The why of statutory social security measures for employees

By Thomas | 05th September 2013 | 3 min read

When it comes to compensation, the standard question that employers and employees are concerned with is 'what is the in hand component?'. There is always the under current that contributions to PF, ESI and such social security instruments are not really something they are keen on.

Employees are concerned about it primarily because that represents money that is available immediately for expenditure. This is especially true of people who are fresh out of college or just into the early years of their work life. This period also coincides with a stage in life when life events and financial impact of these events are yet to be fully felt. Here, it is the 'in hand component' that makes sense. Risk coverage and saving up for a rainy day are not really top priorities as we all tend to be very optimistic about the future.

Employers are concerned about this for two reasons; one being that it is the most frequently asked question by eligible candidates and even current employees. Secondly, by going for only direct payments to employee, the employer can avoid the cost of Employers Contributions to these social security instruments.

It is fairly difficult to convince employers and employees of the value of these investments. As I joined Zyxware, we had just reached a stage where Employee Provident Fund and Employee State Insurance were becoming mandatory. So the onus was on me to take the registration of Zyxware under these two schemes to completion. We had a challenge in that it meant an immediate rise in our compensation expenditure to ensure that the in hand component was not affected too much. Again, when it came to hiring, there would be these questions of is it possible to not have the EPF and ESI but get the full amount in hand. The HR here has patiently handled these queries and have been defending these social security measures. In some ways, their role in negotiating with the management and employees for effective EPF and ESI has to be seen as a contribution to sustenance of social security measures like EPF and ESI. Especially, given that there are many ways in which organisations try to bye-pass these measures.

And then once in a while, when a person leaves the organisation and decides to withdraw his PF contribution, he finds out that over a period of time he has indeed accumulated a significant amount of savings. He comes and tells us, "It is a good thing that there are these measures. Otherwise, I would not have had this savings." Such statements are compensation enough for the stress of handling this part of the compensation negotiations.

Clearly, Indian policy makers and policy making processes have displayed maturity and prudence in backing these provisions.