Section 45: Financial Management and Consolidation of Funds

Overview

Section 45 of the Code on Social Security, 2020, doesn’t deal with a specific social security benefit like Provident Fund or ESI directly. Instead, it focuses on the *how* these benefits are funded and managed. It establishes a framework for the financial administration of all social security schemes under the Code, including those related to Provident Fund (EPF), Employees' State Insurance (ESI), gratuity, maternity benefits, and welfare funds for various worker categories. It aims to ensure the efficient and transparent use of funds collected for worker welfare.

Who is Covered?

• This section applies to all social security organizations established under the Code, and those previously existing under separate laws now subsumed by the Code. This includes the Employees’ Provident Fund Organisation (EPFO), Employees’ State Insurance Corporation (ESIC), various Welfare Boards (e.g., for construction workers, beedi workers), and any dedicated funds created for specific worker groups.
• It doesn’t directly cover individual employees or establishments in terms of eligibility for benefits. Rather, it governs how the organizations administering those benefits manage their finances.

Benefits and Contributions

• The benefits provided are those defined under the specific schemes (EPF, ESI, gratuity, etc.). This section doesn’t create new benefits.
• Contribution responsibilities (employer, employee, and government) remain as defined under the respective schemes. Section 45 ensures these contributions are properly accounted for and managed. The section doesn’t alter the contribution rates themselves.

Procedure and Compliance

Section 45 mandates several key procedures:

1. Separate Accounts: Each social security organization must maintain separate accounts for each scheme it administers.
2. Proper Allocation: Funds collected must be allocated correctly to the intended schemes.
3. Digital Accounting: The use of digital accounting systems is encouraged to enhance transparency and efficiency.
4. Safeguarding Contributions: Strict measures must be taken to prevent misappropriation of workers’ contributions.
5. Unified Financial Governance: The section promotes a unified approach to financial governance across all social security organizations.
6. Regular Audits: Regular audits will be conducted to ensure compliance and identify any irregularities.

Practical Examples

• Example 1: The EPFO receives contributions from both employees and employers. Section 45 ensures these funds are deposited into separate accounts earmarked for EPF, EPS (Employees’ Pension Scheme), and EDLI (Employees’ Deposit Linked Insurance Scheme), and are not used for any other purpose.
• Example 2: A construction welfare board collects cess from builders. If the board uses these funds for purposes other than those specified under the Construction Workers Welfare Act, it would be a violation of Section 45 and could lead to penalties.

Disclaimer

This article is for basic understanding of social security law and should not be treated as legal advice. For specific legal guidance, please consult with a qualified professional.