CHAPTER 17

Employee Welfare and Social Security

CHAPTER OBJECTIVES

After reading this chapter, you should be able to:

1. Understand the features and objectives of employee welfare
2. List the types of welfare measures
3. Understand the various employee welfare theories
4. Enumerate the features of social security
5. Classify social security benefits
6. List the types of social security schemes in India
7. Explain the issues faced by social security schemes

Bajaj Electricals is a division of the Rs 200,000 million Bajaj group of companies and has a turnover of Rs 14,040 million and over 250,000 retail outlets. Its work culture is based on the five core principles of earning, innovation, perfection, speed and transparency. The company considers its human resources as reliable assets and an excellent source of competitive advantage and has won several awards for its HR-related activities. Some of these awards are the National Safety Council’s Certificate of Excellence and the Confederation of Indian Industry (CII)’s Best Safety Performance award.

The compensation policy of this company is to offer the best salary to its employees. Although a significant portion of its compensation package is in the form of individual and organizational performance-based pay, it also offers several welfare schemes and facilities to its employees. Some of the notable welfare facilities offered by Bajaj are: (i) the Long Service Awards: The company classifies all its long-serving employees into various categories and honours them appropriately on its founder’s day; (ii) the Welfare Trust: It offers reimbursements of medical expenses for the employees and their dependents, and helps them meet their loan requirements; (iii) the Social Responsibility of Business Fund: It offers scholarships both to the employees and to their children for pursuing higher education and provides medical assistance to the dependents of the employees; (iv) Emergency assistance: The company provides financial assistance to the family of the deceased employees to tide over the immediate financial crisis.

The role of employee welfare measures in the development of the company highlights their relevance for all the organizations. Given this context, we shall discuss the various aspects of employee welfare activities in this chapter.

Introduction

Employee welfare measures are one of the key inputs to bring about the desired level of employee satisfaction, motivation and productivity in the organization. The basic objective of welfare measures is to ensure the physical and mental well-being of the employee. An organization must view employee welfare measures as an investment rather than an expense. This is because the profitability of an organization is directly linked to the productivity of its workforce. In turn, the employees’ productivity is decided to a considerable extent by the motivational environment created by the employee welfare measures undertaken by the organization. The primary purpose of undertaking employee welfare measures is to earn and retain the goodwill and loyalty of the employees and their unions. Thus, employee welfare measure is not a one-time activity; it is an ongoing process of the organization. Organizations often use it as an effective means to control employee attrition and the related HR cost. Although the cost of welfare measures are usually met out of the profits of the organizations, employee-friendly organizations maintain these facilities even during periods of economic crises like recession just to show their genuine concern for the well-being of their employees.

Many of the definitions of employee welfare focus on creating a motivational working environment. We shall now see some of these definitions in Box 17.1.

We may define employee welfare as the facilities provided to the employees in excess of the statutory requirements and with the intention of enhancing their general well-being.

Features of Employee Welfare

From a broad perspective, employee welfare includes all the activities carried out by employers, central and state governments, trade unions and any other agencies with the aim of enhancing the personal and work life of the employees. From a narrow perspective, the activities undertaken on its own by an organization to improve the working environment of the employees may be described as a welfare measure. We shall now see the features of employee welfare on the basis of the definitions.

• Employee welfare is provided voluntarily by the organization to express its interest in the general well-being of the employees.
• It is usually provided over and above the statutory and contractual obligations of the organization towards workforce compensation.
• The objectives and strategies of the organization provide a broad outline for determining its employee welfare policies.
• Since employee welfare measures are not linked to the performance of the employees, they have a direct and proportionate impact on the profits of the organization.
• Employee welfare measures look to enhance the mental, physical, intellectual and moral well-being of the employees.
• They extend beyond the job and organization to take care of even the personal life of the employees.
• Employee welfare is an ongoing process and not a one-time activity of the organization.
• Employee welfare measures are normally started during the good times of the organization.
• Employees, employers, trade unions and the government are the stakeholders of employee welfare measures.

Objectives of Employee Welfare

The primary purpose of employee welfare measures is to improve the employer–employee relationship within an organization. However, an organization can also have multiple objectives while developing employee welfare measures.⁵ Typically, an organization aims at accomplishing both the long-term and short-term objectives through employee welfare measures. We shall now discuss these objectives of employee welfare.

• Employee welfare aims at creating a motivational environment, which facilitates better cooperation from the employee for the plans and proposals of the organization.
• It focuses on retaining the talented employees within the organization for a long time.
• Organizations look to obtain high employee involvement, commitment and satisfaction through welfare measures.
• The long-term aim of welfare measures is to achieve a desired level of productivity, performance and efficiency among the employees.
• Organizations attempt to create goodwill for themselves in the labour market through welfare measures, which would, in turn, help them attract the best talents with ease.
• Employee welfare strives to create a strong bond between the organization and the employees. This bonding, based on real loyalty, should enable the organization to meet the tough situations confidently with the help and support of its workforce.
• Employee welfare helps the organization avoid jealousy and fault-finding among the employees and facilitates the development of team spirit and cooperation among them.
• By dispelling the anxieties of the employees about their future through relevant welfare measures, an organization aims to get their complete attention and devotion towards their jobs.

Types of Welfare Measures

The welfare measures undertaken to improve the well-being of the employees can be classified broadly into two categories. These are statutory and non-statutory welfare facilities. When welfare facilities are undertaken as per the requirements of the laws, they are called statutory facilities. On the other hand, welfare facilities undertaken voluntarily by the employers, trade unions or by any other voluntary agencies are called non-statutory welfare facilities. We shall first discuss the statutory welfare facilities offered by the organizations and then the non-statutory ones.

Statutory Welfare Facilities

These are facilities offered by the organizations in compliance with the central and state government regulations. The central government has enacted several acts to protect the interests of the employees. We shall now see the relevant provisions of the various acts that deal with employee welfare measures.

