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Employee State InsuranceAct, 1948

Practical compliancereference

Handbook

In this handbook we willaddress the following:

What the Employee StateInsurance Act, 1948 state.

Meaning of wages for thepurpose of ESI calculation.

Checklist and dos and don’ts foran establishment.

Evaluer on

Employment Law


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1. EMPLOYEE STATE INSURANCE ACT (THE “ESI ACT”)

The ESI Act is a social security legislation enacted to provide health insurance cover

for workers. The ESI Act is applicable to workers / employees earning Rs 15,000 (fifteen

thousand) or less per month. Like most of the social security schemes the world over, this

too is a self financing health insurance scheme, contributions to which are raised from

employees and their employers as a fixed percentage of wages. As of now, employees

contribute 1.75 % (percentage one decimal seven five) of their wages / salary, whereas and

the employer contributes 4.75% (four decimal seven five) of the wages / salary, payable to

an employees.

The fund (the “ESI Fund”) in which contributions are deposited is managed by the Employee

State Insurance Corporation (the “ESIC” or “ESI Corporation” or “Corporation”) according to

rules and regulations stipulated under the ESI Act. ESI Corporation is an autonomous

corporation under Ministry of Labour and Employment, Government of India.

Additionally, the Employee State Insurance Regulation (the “ESI Regulations”, “Scheme” or

the “ESI Scheme”) has been enacted under the ESI Act in order to clearly outline modalities

of registration of factories / establishments, collection of contributions, filing of returns /

forms and claims with respect to sickness, maternity or death and disablement benefits due

to employment injury.

1.1 APPLICABILITY OF THE ESI ACT

The ESI Act is applicable to factories which employ 10 (ten) or more persons on any day of

the preceding 12 (twelve) months and for an establishment the Supreme Court in ESI

Corporation Vs M.M Suri and Associates (P) Limited1 has clarified that there must be at least

20 (twenty) eligible employees. The Supreme Court has made it clear that unless there are

20 (twenty) or more eligible employees drawing less than Rs 15,000 (fifteen thousand) per

month remuneration, the ESI Act will not apply to an establishment. The ESI Act however,

does not apply to employees drawing salary / wages exceeding Rs 15,000 (fifteen thousand).

The ESI Act shall also not apply to a factory or establishment if employees of that factory or

establishment are receiving benefits similar or superior to benefits outlined in the ESI Act.

1 1998 LLR 1105 (SC): 1999 AIR SCW 429: (1998) 8 SCC 111


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1.2 DEFINITION WAGES FOR ESI CALCULATION

The ESI Act defines wages as, “All remuneration paid or payable in cash to an employee, if

the terms of the contract of employment, express or implied, were fulfilled and includes any

payment to an employee in respect of any period of authorized leave, lock-out, strike which

is not illegal or layoff and other additional remuneration, if any, paid at intervals not

exceeding two months, but does not include:

i. any contribution paid by the employer to any pension fund or provident fund, or under the

ESI Act;

ii. any travelling allowance or the value of any travelling concession;

iii. any sum paid to the person employed to defray special expenses entailed on him by the

nature of his employment; or

iv. any gratuity payable on discharge.

1.2.1 INCLUDED ITEMS FOR ESI CALCULATION

i. Basic wages / salary and dearness allowance.

ii. Pay for weekly off and public holidays.

iii. Commission paid to sales staff.

iv. Any payment to an employee in respect of any period of authorized leave, lock-out, strike

which is not illegal or lay-off.

v. Suspension allowance / subsistence allowance: during the suspension period the employee

is not allowed to actually work and he is not given full remuneration but the permissible

subsistence allowance is paid to the employee by way of remuneration for remaining

attached to the services of the establishment as per the relevant service regulations

governing his contract of service. Therefore, the subsistence allowance is part of wage as

defined under section 2 (22) of the ESI Act and consequently on the amount of subsistence

allowance paid to the suspended employee, contribution is payable.2

vi. Conveyance allowance: fixed conveyance allowance flowing out of a wage settlement or as

per terms and conditions of employment is to be treated as wages under section 2 (22) of

the ESI Act for all purposes except:

2 Employee State Insurance Corporation vs. Popular Automobiles, 1997 LLR 1146 (SC).


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a. amount towards conveyance paid or reimbursed to any employee for incurring

expenses for specific duty related journey;

b. reimbursement of actual cost of conveyance for coming to work and going from work

on production of ticket or season ticket and subject to proof of actual expenditure;

c. payment of certain amount for maintenance of vehicle depending upon cadre of the

official and category of vehicle and subject to production of records for actually

maintaining the vehicles; and

d. fixed allowance paid at an interval exceeding 2 (two) months, unless such payment is

made as per contract or agreement.

vii. Overtime allowance: ESI contribution will be attracted on overtime payment.3 Example -

when a worker who is covered under the ESI Act draws wages up to Rs 14,500 (fourteen

thousand five hundred) per month, however with overtime working he gets Rs 18,000

(eighteen thousand) per month. In such a situation ESI contribution will be payable on Rs

18,000 (eighteen thousand) and not on Rs 14,500 (Fourteen thousand five hundred) per

month.

