A Karnataka social security plan that has a problem
A grey area in the State government’s draft notification of a cess-based social security for platform workers is the use of a ‘platform cess’ to generate the funds required
by Mohan Mani · The HinduMuch has been written about the Karnataka government’s draft notification of a cess-based social security for platform workers, and on the benefits it offers. However, a key aspect that did not receive attention was the platform cess to generate the funds required to implement the social security scheme. The draft legislation was ambiguous on the issue, both on the rate of cess and the manner of its application (based on worker’s earning per transaction or the turnover of platforms in the State). The legislation followed the language of the central government’s code on social security which prescribed a cess of 1%-2% on platform turnover, subject to a maximum 5% of the earnings of workers. The problem with the cess arises from this very definition.
The example of an annual report
The financial details from the annual report 2023-24 (FY24) of the food delivery platform Zomato (the only listed platform company) will help a reader understand this problem. The first issue is with defining turnover. While the Gross Order Value from food delivery during FY24 was ₹32,224 crore, the Adjusted Revenue was ₹7,792 crore, just under a fourth of the order value. We might assume that Zomato excludes the value of the orders while recognising its revenue. The issue here is that the platform undertakes business for outside restaurants as well as delivering merchandise from its own dark stores. How does its revenues from its own stores get reflected in the turnover? Does using turnover as a metric lead to ambiguities?
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The alternative then is to use worker earnings, which is a relatively less ambiguous metric. For FY24, the ‘delivery and related charges’ were ₹3,915 crore. The component of payment to delivery workers out of this amount is still not clear. The advantage for the worker is that this metric is known to the worker, and can be tracked by her/him for each transaction of food delivery or taxi service.
The question then is to determine at what rate the cess should be charged on the payment to the delivery worker. From the annual report, the ‘delivery and related charges’ per order was ₹52. The whole amount cannot be seen as payment to the worker, as there would be other supervision costs. As a conservative measure, one may assume ₹50 an order as the normative value. The cess at 5% works out to ₹2.50 an order. The difficulty does not stop here, as the cess also has to satisfy the condition of not exceeding 2% of the turnover.
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Degraded cover
Is ₹2.50 an order adequate to provide adequate social security cover to the average Zomato delivery partner? On average, the delivery partner completes 1,880 orders in a year. This means a contribution of ₹4,700 towards social security in a year. In comparison, a garment worker in Karnataka earns around ₹10,000 a month. The contribution from the employer towards Employees’ State Insurance and Provident Fund (ESI and EPF) benefits add to around 15% of the wage, or ₹18,000 per annum. The social security contribution from the platform cess per platform worker in the food delivery sector on average is just over one-fourth that of the garment worker. The result, consequently, would also be a very degraded social security cover. Even this might not be available if the 5% earnings metric exceeds the 2% platform turnover for the platform.
Finally, there is another issue. What if 1% of the platform turnover is greater than 5% of the workers’ earnings for a platform? This might be the case in situations where the turnover far exceeds payment to the worker, as is the case with high value merchandise. In the case of Zomato, as the company includes greater quantities of its own products in the pipeline, and as it tries to reduce delivery costs through measures such as electric vehicle use, this might become a reality. In such a situation, it becomes a mathematical impossibility to arrive at a cess percentage that simultaneously satisfies both the conditions: of not exceeding 1% of turnover and 5% of worker payments. The cess mechanism itself breaks down under this not impossible situation.
A way out
Governments in other cess-based plans often do not specify a unique cess rate; this might be their way of appearing to be generous, while leaving elbow room to bring down the cess rate. For example, the construction workers’ cess prescribes 1%-2%, but in reality, the cess has always been fixed at the lower limit of 1%. In the platform, an additional challenge has been included through a third cess limit — we may, with a nod to a popular science fiction novel, even call this the 3-cess problem. This would, additionally, result in different rates of cess at the platform level (different for food delivery from that for ride-hail and for urban services), or even at the enterprise level. That becomes an open field for platforms to use their influence with labour regulators to short-change their workers.
The way out is simple: have one simple, unambiguous cess, a 5% cess per transaction calculated on the payment to workers, with no other conditionalities.
Mohan Mani is Visiting Fellow at the Centre for Labour Studies, National Law School of India University (NLSIU)
Published - November 28, 2024 12:08 am IST