view of the broader enabling and expansionary powers conferred under the Code.
- The fragmented and compartmentalised social security administration prevalent under the earlier enactments may gradually transition into the integrated and unified governance architecture envisaged under the Code. Consequently, scheme provisions expressly anchored to repealed enactments may necessitate contextual reinterpretation, adaptation or eventual substitution under the new statutory framework.
Major Inconsistency Relating to “Wages”
This is the most practically significant inconsistency. The Code introduces a uniform definition of wages under Section 2(y).
The EPF Scheme earlier functioned based on:
- basic wages,
- dearness allowance,
- retaining allowance, along with judicial interpretations.
The Code standardises exclusions and introduces the 50% ceiling principle.
Relevant concept:
Excluded Components>50% of Total Remuneration -> Excess added back into wages.
Hence:
- old practices structuring salary heavily into allowances may become inconsistent with the Code framework.
However, implementation still depends upon enforcement and framing of schemes/rules.
Consistent Provisions Continuing Under Section 164(2)(b) of the Code on Social Security, 2020 vis-à-vis the Code and Central Rules
- Employee enrolment, PF membership, pension membership and UAN-based account administration continue to remain consistent with the unified social security objectives under the Code on Social Security, 2020.
- Employer obligations relating to deposit of PF and ESI contributions, contribution timelines and maintenance of contribution records continue to operate harmoniously with the compliance framework under the Code and Central Rules.
- PF account maintenance, interest credit, pension administration, widow pension, disability pension and dependant benefit mechanisms remain aligned with the welfare-oriented structure preserved under the Code.
- EDLI insurance administration, nominee-related procedures, claim settlement mechanisms and employee benefit disbursement processes continue to remain operationally consistent during the transitional period.
- ESI medical benefits, sickness benefits, maternity benefits, disablement benefits and reimbursement procedures continue to support the social security framework contemplated under the Code.
- Employer obligations relating to furnishing information, maintaining statutory records, producing documents and preserving employee contribution details remain substantially compatible with the Code’s compliance architecture.
- Existing electronic contribution systems, online compliance portals and digital record maintenance mechanisms remain broadly consistent with the technology-driven governance approach envisaged under the Central Rules.
- International worker compliance provisions and social security agreement-related operational mechanisms continue to remain functionally aligned in the absence of any contrary framework under the Code.
- Administrative functioning of EPFO and ESIC, including fund administration, pension processing and benefit disbursement systems, continues uninterrupted to ensure continuity of employee welfare and statutory social security protections.
- Procedural and operational provisions which do not directly conflict with the Code, particularly those ensuring continuity of employee benefits and day-to-day compliance administration, continue to survive by virtue of Section 164(2)(b).
Conclusion
Section 164(b) is a transitional continuity provision, not a substantive continuation of supremacy of old schemes.
Accordingly:
- Existing EPF/ESI schemes continue only temporarily and conditionally.
- Any provision conflicting with the Code becomes unenforceable upon Code enforcement.
- The most significant inconsistencies relate to:
- definition of wages,
- inspection regime,
- tribunal structure,
- coverage expansion,
- new worker categories,
- enforcement mechanisms.
At present, because the Code is not fully operationalized, the old EPF and ESI schemes continue to govern practical compliance.
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