Gig-worker levy: Turnover-linked formula seen as more proportionate than transaction-based levy, say Analysts

India's proposed social-security contribution model for gig workers could have vastly different effects across platforms. Analysts say a payout-linked levy could disproportionately hit high-volume ride-hailing businesses, potentially exceeding their turnover, while a turnover-based formula would better reflect an aggregator's economic capacity.

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Gig-worker levy: Turnover-linked formula seen as more proportionate than transaction-based levy, say Analysts

Gig-worker levy: Turnover-linked formula seen as more proportionate than transaction-based levy, say Analysts

India's proposed social-security contribution model for gig workers could have vastly different effects across platforms. Analysts say a payout-linked levy could disproportionately hit high-volume ride-hailing businesses, potentially exceeding their turnover, while a turnover-based formula would better reflect an aggregator's economic capacity.

New Delhi: As India moves to operationalise social security contributions for gig and platform workers, a seemingly technical design choice could carry outsized consequences for different segments of the platform economy: whether aggregators should contribute based on annual turnover or on a percentage of individual worker payouts.

A contribution mechanism for gig-worker social security that is linked to individual transactions rather than an aggregator's turnover could create a sharply uneven financial burden across the platform economy, hitting businesses built on high transaction volumes but low-ticket sizes especially hard, analysts and industry sources said.

The Code on Social Security, 2020 requires aggregators to contribute to a Social Security Fund for gig and platform workers. Under the rules, a gig worker becomes eligible for benefits after 90 days of engagement with a single aggregator, or 120 days across multiple aggregators, in a financial year. Aggregators are required to assess and deposit their contributions annually.

The Ministry of Labour and Employment is pushing to standardise contributions on a per-transaction or payout-linked basis. That choice of methodology matters because it can produce materially different outcomes across platform businesses, depending on their transaction volumes, ticket sizes, business models and overall turnover.

Under Section 114(4) of the Code, aggregators must contribute 1 per cent -2 per cent of their annual turnover, but this contribution cannot exceed 5 per cent of the amount paid or payable to gig and platform workers -- a ceiling on the turnover-linked formula, not a separate scheme. The Ministry is separately weighing a payout-linked formula (up to 5 per cent of amounts paid to workers) as an alternative basis for the contribution.

The two models produce starkly different results. "That is the central weakness of a transaction-linked model: the contribution can become disconnected from the economic capacity of the entity that is required to pay it," an analyst said.

TWO FORMULAS, TWO VERY DIFFERENT OUTCOMES The two formulas produce sharply different liabilities for businesses with dissimilar transaction economics. A payout-linked system may look neutral because it applies the same percentage across platforms, but the underlying burden can vary sharply depending on transaction volumes, ticket sizes and the relationship between worker payouts and aggregator revenue.

For high-frequency, low-ticket businesses such as ride-hailing, the difference can be particularly stark.

Analysts illustrated the divergence with examples from the food delivery and ride-hailing sectors.

A food-delivery platform processing 30 lakh orders a day at an average payout of Rs 30 per order, with annual turnover of Rs 20,000 crore, would incur an estimated annual contribution of about Rs 164.25 crore under a 5 per cent payout-based formula. That is about 0.82 per cent of turnover.

A ride-hailing platform processing 60 lakh trips a day across bikes, autos and cabs, with average ticket sizes of Rs 75, Rs 125 and Rs 300 respectively, would face an estimated contribution of about Rs 1,428.1 crore under the same formula. Against an annual turnover of Rs 1,000 crore, that contribution would amount to about 142.8 per cent of turnover.

The disparity is not the result of different contribution rates. It is a structural consequence of applying a percentage to transaction payouts across businesses with different transaction volumes and business models, they said.

Platforms like Rapido introduced the SaaS model in the ride-hailing industry, ensuring that gig workers receive all the payments directly, immediately and in full with 0 per cent commission on their earnings. This practice has been followed by the other aggregators in the industry to ensure they provide higher income for their gig workers despite making lower revenue.