Social Security Code: Assessment, Recovery, Offences and Penalties

Social security depends on contributions being paid on time, so the Code gives its organisations strong powers to assess, recover and penalise. At the same time, it follows the Codes' general approach: inspectors also facilitate, employers get an opportunity to comply before prosecution, and many offences can be compounded. The one offence treated most severely is keeping employees' contributions deducted from their wages. This note covers assessment, recovery, the penalty scheme and compounding.

1. Inspection and Assessment

Figure 1: From inspection to recovery

• Records, s.123. Employers must maintain registers and records and file returns, electronically where prescribed.
• No reduction of wages, s.124. An employer may not reduce wages or benefits merely because he has to pay contributions under the Code.
• Authorised Officer, s.125. An officer of at least Group A rank decides disputes on applicability and determines dues under the provident fund and ESI chapters, with the powers of a civil court and after hearing the employer.
• Ex parte orders. An employer may apply within three months to set aside an ex parte order for improper service or sufficient cause.

2. Offences and Penalties

Figure 2: Main penalties under section 133

• Repeat offences, s.134. A person previously convicted who commits the same offence again faces enhanced punishment.
• Companies, s.135. Persons in charge of and responsible for the company's business are liable with the company, unless they show lack of knowledge or due diligence.
• Cognizance, s.136. Cognizance only on a complaint by an aggrieved person or a notified officer; prosecution needs the previous sanction of the notified authority; trial by a Metropolitan Magistrate or Judicial Magistrate of the first class.

3. Prior Opportunity and Compounding

Figure 3: Sections 134, 137 and 138

• Prior opportunity, s.137. Before prosecuting, the Inspector-cum-Facilitator gives the employer a written direction to comply within a stated time; if the employer complies, no prosecution follows.
• Who compounds. An officer authorised by the Central Government or the appropriate Government, depending on the chapter.
• Non-compliance. An employer who fails to comply with a compounding order pays an additional 20% of the maximum fine.

4. Employment Information

• Career centres, s.139. Employers must report vacancies to career centres before filling them, as prescribed, replacing the Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959.
• Exclusions, s.140. Excluded: agricultural employment other than plantations, domestic service, staff of Parliament and State Legislatures, employment for less than 90 days, and other notified classes.

5. Frequently Asked Questions

What is the penalty for not depositing employees' provident fund contributions?

Where an employer deducts the employee's contribution from wages but does not pay it, section 133 provides imprisonment of not less than one year and fine of ₹1 lakh. This is the most serious offence under the Code, since the employer keeps money belonging to the employee.

Within what time must dues be assessed under the Social Security Code?

Under section 125, no proceedings to determine dues may begin after five years from the date on which the dispute arose or the amount became due. The inquiry should ordinarily be completed within two years, extendable by one year for recorded reasons.

6. Related Topics

• Topic 20: Provident Fund and Pension. Contributions and appeals.
• Topic 37: Decriminalisation and Compounding across the Codes. Comparing the enforcement models.