Section 2 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
The definitions of "employee" and "employer" in section 2 of the Code on Social Security, 2020 decide who is covered and who pays. They are wider than many employers expect: an employee can be engaged through a contractor, and an employer includes the contractor and, for a factory, the occupier. This article takes the people-related clauses: s.2(1), (19), (20), (26), (27), (31), (34), (41), (52), (71) and (73).
An employee is a person (other than an apprentice under the Apprentices Act, 1961) employed on wages by an establishment, directly or through a contractor, for any kind of work, and excluding members of the Armed Forces. For Chapter III (except the EPF Scheme) and Chapter IV, it means an employee drawing wages up to the notified wage ceiling, but employees above the ceiling are still counted for coverage. Fixed-term employees must get pay and benefits not less than a permanent employee doing similar work, and proportionate benefits even if the qualifying period is not met.
Employee: s.2(26)
The main clause covers anyone employed on wages by an establishment, directly or through a contractor, to do skilled, semi-skilled or unskilled, manual, operational, supervisory, managerial, administrative, technical, clerical or any other work, whether the terms are express or implied. It also includes a person the appropriate Government declares to be an employee. It excludes apprentices engaged under the Apprentices Act, 1961 and members of the Armed Forces of the Union.
Three provisos adapt the meaning by Chapter:
| Proviso | Effect |
|---|---|
| First | For Chapter III (except the Employees' Provident Fund Scheme) and Chapter IV, "employee" means an employee drawing wages less than or equal to the wage ceiling notified by the Central Government, plus other persons or classes the Central Government notifies |
| Second | For counting employees for coverage of an establishment under Chapter III and Chapter IV, employees whose wages exceed the notified wage ceiling are also taken into account |
| Third | For Chapter VII (employee's compensation), "employee" means only persons specified in the Second Schedule and others added to it by the Central or State Government |
The wage ceiling is whatever the Central Government notifies; s.2(89) defines it that way, and this article does not quote a figure. Read our note on the wage definitions and check the current notification.
Because the headcount tests in the First Schedule use "employees", the second proviso matters: a 12-person unit does not fall below ten for ESI purposes just because three people earn above the ceiling. For the coverage tests, see sections 1 and 164. If you want a coverage check for your units, our employment and labour law advisory team can run it.
Employer: s.2(27)
An employer is a person who employs, directly or through any person, or on his behalf or on behalf of any person, one or more employees in his establishment. For government departments it is the authority specified by the head of the department or, failing that, the head; for a local authority it is the chief executive. The definition then includes:
| Clause | Who is also the employer |
|---|---|
| (a) | For a factory, the occupier |
| (b) | For a mine, the owner, or the agent or manager with the requisite qualification appointed by the owner or agent |
| (c) | For any other establishment, the person or authority with ultimate control over its affairs and, where the affairs are entrusted to a manager or managing director, that manager or managing director |
| (d) | A contractor |
| (e) | The legal representative of a deceased employer |
Occupier and agent
Under s.2(52), the occupier of a factory is the person with ultimate control over its affairs. For a firm or association of individuals, any one partner or member is deemed the occupier; for a company, any one of the directors except an independent director (within s.149(6) of the Companies Act, 2013); for a government or local-authority factory, the person or persons appointed to manage it. A second proviso deals with a ship under repair in a dry dock available for hire: the dock owner is the occupier, except for matters the Central Government prescribes that relate directly to the ship's condition.
An agent (s.2(1)) is every person, appointed as such or not, who, acting or purporting to act for the owner, takes part in the management, control, supervision or direction of the establishment or part of it.