Note: Overtime allowances will be considered as wage for the purpose of charging the

contribution only and will not be considered for the purpose of the coverage of the

employee under the ESI Act.

viii. Shift allowance: ESI contribution will also be attracted on shift allowance, paid to employees

who work on shift duty in odd shifts.

ix. Wages paid during lay off: during the period of layoff though the employee is not given

actual work and is also not given full remuneration but certain wages are paid to the

employee by way of remuneration for remaining attached to the factory/establishment.

Such payments paid for the period of layoff are also wages for the purpose of section 2 (22)

of the ESI Act and hence contribution is payable on such payments.4

x. Night shift, heat / gas and dust allowance: this amount is paid by way of incentive under the

scheme of settlement entered into between the management and its workmen and hence

wages.5

3 Indian Drugs and Pharmaceuticals Limited vs. Employee State Insurance Corporation, 1997 LLR 1 (SC).4 Instructions were issued in 1968.5 Harihar Polyfibres vs. Employee State Insurance Corporation, Bangalore, 1984 (49) FLR 371 (SC).


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xi. Medical Allowance: the employees working in factories/establishments are being provided

medical services in kind by the employer but in certain factories/establishments instead of

providing medical services in kind, the amount spent by the employees on medical care is

reimbursed while in some other organizations, employees are being paid monthly cash

allowance in lieu of medical aid. Where such payments are made by the employer in lieu of

the medical benefit, the same are to be treated as wages under section 2 (22) of the ESI Act

and the contribution is chargeable.6

xii. House rent allowance: the Supreme Court has held that house rent allowance is a wage7 as

well as location allowance paid to employees to meet high house rent. However, in cases

where the staff quarters have been allotted, the amount of salary and wages paid will count

for coverage and contribution and no notional house rent allowance is to be presumed in

such cases.

xiii. Gazetted allowance: Certain factories/establishments may pay gazetted allowance to its

employees in lieu of duties performed by them on gazetted holidays. Such gazetted

allowance will be wage for the purpose of section 2 (22) of the ESI Act and contribution is to

be recovered on such payments.

xiv. Interim relief: Interim relief paid to the employees is normally paid when either the wage is

under revision or when the payment of dearness allowance is delayed due to any reason.

Whatsoever may be the case, if the interim relief is paid to the employees by the Company,

the same will amount the wages within the meaning of section 2 (22) of the ESI Act and

contribution is payable thereon.

xv. Short period contract for service of electricians, carpenters, mechanics, plumbers, etc: In

such cases contribution is only payable on the amount paid by the establishment if the

services are rendered within the premises.

xvi. Collection batta paid to running staff and actual payments made towards lay off

compensation or wages for strike period.

xvii. Other allowances treated as wages for ESI calcuation:

a. compensatory allowance;

b. cash handling allowance paid to cashier;

6 Earlier instructions were issued vide letter No. Ins 5 (5) / 68 – Ins. III dated August 21, 1971 & Ins. III 2 (2)2 / 68 dated June24, 1971.7 Braithawait & Co vs. Employee State Insurance Corporation, AIR 1968 SC 413: (1968) 1 SCWR 379: 1968 (2) SCJ 858.


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c. supervisory allowance;

d. additional pay paid to training staff;

e. charge allowance;

f. steno / typist allowance;

g. plant allowance;

h. computer allowance;

i. painter / photocopier allowance;

j. machine allowance;

k. payment for day rest;

l. shift allowance paid to employees who work on shift duty at odd shifts;

m. location allowance paid, in addition to dearness allowance to meet the high house

rent;

n. canvassing allowance;

o. first-aid allowance;

p. personnel allowance: pay over and above the basic wage and dearness allowance for

skill, efficiency or past good records;

q. area allowance: given to employees living in a particular area to meet the high cost of

living in that area.

xviii. Any other remuneration paid or payable in cash to an employee if the terms of contract of

employment, express or implied were fulfilled.