Factories Act, 1948 The Factories Act of 1948 is a central act enforced by the state governments and is applicable to all the factories engaged in manufacturing activities, including those run by the state and central governments. It is the responsibility of the organization to comply with the provisions of this act. The Factories Act is applicable to the premises where (i) 10 or more workers are employed along with the use of electricity; (ii) 20 or more workers are employed without the use of electricity (Section 2(m)); and (iii) less than 10 workers are employed, but the activity is notified by the state government. The important sections governing employee welfare measures are:

• Section 7A: The employers shall ensure the welfare, including health and safety, of the employees.
• Section 11: The working place should be kept clean and tidy; there must be daily sweeping of the factory premises.
• Section 18: The employers must make suitable and effective arrangement to provide drinking (wholesome) water to the employees.
• Section 19: There must be an adequate number of toilet facilities of the prescribed types available and accessible to workers at all times inside the factory.
• Section 20: There should be adequate spittoon facilities available within the factory for the employees. These facilities should be kept clean and hygienic.
• Section 42: There must be sufficient and proper washing facilities available for the employees within the factories. These should be available separately for male and female employees.
• Section 43: The employers should make available facilities for storing and drying of clothes.
• Section 44: In case of jobs which require long hours of standing for the employees, the organization should provide sitting facilities for taking the necessary rest.
• Section 45: Every factory must have readily accessible first-aid boxes with not less than one for every 150 employees.
• Section 46: Canteen facilities must be available in every factory wherein more than 250 persons are employed.
• Section 47: A sufficient number of shelters, restrooms and lunch rooms with water facilities must be available in factories where more than 150 persons are employed.
• Section 48: Factories with more than 30 women employees must have rooms (crèches) for use by their children of age group of less than 6 years.
• Section 49: Factories with 500 or more employees must have an adequate number of welfare officers to supervise employee welfare activities.
• Section 79: Employees fulfilling the required conditions must be provided with leave facilities for an appropriate number of days.
• Section 81: Advance payment must be made available, if required, to employees, who avail leave for not less than four days.

Contract Labour (Regulation and Abolition) Act, 1970 The provisions of welfare facilities prescribed by the Contract Labour Act, 1970 that deal with employee welfare have been discussed as follows.

• Section 16: Contractors employing 100 or more contract employees must provide one or more canteen facilities in the premises.
• Section 17: In factories where work-related night-staying by contract employees is necessary, restroom facilities must be provided.
• Section 18: The contractor must provide a sufficient number of drinking water, toilet and washing facilities.
• Section 19: The contractor must make first-aid facilities quickly accessible available to the contract employees.

Non-Statutory Welfare Facilities

Non-statutory facilities may include the facilities offered by the employers voluntarily and also those created by the employees themselves through their unions and other agencies. As mentioned earlier, these are the facilities provided voluntarily by the employers with the sole intention of improving the general well-being of the employees and to improve their cooperation for the present and future activities of the organization. These facilities are provided by the employers if they are well within the capacity of the organization in terms of time, cost and physical requirements. Some of these facilities would be provided to the employees within the factory premises and the rest outside the premises. However, the objectives of providing such facilities remain the same, irrespective of how, where and when these facilities are provided. We shall now see the important welfare facilities provided by the organizations to their employees.

Transport Facilities Transport facilities are provided by an organization to carry its employees to and from their homes. For this, the organization may use its own transport vehicles. It may also hire the services of the public transport companies for transporting the employees. These facilities are made available to the employees either free of cost or at a subsidized rate. In fact, the problem of distance is easily overcome with the help of transport facilities. Transport facilities help the employees save time and energy and avoid inconvenience. As far as the organization is concerned, these facilities help it locate its factories in an ideal place without worrying about distance. Some organizations provide vehicle loan facilities and/or petrol allowance to their employees to facilitate them in commuting in their own vehicles.

Housing Facilities The purpose of offering housing facilities is to improve the standard of living of the employees. Of course, providing houses nearer the workplace enables the employers to get the services of their employees quickly and reliably. The employees can also be punctual in attending to duty. Organizations offer these facilities in two forms: (i) allotting houses to the employees on a rental basis and (ii) sanctioning housing loans to them to buy their own houses or flats. Although there are a few acts which deal with the provision of housing facilities, many organizations provide such facilities voluntarily to their employees.

Education Facilities Many organizations encourage their employees to pursue their studies in different forms. This may be in the form of skill development through training programmes or sponsoring formal education in external educational institutes. Organizations usually provide reading room facilities, libraries, news bulletins, and literary discussion facilities to their employees. Education facilities help the employees execute their career goals and plans with improved skills and knowledge. They enable the employees to participate in the organizational and societal activities. They also facilitate the employees understanding and learning health and safety aspects of the job quickly and effectively.

Education facilities are provided to the children of the employees also in different forms. Organizations may have their own educational institutes to impart quality education to the children of the employees at subsidized rates. Or else, they may provide different forms of educational assistance like scholarships to employees’ children to help them pursue their studies successfully.

Recreation Facilities Recreational facilities, including indoor and outdoor games, music, art, gymnasium and club membership, may also be provided to the employees to keep them physically and mentally strong. Many organizations view sports and games as an effective tool in stress reduction and management. However, an organization should be careful in choosing the games as some forms of games can cause grievous injuries to the employees.

Canteen Facilities Many organizations provide subsidized food to their employees through canteen facilities. These canteens may be located inside or outside the factory premises. The organizations may directly handle the canteen activities or they may allow a third party to run the canteens on a contract basis. They enable the employees to preserve their health by getting hygienically prepared quality food for a reasonable price. Although there is a statutory requirement for providing canteens inside the factories, the facilities offered by the employers in this regard usually exceed the legal requirements.

Insurance Facilities Several organizations provide insurance facilities to the employees to cover their medical expenses and to compensate for the loss arising out of the death of the insured employees. The expenses relating to the hospitalization and treatment of employees for accident, sickness and diseases are usually indemnified by the insurance company for the small premium paid by the employers at periodic intervals.

E-Commuting and Flexi-Time Facilities Modern organizations offer e-commuting facilities that allow the employees to attend to their office duties from their homes. This enables the employees to avoid taxing trips to and from their offices. Similarly, organizations also offer employees flexible timings to complete their job assignments conveniently. Box 17.2 outlines the relevance of employee welfare facilities in organizations.