Contractor and contract labour: s.2(19) and (20)
| Term | Meaning |
|---|---|
| Contractor (2(20)) | In relation to an establishment, a person who (i) undertakes to produce a given result for the establishment, other than a mere supply of goods or articles of manufacture through contract labour; or (ii) supplies contract labour for any work of the establishment as mere human resource; includes a sub-contractor |
| Contract labour (2(19)) | A worker deemed employed in or in connection with the work of an establishment when hired by or through a contractor, with or without the principal employer's knowledge; includes an inter-State migrant worker |
Contract labour does not include an employee (other than a part-time employee) who is regularly employed by the contractor for any activity of his establishment, whose employment is governed by mutually accepted standards of conditions of employment (including engagement on a permanent basis), and who gets periodical increments, social security coverage and other welfare benefits in accordance with the law.
Practically, the employee definition reaches contractor-engaged workers, and the employer definition reaches the contractor. Who pays what between principal employer and contractor is handled in the operative sections; see our existing post on tracking contractors' EPF compliances for the old-law practice.
Inter-State migrant worker: s.2(41)
A person employed in an establishment who (i) has been recruited directly by the employer or indirectly through a contractor in one State for employment in an establishment in another State, or (ii) has come on his own from one State and obtained employment in an establishment of another State (the destination State) or later changed establishment within it, under an agreement or other arrangement for such employment, and draws wages not exceeding eighteen thousand rupees per month or such higher amount as the Central Government notifies.
Fixed-term employment: s.2(34)
"Fixed term employment" is the engagement of an employee on the basis of a written contract of employment for a fixed period. Two provisos protect the employee:
- (a) hours of work, wages, allowances and other benefits must not be less than those of a permanent employee doing the same or similar work; and
- (b) the employee is eligible for all benefits under any law in force available to a permanent employee, proportionately to the service rendered, even if the period of employment does not extend to the qualifying period.
Our post on gratuity for fixed-term contract employees discusses the old-law position; check the operative gratuity provision of the Code (Chapter V) for how this proviso interacts.
Example. A retailer engages a cashier for eleven months on a written contract. Under s.2(34), her wages and benefits cannot be lower than a permanent cashier's, and if a law gives a benefit after a minimum period, she is entitled proportionately to the service she has rendered.
Two smaller clauses
- Exempted employee (s.2(31)): for Chapter III, an employee to whom a scheme under s.15 would have applied but for the exemption granted under the Code; for Chapter IV, an employee whose wage is specified in a Central Government notification and who is not liable to pay the employee's contribution.
- Sales promotion employees (s.2(71)) means those defined in clause (d) of section 2 of the Sales Promotion Employees (Conditions of Service) Act, 1976. Seamen (s.2(73)) means any person forming part of a ship's crew but not the master.
Need help classifying your workforce?
Whether a worker is an employee, contract labour or a fixed-term hire drives coverage, contributions and benefits. Our employment and labour law advisory team can review your contracts and contractor arrangements against these definitions. Bring your contractor agreements and a list of roles.
Key takeaways
- "Employee" includes persons engaged through a contractor; apprentices under the Apprentices Act, 1961 and the Armed Forces are excluded.
- For Chapters III (except the EPF Scheme) and IV, employee means wages up to the notified ceiling, but higher-paid staff are counted for coverage.
- For Chapter VII, only Second Schedule persons (and additions) are employees.
- "Employer" includes the occupier, the contractor and the legal representative of a deceased employer.
- Fixed-term employees get no less than permanent staff doing similar work, and proportionate benefits.
- Inter-State migrant worker has a wage cap of eighteen thousand rupees per month or a higher notified amount.
Read next
- Section 2: definitions of establishments and places of work
- Section 2: definitions of wages, contribution and wage ceiling
- Section 3: registration of establishments
- Contract labour under the new Labour Codes
Disclaimer: Based on the Code on Social Security, 2020 (as enacted) and, where noted, the Code on Social Security (Central) Rules, 2026 (G.S.R. 344(E), 8 May 2026), as on 30 September 2026. The Code is in force from 21 November 2025; some provisions may be notified later, and State Governments make their own rules for establishments where the State is the appropriate Government. Verify the current position before acting.