Nepal is one of the least developed countries in the world and faces enormous challenges in achieving the target of productive employment and decent work for all. Under such scenarios, the role of private firms becomes all the more crucial towards downturning this steeping unemployment rate.  There are nearly 900,000 private firms, factories, business and service providers operating in Nepal according to the preliminary 2018 report of the National Economic Census. Since 2001, private sectors have been contributing to about 80% of the country’s gross fixed capital formation, which is equivalent to about 17% of its gross domestic product (GDP). However, the performance of the private sectors is very poor and deficiency in labour productivity is apparent.  Besides improving investments climates, it is mandatory to modulate the appropriate policies to boost the performance of the private sectors.

There are numerous components that can give rise to the efficiency and productivity of the private sectors, out of which social security could be one of the factors. According to ILO, Security enhances productivity which can be positive for workers as well as employers.

What is social security ?

The concept of social security, as presented in the Universal Declaration of Human Rights, elucidates that everybody has the right to social security in order to ensure a life with justice, equality and dignity. Social security provides monetary assistance after retirement and also adds-up as the survivor’s benefits and disability income.

Germany was the first nation to adopt a modern social security scheme with the introduction of the old age social insurance program. Talking about Nepal, it does not have a long history of social security.The social security allowance was introduced in 1994 which provided a cash transfer scheme of Rs. 100 to all the eldery citizens aged 75 and above. The program further developed in 1996 by giving similar allowance to widows aged 60 or above as well as the disabled persons. Since fiscal year 2008/09, the Government of Nepal has been granting allowance to single women and vulnerable citizens.

Social security has been universally accepted as the responsibility of the Government to secure and protect employees and their dependents against possible threats when they are unable to acquire livelihood. Moreover, the implementation of social security schemes in developing countries is very challenging due to high poverty levels, structural adjustment policies and large informal sectors.

The contribution-based social security fund

In order to ensure social security of the private workers of Nepal, Prime minister KP Oli formally launched the much-awaited Contribution-based  Social Security Scheme on 1st of Shrawan, 2076 by implementing the power conferred to the Government of Nepal under section 69 of the Contribution-based Social Security Act (Social Security Act). He marked this scheme as the beginning of a new era.

This scheme was initiated with the tripartite consensus between the government, employers, and labour union for the welfare of workers from the day they join the organisation until their eventual retirement from that or any other organizations.

To be a part of the social security fund (SSF), organizations are required to get registered with the fund and also register their employees. The contribution of the employee to the fund is 11% of his/her basic salary whereas the contribution of the organisation is 20 %. So, a total of 31% assembles as the monthly contribution into the employees’ account. It is compulsory for all employees and employers to be enrolled under the social security fund unlike provident fund, which is voluntary.

The fund collected is supposed to be invested in the sectors like hydropowers, roadways, railways, airways, tourism,and agriculture according to the investment’s modality.

Attractions of the scheme

The government of Nepal commenced this plan considering the fact that there weren’t any provisions for pensions and insurances available to the workers servicing in the private sectors. Keeping this in mind, the security fund  enclosed the following facilities :

Health and medical treatment – The contributors receive medical expenditures support such as hospital admission charges,  doctors charges as well as medicines expenses. A person who has contributed for 3 months is eligible for these benefits for coming three months.

Maternity protection – This provides regular health expenditures for the worker’s spouse during pregnancy and treatment for infants till 3 months. A person needs to contribute to the fund for at least 3 months to be eligible for this scheme.

Dependent Family Protection – In case of a worker’s death,the fund also secures assurance for his/her family members. A monthly pension equal to 60% of his/her basic salary of the last job will be given to his/her spouse for life-time. Likewise, until the age of 18, the workers’ children will receive 40% of their parent’s monthly income in the form of educational aid. If the workers do not have spouses and children, their parents will be provided with 60% of the monthly salary as pensions.

Accidental Protection – This scheme also ensures to uphold all the charges of occupational diseases for workers, after they have contributed for 2 years continuously. The workers will receive a maximum aid of Rs 700,000 incase of accidents outside the worksites.

Old age protection – This scheme also provides pension after retirement. Nevertheless, only the employees who have reached 60 years of age and contributed to the fund for at least 15 years can hold on to the right of this pension.