On the basis of the nature and location of the welfare facilities offered by the employers, these facilities can further be classified into intra-mural facilities and extra-mural facilities. We shall now see these facilities in a little detail.

Intra-Mural Facilities Intra-mural facilities refer to the welfare facilities which are made available to the employees within the factory premises. The examples of intra-mural activities are (i) drinking water facilities, (ii) washing facilities, (iii) latrines and urinals, (iv) bathing facilities, (v) canteen facilities, (vi) first aid and medical facilities, (vii) restrooms, (viii) crèches, (ix) protective clothes and raincoat, (x) reading room facilities, (xi) e-commuting, and (xii) flexi hours.

Extra-Mural Facilities The facilities provided by the employers outside the factory premises are usually called extra-mural facilities. These facilities may include, among others, (i) insurance facilities, (ii) transport facilities, (iii) games and sports, (iv) education facilities for the employees’ children, (v) housing facilities, (vi) guest-room facilities, (vii) club membership, (viii) leave travel concessions (LTC), (ix) cooperative societies, and (x) maternity benefits.

Employee Welfare Responsibility

In India, the responsibility for employee welfare facilities rests not only with the employers but also with the central and state governments, trade unions and other voluntary agencies. We shall now see the role of different agencies in relation to employee welfare facilities.

Employers

Employers have the first and direct responsibility to provide welfare facilities to the employees. Their active involvement in the employee welfare facilities is crucial to the success of the welfare programmes. They usually provide these facilities to attract and retain the talented employees. In fact, the welfare of the employees is one of the comprehensive responsibilities of the employers. It should not be confined only to Welfare Associations, death donations and similar activities; rather, it must move from a working environment focus to the employees’ living conditions.⁶ The employee welfare facilities are usually divided into statutory, voluntary and mutual facilities. Employers provide certain welfare facilities in conformity with the provisions of the relevant laws in practice. In addition to the statutory requirements, the employers may also offer certain facilities voluntarily to improve the well-being and motivational levels of the employees. Organizations usually appoint labour welfare officers to supervise the welfare activities carried out in the organization.

Central Government

The central government is empowered to make rules to protect the health, safety and welfare of the employees working in factory premises. It enacts and amends laws from time to time to ensure that the employees are provided with the basic welfare facilities in their work spot. The laws that govern the welfare facilities are the Factories Act, 1948; the Contract Labour (Regulation and Abolition) Act, 1970; the Employees’ State Insurance Act, 1948; the Mines Act, 1952; the Motor Transport Workers Act, 1961; and the Plantation Labour Act, 1951. These laws provide for facilities like washing facilities, canteen facilities, crèche, restrooms, first-aid facilities, and leave with wage facilities. Besides, the central government may offer welfare facilities for its employees directly. For instance, the central government employee welfare housing organization offers housing schemes to the employees of the central government.

State Government

The state governments are normally the enforcing authority for the laws enacted by the central government from time to time. They can also create their own laws to regulate the conditions of employment and protect the welfare of the employees working in various employments. Some of the central acts enforced by the state governments are the Beedi and Cigar Workers (Conditions of Employment) Act, 1966 and Rules, 1968; the Cine-Workers and Cinema Theatre Workers (Regulation of Employment) Act, 1981 and Rules, 1984, the Contract Labour (Regulation and Abolition) Act 1970 and Rules, 1975; the Motor Transport Workers Act, 1961 and Rules, 1965; the Plantation Labour Act, 1951 and Rules, 1955; the Sales Promotion Employees (Conditions of Service) Act, 1976; and the Working Journalists and Other Newspaper Employees (Conditions of Service and Miscellaneous Provisions) Act, 1955. The state governments and union territories may also offer welfare facilities in the form of hospitals, educational centres, vocational guidance, and training centres exclusively for their employees.

Trade Unions

In recent times, trade unions have taken an active role in offering welfare facilities to the employees in order to improve their well-being. In a few organizations, the unions, as representatives of the employees, undertake employee welfare activities to improve the health and safety of their members. These facilities may be offered by the unions independently or in collaboration with the employers. For instance, some railway unions have their own engineering colleges to help the children of the members of those unions to study engineering at an affordable cost. Some unions also undertake social activities, form cooperative societies, and provide legal and psychological counselling and hospital facilities.

Theories of Employee Welfare

The history of employee welfare activities has witnessed the emergence of several theories during different periods of time. In each period of time, a specific approach was dominant and, based on that approach, a new theory was developed. Each theory reflects the belief held by the employers about their employees at that point of time. In the initial stage of the Industrial Revolution, the employers had a highly negative attitude about their workforce. This was reflected in their approach towards the employees and also in the welfare facilities offered to them. Over a period of time, the employers began to refine their attitude and behaviour regarding the employees and the role of welfare facilities. In fact, research in human and organizational behaviours like the Hawthorne studies facilitated a better understanding of the importance of people in the organization. They also helped the employers realize the need for welfare facilities in motivating and retaining the employees.

Defying the prevailing practices of the time, some of the employers adopted a novel and humane approach towards their employees and this got reflected in the welfare facilities they offered to their employees. An outstanding example of this was Robert Owen (1771–1858), an industrialist and philanthropist who offered education and other welfare facilities to his employees as early as 1812–17. Just about this period, Owen set up a model factory and also a model village for the employees of his textile factory New Lanark Mills. The workers at New Lanark were successfully persuaded to follow new living, working, sanitary and educational standards. Owen provided rewards for the employees who exhibited cleanliness and good behaviour in the factory premises. These measures were aimed at keeping the factory clean and hygienic. For the individual employees, Owen offered decent houses, sanitation, and shops for a decent living. Differing from the widespread practice of the time, he prohibited the employment of children below the age of ten in his factory. Finally, Owen used his influence among the workers to instil in them the values and virtues of thrift, personal hygiene, and order in life.

