Bill made to establish, operate and manage the Contributory Social Security Fund, 2068


Aug. 26, 2012, 5:45 p.m. Published in Magazine Issue: Vol.: 06 No.-06 Aug. 24-2012 (Bhadra 08,2069)<br>

For the first time in Nepal’s history laborers protested demanding for their rights in Biratnagar Jute Mills in 1947. The workers demanded that their working hours be limited to 6-8 hours a day, they get concession on food and clothes, and that their wages be raised, although labor organizations then were neither strong nor organized.

However since the 1990 People’s Movement there have been important policy level developments for the establishment of the rights of workers. After the 1990 constitution established the right of the workers to organize themselves trade unions started to develop in a more open atmosphere in Nepal. The Labor Act 1992, Prohibition of Child Labor 2000, Trade Union Act 1993, Labor Court Procedural Regulation, 1995, can be taken as important steps for the development of this sector. Besides these the establishment of the Labor Court, the tripartite National Recommendation Board, and the establishment of the Labor Committee  can all be taken as important developments for the implementation of these acts and laws.

Besides creating national laws, in order to ensure the rights of laborers and create good and equal labor relations Nepal has also signed and ratified various international treaties and agreements ratified by the International Labor  Organization.

The Interim Constitution of Nepal has provisions ensuring employment and social security rights (Article 18). This has ensured that every citizen shall have the right to employment as per the law, and that women, laborers, senior citizens, physically challenged and the weak and helpless citizens shall have the right to social security, and the right to food. Labor rights have been enshrined as a fundamental right through constitutional provisions ensuring that every laborer and employee shall have the right to respective labor exercise, and as provided by the law the right to form trade unions to protect their rights, to be organized, and the right to trade in collective.

The Labor Act also has provisions for temporary workers. Examples are the Welfare Fund, provisions for compensation to family members and victim for injury or death related to work, donations, provident fund, medical/health treatment, leave, residential arrangement, maternal leave for women workers, limited facilities for children including separate rooms, first aid, resting facilities for organizations with more than fifty workers etc. Likewise the Vehicle and Transport Management Act has also provisioned for accident insurance.

Especially to address professional hazards, the Nepal Government levies 1 percent tax on the wages of laborers to form a social security fund, albeit at present social security programs have been distributed in various forms. The system [distribution of social security funds] has also been seen to be inadequate in terms of access and effectiveness. 81 percent of Nepal’s laborers work in either agriculture or in the unofficial sectors and there have no proper policies formulated to address the problems and necessities of laborers working in these sectors. As a result a majority of the laborers working in this sector are beyond the protection of the state. At the current rate of Nepal’s population growth approximately 400,000 youth enter the labor market every year and the labor participation rate is at 83.4 percent.

In this context various trade unions have been pointing out the need for a united social security plan. Under this they are demanding provisions such as old age plans, residential service plans, medical care for profession related accidents, health care service plans, and maternal health care services. They have demanded that all three stakeholders; the Nepal Government, laborers¸ and the employers must all contribute in this.

The preparations made to attempt to bring laborers from both official and unofficial areas into the social security scheme based on their financial contribution, through the bill made for the establishment, administration and management of the Social Security Fund, is in itself a very important step. The unofficial sector is fast becoming an important contributor to generating employment opportunities and a job market. However Labor Acts till date have not been able to address labor management in this sector or bring it under the Labor Act. As a result the labor or a large percentage of those working in the unofficial labor areas is not being evaluated properly, nor are they getting any labor rights or social security. It must be taken positively that the bill also addresses this issue of bringing the unofficial labor sector into the contributable social security fund.

This approach towards resolving labor issues comes at an appropriate time when laborers in Nepal are fighting to ensure their employment while employers are demanding the right to hire and fire. This bill is sure to play an important role in addressing labor related issues.

Another important aspect of this bill is that in an economically struggling country like Nepal where the state is unable to put into practice the concept of a welfare state, the act by raising contributions from the same targeted class ie, the labor class, and establishing the social security fund for their own benefit, can be considered a very positive move. The Bill was brought about to implement the agreements reached in the tripartite discussions between labor representatives, employers, and the government on Asoj 13, 2067 and can be believed to have given more energy to the labor market.


• Looking at the preamble of this bill, it is seen that the Act has been brought about to provide a sense of social security to laborers working in either the official and unofficial markets. However the bill has not included other classes who also need social security such as women in special circumstances, old people, children, physically challenged etc which somewhat restricts the working area of the Act.

• The bill has yet not been able to properly define laborers working in the unofficial sectors or self-employed laborers. It is important to clarify this. It is not appropriate that the Act simply state this as “as appointed” and leave it in the jurisdiction of the executive.

• Article 10 of this bill provides for a management committee. It mentions that under the coordination of the Executive Director there shall be a social service management committee that includes the heads of all security agencies. But this clause is not clear. Article 7’s provision for a separate management committee after a management committee has already been given the work, responsibilities, and rights of the Fund is overlapping and could duplicate the same. Therefore the it might be more functional if management committee is given the authority to form various sub-committees as per necessity.

