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Section 124: Employer not to reduce wages on account of contribution

The Code on Social Security, 2020 (Act No. 36 of 2020) • Official Statutory Text & Plain English Practice Guide

Statutory Mandate
Chapter XI: Authorities, Assessment, Compliance and Recovery
Competent Labour Forum
Act No. 36 of 2020
Section 123 All 163 Sections of Code on Social Security, 2020 Section 125

Legal Commentary & Landmark Judgments: Section 124

Section 124 of the Code on Social Security, 2020 enacts an unshakeable statutory prohibition barring employers from reducing the wages, allowances, or contractual benefits of an employee on the pretext of paying employer contributions or cess, rendering any such wage reduction an illegal deduction attracting severe criminal and financial penalties.

  • Absolute Statutory Bar on Wage and Benefit Reductions: Expressly prohibits any employer from reducing, whether directly or indirectly, the wages of any employee, or discontinuing or reducing the benefits payable to an employee under the terms of their contract of service or employment, by reason only of the employer's liability for any contribution or cess payable under this Code.
  • Non-Obstante Override of Private Contracts: The statutory protection operates with non-obstante force, rendering void any clause in an appointment letter, collective bargaining agreement, or HR policy that seeks to pass the employer's statutory social security burden onto the employee.
  • Prohibition Against Shifting Employer Contribution onto CTC: Eliminates the unlawful practice of treating the employer's statutory EPF (12%), ESIC (3.25%), or gratuity contribution as a deduction from the agreed basic minimum wage of the worker; the employer's share must be borne entirely out of corporate funds as an independent overhead.
  • Strict Criminal Sanctions and Penalty Liability: Breach of Section 124 constitutes an unlawful deduction under the Code on Wages, 2019 and a punishable offence under Section 133 of the Code on Social Security, 2020, exposing directors and HR executives to monetary fines and imprisonment upon conviction.
Key Landmark Precedents:
  • Royal Western India Turf Club Ltd. v. ESI Corporation (2016) 4 SCC 521: The Supreme Court held that the employer's contribution towards statutory social security is an independent, non-delegable corporate liability that cannot be shifted onto workmen either directly or by structuring artificial wage reductions.
  • Regional Provident Fund Commissioner v. West Coast Paper Mills Ltd. (2004) 2 SCC 747: The Supreme Court affirmed that statutory employee welfare contributions must be borne by the establishment in accordance with the legislative mandate, and employers cannot dilute take-home wages to absorb statutory burdens.
  • Air India Statutory Corp. v. United Labour Union (1997) 9 SCC 377: The Supreme Court held that social welfare legislation aims to improve the economic conditions of workmen, and employers cannot defeat this constitutional goal by reducing wages to balance statutory welfare liabilities.
Courtroom Practice & Strategic Litigation Guidance:

In structuring Cost-to-Company (CTC) packages, corporate HR and legal teams must ensure that the employer's statutory contributions (EPF employer share, ESIC employer share, gratuity reserve) are explicitly categorized as employer overheads and never subtracted from the worker's notified minimum wage or contractual gross pay. When transitioning to the 50% wage-ratio rule under the Code on Wages, 2019, any restructuring that reduces take-home salary to fund the increased employer contribution directly violates Section 124 and will expose the company to recovery citations and prosecution.

Section 123 All 163 Sections of Code on Social Security, 2020 Section 125