In India, eminent personalities like Jamsetji Tata and Ardeshir Godrej provided several welfare facilities to the employees at a time when the concept of welfare facilities was yet to take roots in the country. However, these were exceptional cases. The majority of the employers followed the prevailing practices of their time in determining welfare facilities. Based on the attitude of the employers towards employee welfare schemes, a few theories have been developed (see Figure 17.1). These are (i) the policing theory, (ii) the religious theory, (iii) the benevolence theory, (iv) the appeasement theory, (v) the goodwill theory and (vi) the efficiency theory.

Policing Theory

This theory is based on the employers’ negative approach towards their employees. As per this theory, in the absence of statutory requirements, the employers may not provide even basic facilities like drinking water, latrines and urinals, and even emergency facilities within the organization. Similarly, the employees would be forced to work for unreasonably long hours. This kind of situation prevailed during the Industrial Revolution era as the employees were made to remain in the factory for more than 12 hours. This theory warrants an active intervention and policing by the government in the affairs of the organization. In fact, the employers’ inhumane attitudes provoked the state to bring in several legislative measures to protect the interests of the employees in the organizations. As far as India is concerned, the government introduced several specific provisions in the relevant laws to make it mandatory for the employers to provide certain basic welfare facilities. For instance, Sections 11, 18, 19, 20, 42 and 43 of the Factories Act, 1948, and Sections 16–19 of the Contract Labour (Regulation and Abolition) Act, 1970 are the specific sections which made it compulsory for the employers to provide basic necessities to the employees.

Religious Theory

Religion provided another dimension to the concept of labour welfare. The religious theory viewed the relationship among God, service and labour from different perspectives and concluded that faith in God and religion influenced the behaviour of employers in deciding the employee welfare measures. This theory is based on the assumption that Service to the poor is service to God. As such, this theory proclaims that helping the employees in any form is a noble act, and the money spent on them would be an investment and not a mere expense. According to the employers who agreed with this theory, such an investment on employee welfare would multiply and return to them in some other forms. This theory influenced the employers to act on their own to provide such facilities as food at subsidized rates, festival allowances, gifts in cash or kind to the employees, crèche and education facilities to the children of the employees.

Benevolence Theory

An inclination to do something good for others can also influence the employers to undertake welfare facilities. Influenced by charity motives, employers provided welfare facilities like housing facilities, canteen facilities, hygienic work environment and educational facilities to the employees. A philanthropic attitude also influenced the employers to relax the recruitment policies to accommodate a larger number of physically challenged persons and to provide special welfare facilities like a ramp for them.

Appeasement Theory

Appeasement refers to settlement through compromises. It means making peace with the employees by fulfilling all their needs without any resistance. Obviously, welfare facilities would be provided to the employees on the basis of their requirements with the intentions of keeping them happy and the organization peaceful. Organizations with a strong presence of trade unions may try this theory to ensure smooth labour–management relationship. Provision of well-furnished rooms for the unions, quality food for the employees, liberal leave and credit facilities, and privileged travelling facilities like passes (free tickets) for transport for the employees are some of the facilities that are provided to appease the employees and their trade unions.

Goodwill Theory

As per this theory, the aim of the employers providing welfare facilities is to earn the goodwill of the employees. As such, the employers have no intention other than gaining the confidence and cooperation of the employees through welfare facilities. For instance, the employers may deliberately sell the eatables in the canteen for less than their cost price with the intention of creating a positive image among the employees.

Efficiency Theory

This theory remains valid for all times as employers, directly or indirectly, link the welfare facilities with productivity and performance. They expect to achieve improved efficiency through welfare facilities, and such expectations influence them to provide adequate welfare facilities to the employees. In a nutshell, the employers create a positive and enabling environment through welfare facilities in order to achieve optimum efficiency.

Merits of Welfare Measures

Employee welfare schemes are closely associated with the factory form of organizations. In fact, the pathetic conditions of the employees in the factories during the industrial revolution era influenced a few individual employers to undertake a few basic welfare measures on their own initiatives. These facilities gradually grew in number and today, organizations are providing full-fledged facilities to their workforce after realizing its importance as an efficient tool in human resource management. We shall now see the merits of employee welfare facilities.

High Employee Retention

Welfare facilities enable an organization to create a positive environment for its employees, which, in turn, creates high job satisfaction among them. In the absence of any serious dissatisfaction, the employees may not feel the need for quitting the organization and remain with it for long time. Thus, employee welfare facilities reduce labour turnover and improve employee retention.

Improve Productivity and Efficiency

Happy employees are productive employees is a dictum and employee welfare measures are a step in this direction. In fact, welfare facilities enable an organization to improve the involvement and commitment of its employees by fulfilling their needs and keeping them satisfied. Understandably, high involvement and commitment leads to increased productivity and efficiency.

Better Focus on Job

Employees are often distracted by their personal problems like the non-availability of proper accommodation, education facility for children and crèche for their younger ones. Similarly, they are weighed down by everyday problems like the non-availability of quality food at affordable prices and commutation facilities. Once these problems are taken care of by the employers, the employees would be able to focus completely on their profession and achieve performance standards.

Preserve Physical and Mental Health

Health care and insurance facilities enable the employees to attend to their health problems properly without bothering about the cost unduly. Periodic medical checkups undertaken by the organization facilitate early diagnosis of the employees’ health problems and attending to them promptly and properly. The presence of gyms, games and sports facilities helps the employees actively in several ways like in stress reduction and management and also in keeping the body and mind sound.

Improve the Standard of Living

By providing facilities like housing, education, cooperative stores and loans, organizations help the employees improve their standard of living and comforts of life over a period of time.

Cordiality in Labour–Management Relations

An important prerequisite for effective goal accomplishment is the presence of warmth in the employer–employee relationship. In fact, the smoothness in industrial relations is an index of the level of cooperation existing between the management and the workers. Employee welfare facilities certainly help the organization in developing mutual trust and harmony in the labour–management relations and in ensuring effective goal accomplishment.

Limitations of Welfare Measures

Though employee welfare facilities have several merits, they also have a few major defects. These have been explained below.

High Labour Cost

Since employee welfare facilities are made available to all the employees without any discrimination, they impose a major financial burden on the organization. Invariably, they push up the labour cost and the total cost of production.