The reasons for workers’ reluctance in joining the scheme

The scheme was inaugurated with gigantic enthusiasm. National newspapers, walls and public spaces were filled with  ads displaying the PM’s message – the beginning of a new era. However, this enthusiasm didn’t last long and gradually subsided.

The foremost reason for the repulsion from the law was the inability to refund lump sum  deposited in the fund. Logically, it should be the sole right of the contributor to decide when they want to withdraw any part of their hard earned deposit as pension or even withdraw it all at once. The money they deposit as the social security fund will be stuck till the worker turns 60 years of age and they will not be able to withdraw it in times of need. Moreover, there are no clear provisions to decide what happens if someone does not contribute for 15 years or if they contribute partially.

Under section 106 of the Labor Act, Government of Nepal and Ministry of Labor, Employment and Social Security prescribed minimum remuneration/wage of the worker/employees at Rs13,450. However, it is difficult for workers to sustain their livelihood with that amount of wages in urban centres. Yet, a large number of workers employed in the private sectors including private schools, hospitals, and banks don’t even get the minimum wages as fixed by the labour act. But one of the key reasons behind the efficient and inexpensive service provided by private firms is generally due to them being able to negotiate with workers and fixing a competitive pay scale.

Besides, even if the social security fund is set up with 11% from the basic salary of the workers and 20 % from the employers, in practice, this amount is more likely to be raised from the overall wages received by workers themselves and would likely decrease the chances of increase in their salaries. This means that the amount at disposal of the workers will be reduced by one-third..

One-third of the monthly income contribution lessens the amount of  monthly consumption and wears away worker’s purchasing power as well as their investment opportunities. So, the reduction in the consumption and purchasing capacity denotes deprivation they have to face in the present to procure a better future. Nevertheless, it is improbable to assume that the scheme that abandons the present will secure the future.

According to commercial banks, institutions and finance companies, some provisions of the social security act are biased and there is discrimination between the employees under the SSF and government employees. The government employees are sanctioned to both provident fund and pension facilities whereas private workers under SSF are entitled to only pensions. Likewise, the contributors are put through double taxation; one while contributing to SSF and another during pay out. Meanwhile, private workers are associated with Citizen’s Investment Trust and  Employees Provident Fund which provide better facilities than SSF.

Likewise, this scheme can be burdensome to the small firms. Large scale enterprises may not have issues to comply with this act because of the resources available to them and the revenues generated. But small firms’ employers may not have the capacity to grant 20% of employees’ monthly salary. It results in surging wages and employers may have to resort to reducing the salaries of the workers to minimum wages, or in many cases, even consider job cuts. Furthermore, such enforcements may disincentivize small firms to get formalized as it increases cost of doing business.

The best way forward

Social security is believed to protect people from various risks and possible threats and ensures people a basic floor of income during old age and enables many people who have struggled all their lives to have a decent standard of comfort and dignity when they retire. Nonetheless, we can encounter diversified views about extension of social security coverage, some say it could uplift the condition of impoverished workers, while some claim to multiply the burden on others. Undoubtedly, the Government of Nepal’s motive to secure private workers through contribution-based social security is praiseworthy. But there are definitely some loopholes in this scheme which needs addressal to diminish the lukewarm response towards this scheme.

At first, workers should be provided with the option to withdraw a total amount of sum during the time of need and also an option to pension should be offered. Total contribution is the self-earned assets of the contributor and the authority for such contribution must not be mandated through legislation. Likewise, there should be provision that includes partial contribution circumstances. At the same time, contribution should be fixed by considering the  dimensions and ability of the firms. Workers with nominal salary must be taken under consideration. There is utmost necessity to have a separate percentage of contribution for the marginal workers and well off workers.

The burden of paying social security should fall and the government should enact social security as a safety rope for people to help themselves out of poverty. The more realistic provisions should be set up by monitoring the situation of workers.  Similarly, the government should properly manage challenges that could come across when the funds are being used.

It is necessary to create a favorable environment for doing business and generating a comfortable life for all. Thus, the existing policies and laws need to be amended favourably in coordination with the stakeholders so that the citizens show inclination and join hands with the state and development partners for good governance and prosperity.