ESI Act Repealed: Compliance Under the New Social Security Code
I still remember the chaos when the Provident Fund wage definition was first tightened years ago. HR managers panicked, payroll teams scrambled, and lawyers like me had to explain the fine print over endless cups of chai. Guess what? History just repeated itself.
The Code on Social Security, 2020 (CoSS 2020) has
officially replaced the ESI Act, 1948 as of 21 November 2025.
Employers can’t afford to ignore this shift.
Here’s why:
- Wages
have been redefined. Section 2(88) of CoSS 2020 now includes basic
pay, dearness allowance, and retaining allowance.
- Exclusions
are limited. House rent allowance, overtime, commission, and
conveyance allowance are excluded, but only up to a point.
- The
50% rule bites hard. If allowances exceed half of total remuneration,
the excess gets added back into wages.
“If allowances exceed 50% of total remuneration, the excess
must be added back into wages.” — Ministry of Labour FAQs
This isn’t just theory. In the ESIC notification
“Implementation of Code on Social Security, 2020” (dated 30 December 2025),
employers were cautioned to register all eligible employees and pay
contributions on time. That means many workers who were previously excluded
under the old ESI Act now fall under coverage.
Practical example:
In our compliance review of “Implementation of ‘Code on Social Security, 2020’
(1).pdf,” we found that employees receiving high allowances will now be covered
under ESI because their wage definition has expanded.
Employer Action Points
- Register
all eligible employees under ESIC immediately.
- Audit
payroll structures to ensure allowances don’t exceed 50% of total pay.
- Update
HR policies to align with the new wage definition.
- Ensure
timely contribution payments to avoid penalties and protect employee
benefits.
Ignoring this isn’t an option. Compliance isn’t just about
avoiding penalties; it’s about protecting your workforce and your reputation.
Don’t wait for inspectors to knock on your door. Audit your payroll, register your employees, and align your compliance strategy with CoSS 2020 today.
References
- Section
2(88), Code on Social Security, 2020 – India Code
- Ministry
of Labour & Employment FAQs on Labour Codes – labour.gov.in
- Press
Release, Government of India Notification dated 21 November 2025 – PIB
- ESIC
Notification, “Implementation of Code on Social Security, 2020” (30
December 2025)
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