Absence of Measurement Tool

As employee welfare facilities are not linked to the performance or productivity of the employees directly, it is difficult to measure their efficiency in achieving the intended goals. The management may hesitate to spend too much money on these facilities without knowing their actual effect on the performance.

Lack of Justification for Expenditure

Sometimes, neither the organizations nor the employees are able to justify the spending of a huge amount on welfare facilities since these may benefit only a few employees. For instance, a recreation centre constructed for the employees may eventually be used only by a handful of them. The situation may become even worse when the primary needs of the majority are something else.

Risk of Executing Statutory Welfare Facilities under Duress

Sometimes, an organization may be financially too weak to execute the welfare facilities as required by the provisions of law. Despite this, if it is compelled to provide such facilities just to fulfil the statutory requirements, its financial position may be further weakened, posing a threat to the very survival of the organization.

Social Security

Social security is one of the principal components of employee welfare schemes. It is indeed an economic protection provided to the employees and their dependents by the government through a series of programmes. This protection is usually available to the employees against a loss of earnings caused by old age, sickness, unemployment, disability and death. The driving force behind social security measures is to safeguard the employees against all forms of social risks that affect the employees’ ability to fulfil their basic requirements. The purpose of providing such security is to help the employees and their dependents lead a dignified life in any situation and achieve social justice and equality.

Social security to the employees was by and large ensured through legislations passed by the central and state authorities. In fact, the first social security act was passed in the United States in 1934 as part of social reforms to protect the life of workers and their families against all forms of misfortunes that cannot be eliminated from the world totally. In fact, the agonies of the workers the world over during the economic crisis of the Great Depression was an immediate reason for the development of a social security net for the employees.

Further, the quest for establishing socio-economic equality acted as a driving force for many countries to bring in appropriate legislative measures to offer social security to the employees. In India, social security is included in the Constitution under the Directive Principles of the State Policy. The need for social security to the employees has been recognized duly by the United Nations in its Universal Declaration of Human Rights, 1948,⁷ which has specific articles that deal with the relevance and importance of the social security of the employees and their dependents. These are:

• Article 22: Everyone, as a member of society, has the right to social security and is entitled to realization, through national effort and international co-operation and in accordance with the organization and resources of each state, of the economic, social and cultural rights indispensable for his dignity and the free development of his personality.
• Article 23: Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection.
• Article 25: Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control.

Providing financial assistance to the employees and their dependents during crisis situations is the primary motive behind social security. This aspect has been mentioned in many of the definitions of social security that are listed in Box 17.3.

Features of Social Security

We shall now see the features of social security based on these definitions.

• In general, social security is provided by the state authorities through the appropriate policy and legislative measures.
• It is usually administered by a public or semi-public autonomous body founded by legislation.
• Social security makes it compulsory for the organization to protect not only the employees but also their dependents through financial security.
• Broadly, social security looks to provide better healthcare facilities and income security to the employees during a crisis.
• Social security schemes normally cover and compensate events like (1) old age, (2) death, (3) invalidity, (4) employment injury, (5) sickness and health crisis, (6) unemployment, (7) reduction in earnings, and (8) maternity.
• Social security attempts to ensure justice and equality for all the members of the society and to help them lead a dignified life.
• It endeavours to ensure a minimum standard of living to all the employees, irrespective of their levels of earnings.
• It is normally provided in cash to the beneficiaries to compensate for the loss arising out of specific contingencies.

Classification of Social Security Benefits

The social security benefits offered by state authorities through employers and other appropriate agencies can be classified into two categories: (i) medical and compensation facilities and (ii) retirement benefits. We shall now discuss these facilities briefly.

Medical and Compensation Facilities Medical and compensation facilities in social security benefits include insurance facilities, healthcare facilities and compensation benefits. Insurance facilities are actually preventive measures undertaken to protect the employees from the likely financial loss arising out of a possible health crisis. Medical and health-care facilities aim at the prevention and management of diseases. The intent of compensation facilities is to compensate the financial loss arising out of the occurrence of unforeseen events like death, disability and other employment injury. The Workmen’s Compensation Act, 1923; the Employees’ State Insurance Act, 1948; and the Maternity Benefit Act, 1961 provide medical and compensation facilities to the employees and their dependents.

Retirement Benefits The purpose of providing retirement facilities is to protect the employees from economic miseries arising out of events like old age and unemployment. These benefits also preserve the standard of living and the dignity of life of the retired employees and the dependents of the deceased or retired employees. Retirement facilities in social security include Provident Fund and Gratuity Fund. The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 and the Payment of Gratuity Act, 1972 deal with retirement benefits.

Social Security Schemes in India

As far as India is concerned, ensuring social security for the employees has become an important responsibility of the central government. Thus, the government enacts appropriate legislations and develops a proper system to administer various schemes to protect the interests of the employees. The Government of India has vested the responsibility of social security with the Ministry of Labour and Employment. This ministry is in charge of development and administration of social security schemes. Over a period of time, the government has enacted several legislative measures to protect the interests of the employees. Of these, there are five legislations which impact the development and maintenance of social security schemes directly: the Employees’ State Insurance Act, 1948; the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952; including the Employees’ Deposit Linked Insurance Scheme, 1976; and the Employees’ Pension Scheme, 1995; the Workmen’s Compensation Act, 1923; the Maternity Benefit Act, 1961; and the Payment of Gratuity Act, 1972. We shall now discuss in detail the relevance and implications of these acts in ensuring social security.

Employees’ State Insurance Act (ESI), 1948 The purpose of this act is to offer certain benefits like medical care and cash benefits to employees in factories at times of sickness, maternity and employment injury.

Coverage—It is applicable to all factories employing 20 or more employees located anywhere in the whole of India. Normally, this act is implemented on an area-wise basis in a phased manner.

Administration—This act is administered by the Employees’ State Insurance Corporation (ESIC). This corporation has members representing central and state governments, the medical profession, Parliament, employers and employees. The union minister of labour and employment is its ex officio chairman. It has 248 inspection offices for conducting inspection in the factories.