• Article 11 provides for the appointment of a executive director but it does not reflect anything new. It is important to look at how to stop the politicization of the appointment process of an executive director, and how to prevent the management of the Fund, made from the sweat of workers, from political intervention like other organizations.

• It is important to discuss if the over participation of trade unions in the management committee will resolve issues or heighten it. The Act should also clearly mention how to ensure gender balance as well as social inclusion in the management committee.

• Article 16 states where the Fund may invest. There is no doubt that the capital of the Fund must be invested in a profitable venture some sectors of which have been identified by the article.  Among others it also mentions construction and renting out of housing apartments which is a risky investment at present. Therefore if the Article states that investments should be made by remaining within the jurisdiction of the law based on reports of market analysis, instead of pointing out which sectors to invest it, it might open more secure and profitable investment opportunities.

• Article 27 of the Act provides for a listing of the Nepal Government employees. However the Act is silent about coordinating between the pension and other services received by Nepal Government employees. It is important to clarify this.

• Article 33 of the Act provides for contributions. Under this it is stated that without contributing social security will not be provided, that contributions need to be collected, employers will also have to contribute, the rate of the contribution, and the system of contribution collection. While appointing the contribution and rate the Article has taken the number of laborers, inflation, financial status of the fund as the basis. It is however silent on fundamental principles such as social justice and equal distribution.

• Article 37 of the Act provides for managing security plans. It is important to make provisions for identifying the needs of women workers and make the security plans accordingly.

• Article 52 of the Act provides for social justification while resolving cases. Some of those involved in drafting this Bill have said that this social justification has been made internal to enable internal hearing. If true this has not been highlighted clearly enough. In light of the fact that there are no clear provisions and that a Labor Court has already been formed under the Labor Act, more discussions might be necessary to the need of whether a separate social justification provision for the Act is necessary.

• Although the Act has clearly outlined that the issue of including the unofficial sector is very important and a positive provision, as it does not clarify what falls under the unofficial sector, it is important to be practical about how the Fund is to incorporate the unofficial sector, or whether it can include all or not. The official sector can be begun and based on its experiences the unofficial sector can be expanded. Even if all the unofficial sectors cannot be included those unofficial sectors where the very marginalized, women, Dalits, indigenous peoples are involved must be prioritized for the implementation of this Act. This will on side address the issue of social justice and on other bring the said class into the economic mainstream and address the core of social inclusion.

• Article 63 of this Act states that if requested by the Nepal Government to conduct its social protection related activities it can do so as per the executive mandate and resources provided by the Nepal Government.  This provision provides for the possibility of the mandate of this Act to also increase towards non-contributory fund management.  However analysis of all the provisions of this Act shows that all these issues cannot be included within the scope of this Act. The structure envisioned by this Act cannot also cope with this. A separate Social Security Act is necessary for this.

• Article 75 of the proposed bill has also mentioned the duties of the Nepal Government.  Under this if for any reason the contributors cannot be provided with the services as per the social security plan due to inadequate amounts in the Fund, it shall be the responsibility of the Nepal Government to give continuation to the security plan. This provision is too extended. The phrase “for whatever reason” may mean that if there is a loss incurred during investment or if the Fund is mismanaged, among others. Without discussing whether the State can or cannot take responsibility for this, or whether the State is financially fit to take it, the State must not be burdened with such a responsibility. This issue must be seriously discussed.

• The Act also does not mention anywhere how to coordinate with the provisions in the Labor Act. The Act is seen to have brought about contributory social security targeting the workers however due to some articles of the Act, especially Article 63 the fundamental principles of the entire Act is at a peril. It is therefore necessary to move forward with the firm belief that the main reason for this Act is to bring about the Contributory Social Security Fund.

• Instead taking this Bill forward in unilaterally, it might be more necessary to take it along with other related and proposed bills such as the Labor Act Amendment Bill.

This investigation and suggestion paper was prepared by Advocate Indu Tuladhar for the Nepal Constitution Foundation with inputs from women, indigenous, Dalit, and Madhesi communities along with youth and other related pressure groups. The Foundation is grateful to Lalbabu Pandit, Laxmi Pariyar, Shyam Biswakarma, Binit Kumar Jha, Usha Malla Pathak, Sita Gurung, Binda Pandey, Prakash Snehi, Mahesh Baral, Hari Nayaran Yadav, Ramesh Badaal, Kamala Biswakarma, Bharat Gautam, Netra Bikram Thapa, Tej Rawal, Dinesh Tripathi, Ganesh Dutta Bhatta, Phurpa Tamang, and Dr. Bipin Adhikari.

This research has been supported by The Asia Foundation. Views and opinion expressed in this report are of the authors and don't necessary reflects of the Asia Foundation. 

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