Funding of the schemes—The schemes in ESI are financed through contributions from employers, employees and the state government. The rate of employer contribution is 4.75 per cent while the employees’ contribution is 1.75 per cent. The state government contributes 12.5 per cent as its share to meet the expenditure on the provisions of medical care. The contributions collected from these parties are usually kept as investment in the special deposit account with the central government and also with the nationalized banks and financial institutions as fixed deposits.

Operation of the scheme—The employees insured under the ESI Act are eligible to get the following benefits for themselves and their dependents:

Medical benefits—Under the medical scheme, the employee is entitled to get treatment ranging from primary healthcare centre to even specialty treatment. The medical benefit provided is usually classified into three categories: (i) restricted medical care in which the employee is treated as an outpatient of a dispensary or clinic; (ii) expanded medical care in which the employee is eligible to get treatment from a specialist; and (ii) complete medical care in which hospitalization is allowed for the employee.

Sickness benefits—Under the sickness benefit scheme, a sick employee gets half of his average daily wage as sickness benefit for a maximum period of 91 days. Thus, this scheme provides for periodic payments to any insured person in case of his sickness being certified by a duly appointed medical practitioner.

Maternity benefits—Under the maternity benefit scheme, the insured woman is eligible to get periodic payments in case of confinement, miscarriage or sickness arising out of pregnancy confinement, premature birth of child or miscarriage, for a period of 12 months, of which a maximum of six months should precede the expected date of confinement.

Disablement benefits—Under this scheme, the insured employee is eligible to get disablement benefits for the employment injury sustained by an employee which lasts for not less than three years. In case of permanent disability, the employee is eligible for life-long benefits. This scheme also includes periodic payment to the dependents of the employee who dies out of employment injuries.

Funeral benefits—Under this scheme, the eldest surviving member of the family of the deceased employee is eligible to get reimbursement for the expenditure incurred towards the funeral of the deceased employee. However, the amount must be obtained within three months.

Maternity Benefit Act, 1961 The purpose of this act is to regulate the employment of women in certain establishments for certain specified periods before and after childbirth. This act disallows the working of pregnant women during a specific period. It also provides for maternity and certain other benefits.

Coverage—This act is applicable to the whole of India and is applied to the factories, mines, plantations and other establishments.

Operation—Under this scheme, the woman employee is eligible to get maternity benefits at the rate of the average daily wage, for the period of her actual absence and any period preceding the date of delivery, which includes the actual date of delivery. Further, the woman is also entitled to get a medical benefit of Rs 250 per day if the employer is not providing free medical treatment. However, the woman is entitled to maternity benefit only if she has actually worked in the place of the employer for a period of not less then 80 days in the 12 months immediately preceding the date of her expected delivery.

Payment of Gratuity Act, 1972 This scheme provides for payment of gratuity to employees in establishments in which more than 10 persons are employed or were employed on any day of the preceding 12 months. However, the central government is empowered to extend this act to any other establishment.

Coverage—This act covers all the employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops and other establishments. It is enforced by both central and state governments.

Operation—Gratuity is usually payable to employees (other than apprentices) who put in five years of continuous service and are covered under this scheme in the event of death, retirement or disability. Usually, the gratuity is payable to the employees at the rate of 15 days’ wage for every completed year of service, subject to a maximum of Rs 350,000 or 20 months’ wages, whichever is less. In case of death of an employee, the gratuity is payable either to the nominee or, in the absence of nominees, to the legal heir.

Workmen’s Compensation Act, 1923 This act provides for payment of compensation to employees for injury by accident. Under this act, the employer is under an obligation to compensate the employees for the personal injury suffered during the course of employment.

Coverage—This act is applicable to the whole of India. It covers all employees working in railways, factories, mines, plantations, mechanically propelled vehicles, loading and unloading work on a ship, construction, maintenance and repairs of roads and bridges, electricity generation, cinemas, circus, and other hazardous occupations as per schedule-II of this act. Under Section 2(3) of this act, the state government is empowered to extend this act to any other occupation which it deems fit.

Operation—In the event of death of the employee resulting from employment injury, the employer is obliged to pay an amount equal to 50 per cent of the monthly wages of the expired employee multiplied by an appropriate factor; or an amount of 80 thousand rupees, whichever is more.

In the event of permanent disability suffered by the employees from employment injury, the employer is obliged to pay an amount equal to 60 per cent of the monthly wages of the injured workman multiplied by an appropriate factor, or an amount of 90 thousand rupees, whichever is more. This act also considers pre-specified occupational disease suffered by an employee as employment injury. However, the employers need not pay any compensation for any disability which does not continue for more than three days. Similarly, the employer is not liable for payment of any compensation in case the injury is suffered due to wilful negligence or disobedience by the employee or wilful removal of safety devices by him or if the employee was under the influence of alcohol.

Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 This act provides for establishment of provident funds, family pension funds and deposit-linked insurance funds for employees working in factories. The purpose of this act is to protect the standard of living of the employees and/or their dependents in the event of old age, disablement and death. Three schemes are covered under this act: Provident Fund Scheme, 1952, Employees’ Deposit Linked Insurance Scheme, 1976 and Employees’ Pension Scheme, 1995.

Coverage—The act covers the whole of India, excluding the state of Jammu and Kashmir. It is applicable to all factories in specific industries employing more than 20 employees. The membership of this fund is compulsory for all the employees drawing a salary which is not more than Rs 4,500 per month. However, this act does not apply to the employees of Central or State or local government. Similarly, it is not applicable to cooperative societies employing less than 50 persons. It is also not applicable to any establishment which is less than three years from the date of establishment.

Provident Fund Scheme, 1952 Under the Provident Fund Scheme, 1952, each employee should contribute a specified amount from his salary to the provident fund (PF) account and the employer will contribute an equivalent amount towards that fund. The entire contribution should be deposited with the PF account administered by the PF Commissioner. The PF amount carries a specific interest which is decided by the Central board of trustees comprising employers, employees and the government. The PF subscriber is eligible for advance from the account from time to time. However, permanent withdrawal from the fund is allowed only after completing 15 years of service. In case of resignation, retirement or death of employees, the entire balance along with interest would be returned to the account holders or to their legal heir.

Employees’ Deposit Linked Insurance Scheme, 1976 The Employees’ Deposit Linked Insurance Scheme came into force in 1976. It applies to employees of all factories and establishments in India, except for those of tea estates in Assam, where certain provisions of this act are not applicable.

Operation—All the employees who are the subscribers of the PF scheme would become the members of the Employees’ Deposit Linked Insurance Scheme. Employers should contribute 0.5 per cent of the basic pay of employees as their contribution to the scheme subject to a ceiling of Rs. 6,500 per month. The basic pay of an employee would include the basic salary, dearness allowance, retaining allowance, and the value of food concession, if any. Under this scheme, the deceased employee’s legal heir would be entitled to an amount which is equal to the average balance in the employee’s account during the preceding 12 months or during the period of his membership, whichever is less. However, when the average balance exceeds Rs 35,000, the amount payable shall be Rs 35,000 plus 25 per cent of the amount in excess of Rs 35,000, subject to a maximum of Rs 65,000.

Employees’ Pension Scheme, 1995 The purpose of this scheme is to provide long-term financial sustenance to the employees. This scheme came into existence as a replacement for the earlier scheme called the Family Pension Scheme of 1971. It is compulsory for all the members of the PF scheme. No separate contribution is required from the employees for this scheme and the contribution to the PF scheme is sufficient for this scheme. The contributions to PF scheme are partially diverted to the employee pension scheme. The central government contributes at the rate of 1.16 per cent of the total wages at the end of the year. Out of the employer’s share of Provident Fund contributions, 8.33% of the total wages, limited to Rs. 6500 per month, is segregated and credited to the Employees’ Pension Fund .

Operation—The employees who are the members of this scheme would in normal circumstances start getting their pension from 58 years onwards. They would also get pension for permanent invalidation. Besides, they are eligible to get early pension once they complete 10 years of pensionable service, but at a reduced rate. Basically, pensions are classified into superannuation pension, early pension and family pension for dependents. The beneficiaries are the spouse, children or, in the event of the employee remaining unmarried or without eligible family members, nominees.

Issues Faced by Social Security Schemes

Social security schemes contribute immensely to maintaining the standard of living of employees and their dependents as these schemes protect them from all possible crises in life including death and permanent invalidation. They enable the employees to focus on the job completely without any anxiety about their future. With the active involvement of the government, the role and responsibility of the employers also gets reduced to that of a contributor and not an administrator. However, in practice, this scheme faces a lot of challenges, most of which remain beyond the control of the administrators of the schemes. These challenges are:

Longer Life Span of Employees The major challenge affecting the viability of the social security schemes in India is the increasing life span of the employees, particularly the pensioners. Innovations in the field of medicine have gradually raised the average living age of the people. This has put a lot of strain on the resources of the social security schemes as they now have to provide financial sustenance for a longer period of time. As retirement and pension schemes are non-productivity expenses, the administrators of the social security schemes find it difficult to make available necessary resources to continue the schemes. Obviously, the government is forced to shift the burden on the present employees and also on the tax-paying public.

Rising Cost of Living The growing cost of living compels the administrators of the social security schemes to periodically revise the benefits payable to the subscribers of the scheme. Whenever there is an increase in the cost of living, there is a demand for increase in the rate of interest payable to the subscribers. In such a situation, the administrators have to augment the resources available to the scheme to meet the additional commitment, and this is normally a difficult task.

Population Explosion The increase in population necessitates the creation of more jobs in the society, which, in turn, requires the employment of more people in these jobs. All these developments lead to an expansion in the subscriber base of the social security schemes. This situation warrants increased financial support from the central government and other agencies for the maintenance of the schemes.

Union Attitude Although the rate of interest payable on the social security schemes is decided on the basis of the cost of living, it is very difficult to reduce the rate of interest on the PF and gratuity funds due to strong opposition from the trade unions. This is due to the strong presence of trade unions in the country and their influence on politics.

Summary

1. Employee welfare means the facilities provided to the employees in addition to the statutory requirements and with the intention of enhancing the general well-being of the employees.
2. Welfare measures can be classified into statutory and non-statutory welfare facilities. Welfare facilities provided as per the requirements of the laws are called statutory facilities. Welfare facilities other than the statutory welfare facilities are called non-statutory welfare facilities.
3. Non-statutory welfare facilities include transport, housing, education, recreation, canteen, insurance, e-commuting and flexi-time facilities.
4. The responsibility for employee welfare rests with employers, central and state governments, trade unions and other voluntary agencies.
5. Based on the attitude of the employers towards employee welfare schemes, theories on employee welfare are classified into (i) the policing theory, (ii) the religious theory, (iii) the philanthropic theory, (iv) the appeasement theory, (v) the goodwill theory and (vi) the efficiency theory.
6. The merits of employee welfare measures are: high employee retention, improvement in productivity and efficiency, better focus on the job, preserving physical and mental health, improving the standard of living, and cordiality in labour–management relations.
7. The limitations of employee welfare measures are high labour cost, the absence of measurement tool, lack of justification for expenditure, and the risk of executing statutory welfare facilities under duress.
8. Social security is defined as a series of connected programmes, each with its own set of rules and payment schedules.
9. Social security benefits are broadly classified into medical and compensation facilities, and retirement benefits.
10. The various social security acts in India include the Employees’ State Insurance Act, 1948; the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952; including the Employees’ Deposit Linked Insurance Scheme, 1976; and the Employees’ Pension Scheme, 1995; the Workmen’s Compensation Act, 1923; the Maternity Benefit Act,1961; and the Payment of Gratuity Act, 1972.

Review Questions

Essay-type questions

1. Evaluate the various types of employee welfare schemes with examples.
2. Describe the role of different agencies in employee welfare schemes.
3. Discuss the theories on employee welfare with suitable examples.
4. Examine the merits and limitations of employee welfare.
5. Evaluate the relevance of the Employees’ State Insurance Act (ESI), 1948 in the maintenance of social security critically.
6. Examine the contribution of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 to social security.
7. Evaluate the challenges facing the social security schemes and substantiate your evaluation with relevant examples critically.

Skill-development Exercise

Objective – The objective of this exercise is to show you how to develop employee welfare schemes to improve employee loyalty, commitment, and job satisfaction.

Procedure Note – The class is split up into groups. Each group has (1) an HR manager, (2) two HR team members, (3) two members of the trade union, and (4) two observers of the meetings. The role of the observer is to observe the various aspects of the role-playing sessions and report on them.

Situation

Ayur Foods Ltd is a major FMCG company in India with five manufacturing units in different regions of the country. It is engaged in the manufacturing and distribution of food and personal care products. It had an average turnover of Rs 85 billion for the past six years.

The company views its human resources as its most important asset and a sure competitive advantage. Its compensation package focuses on encouraging efficiency and emphasizes on linking pay with performance. It has been successful in achieving an optimum level of efficiency and productivity. However, this company faces problems of employee retention as labour turnover is slightly higher than the industry average.

Through employee survey and other sources, the management has identified the inadequacies in the employee welfare schemes as the primary reason for the existing problem. Hence, it has decided to revamp its existing welfare schemes thoroughly to make them more comprehensive and attractive. It has asked the HR department to develop new employee welfare schemes.

 

Steps in the exercise

 

There are three steps to the exercise:

Step 1: The HR manager meets the leaders of the union to ascertain their needs and solicit their suggestions for new welfare schemes.

Step 2: The HR manager convenes a meeting of his HR team to finalize the new employee welfare schemes after due consideration of the relevant reports and guidelines. The revised welfare scheme will be sent to the top management for approval.

Step 3: The observers analyse the performance of the members in the role-playing session and give their feed back.

Case Study

United Alliances Limited is a major cement producer in the country with its subsidiaries located in different regions of the country. The current products of this company are 43 and 53 grade cements, bulk cement and ready-mix concrete. It has an annual turnover of Rs 65 billion and enjoys a significant market share in the industry. This company has a diverse workforce numbering about 7,500 employees and is known for its discipline.

The HR department of United Alliances Limited is managed by Mr Suresh Kumar, who is well-known for his acumen and foresightedness. The company believes strongly in identifying, recognizing and encouraging efficiency. Its compensation policy is predominantly a performance-based one. Consequently, it accords minimum importance to fixed compensations, be it a direct compensation like basic salary or an indirect one like in employee welfare schemes.

Recently, the management of United Alliances Limited has drawn up an ambitious diversification plan to enter into the fields of chemical, metal and machine tool production. Since the chemical industry is poised for a sharp growth within a decade, United Alliances decided to concentrate first on the chemical industry in its diversification bid. As a start, it has taken over Vijay Chemicals, one of the leading chemical units in the country. Vijay Chemicals is engaged in the production of various chemicals like coal tar, creosote, pitch, anthracene, naphthalene and coat enamel. It has a workforce of 3,200 employees and state-of-the-art tar distillation plants in three places. The compensation plan of this company is unique and different from that of United Alliances. While United Alliance focuses more on performance-linked pay, the compensation package of Vijay Chemicals has fixed compensation with items such as basic salary and welfare schemes as its major component. In fact, the latter has been very liberal in employee welfare schemes. This is because the founders of this company strongly believed that its employees must not have any worry on the back of their mind while performing the job. According to them, provision of adequate welfare facilities is an essential prerequisite for achieving the required level of employee efficiency, quality and loyalty. The important welfare facilities of this company are transport, education, recreation and insurance facilities.

However, the management of United Alliance Ltd views the employee welfare facilities of Vijay Chemicals differently and deems it to be a big financial burden. It also views it as a stumbling block to the process of achieving cost efficiency in production. It wants to streamline the compensation package of Vijay Chemicals in order to make it identical to its own compensation package. However, its HR manager, Mr Suresh Kumar differs with the contention of his management and has suggested to the management to continue with the compensation policy of Vijay Chemicals. He has long believed that welfare facilities alone can create long-term commitment and involvement among the employees. In fact, he has gone a step further and recommended Vijay Chemicals’ compensation model for his company. However, the management of United Alliance remains unconvinced by its HR manager’s suggestions.

 

Questions for discussion

1. What is your opinion of the compensation and welfare packages of both United Alliance and Vijay Chemicals?
2. How do you look at Mr Suresh Kumar’s suggestion and the response of his management?
3. If you were to be the HR manager of United Alliance Ltd, what would be your suggestions?

Notes

1. Arthur James Todd, Industry and Society: A Sociological Appraisal of Modern Industrialism (New York: Holt, Rinehart and Winston, 1933), p. 250.
2. N. M. Joshi, Trade Union Movement in India, Bombay, 1927, p. 26 referred by Vinayak Chaturvedi (ed.), Mapping Subaltern Studies and the Postcolonial (London: Verso, 2000), pp. 50–51.
3. “Report on the Provision of Facilities for the Promotion of Workers’ Welfare,” ILO, (Asian Regional Conference, 1950), p. 3.
4. “Report of the Labour Investigation Committee,” Main Report, 1946, pp. 336–345.
5. Deakin University, Faculty of Commerce, Open Campus Program, Institute of Distance Education, Industrial Relations, (Delhi: Tata McGraw-Hill, 1992), p. 244.
6. “Labour Issues in the Textile and Clothing Industry: A Sri Lankan Perspective—Part 5,” Workshop Background Paper, International Labour Organization (ILO); available at http://www.ilo.org/public/english/dialogue/sector/papers/tclabor/tclabor5.htm.
7. United Nations Universal Declaration of Human Rights, 10 December 1948; available at http://www.un.org/Overview/rights.html.
8. Joseph Matthews, Dorothy Matthews Berman and J. L. Matthews, Social Security, Medicare & Government Pensions: Get the Most Out of Your Retirement and Medical Benefits (Berkeley, CA: Nolo, 2008), pp. 16–17.
9. International Labour Organization: “Approaches to Social Security: An Introductory Survey,” 1942, p. 80.