1.2.2 EXCLUDED ITEMS FOR ESI CALCULATION

i. Contribution paid by the employer to any pension / provident fund or benefits paid under

ESI Act.

ii. Sum paid to defray special expenses entailed by the nature of his employment. Daily

allowance paid for the period spent on tour.

iii. Gratuity payable on discharge and benefits paid under ESI Regulations.

iv. Payment made to labour consultants, lawyers, engineers, counsels, chartered accountants

will not be deemed as wages in the hands of such persons.

v. Annual bonus: bonus paid to the employees could not be treated as wage for the purpose of

charging of contribution under section 2 (22), provided the periodicity of the payment is


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more than two months. The said issue was also considered in the meeting of the ESI

Corporation held on December 19, 1968 and the ESI Corporation agreed to the

recommendations of the Standing Committee that bonus may not be treated as wage.

Hence no contribution is payable on annual bonus.8

vi. Incentive bonus: as per the decision of the Supreme Court in the case of Whirlpool India

Limited Vs ESI Corporation9, the Supreme Court has held that additional remuneration to

become wages has to be paid at intervals not exceeding two months as distinguished from

being payable. Thus, there has to be actual payment and the payment of production

incentive does not fall either under the first part or last part of the definition of the term

wages as defined in section 2 (22) of the ESI Act, hence no contribution is payable on the

incentive bonus, provided the periodicity of payment is more than two months.

vii. Production bonus: production bonus like incentive bonus is paid to the workers as additional

remuneration and hence like incentive bonus such additional remuneration in order to

become wages has to be paid at intervals not exceeding two months as distinguished from

being payable. Thus, there has to be actual payment and hence no contribution is payable,

provided periodicity of the payment is more than two months.10

viii. Saving scheme: certain factories / establishments contribute towards the saving scheme for

the welfare of workers. Such amount paid by an employer as his contribution to the saving

scheme, will not constitute wages.11

ix. Notice pay: notice pay is not wage / salary. The employee has not earned the amount during

his employment period. The employee was not employed for salary / wages in or in

connection with the work of factory / establishment during the notice period and hence no

contribution is payable on the amount paid to the employee for the notice period. It is the

amount payable on discharge and hence under the provisions of section 2 (22) of the ESI Act,

the said amount is not included in wages.

x. Annual commission: the annual commission is excluded from the definition of wages and

hence no contribution is payable.12

8 Instructions were issued vide memo No. Ins.III / 2(2)-2/67 dated February 8, 19679 Whirlpool India Limited vs. Employee State Insurance Corporation, 2000 LLR 431 (SC)10 Instructions were issued vide letter dated 4 (2) / 13 / 74 – Ins. IV dated 2-9-198511 Earlier instructions were issued vide Memo No. P-12/11/4/77-Ins.IV, dated January 15, 198012 Instructions were issued vide Hqrs. Letter No.Ins.III (2)-2/71 dated 10-8-1971


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xi. Travelling allowance: any travelling allowance or the value of any travelling concession is not

included in wages.

xii. Washing allowance: it is a sum paid to defray special expenses entailed by the nature of

employment and as such this amount does not amount to wages.13

xiii. Saving scheme: Certain factories/establishments are contributing towards the saving scheme

for the welfare of the workers. Such amount paid by an employer as his contribution to the

saving scheme, will not constitute wages under section 2 (22) of the ESI Act and the

contribution is not payable.14

xiv. Ex-gratia payment during strike for travelling expenses: like conveyance allowance if any ex-

gratia payment is made during the period of strike to some of the employees to incur certain

travelling expenses such amount will not be considered as wage under section 2 (22) of the

ESI Act and no contribution is payable on such amount.15

xv. Expenditure on servicing of machines: no contribution is payable on the servicing of

machines where the job awarded is to an engineer and instead of contract of service, there

is a contract for service for servicing of machines.

xvi. Service contract: amount paid to an organization for maintenance of machinery and

equipments as part of service contract will not attract ESI contribution.

xvii. Expenditure on annual / periodical service contract: in the factories/establishments certain

amount is being paid by the employer to the supplier of machines or to the firms of repute

for the annual/periodical servicing of the machines and for such purposes the contract is

awarded. In such cases no contribution is payable on the amount paid for annual/periodical

service contracts.

xviii. Commission to dealers or agents: where dealers or agents are appointed but no regular

wages are paid and it is not obligatory on the part of such dealers or agents to attend to the

establishments and they are paid commission only on the quantum of sales, in such cases

the amount paid by the establishment as commission does not constitute wage under

section 2 (22) of the ESI Act and hence no contribution is payable.

xix. Other allowances not included as part of ESI calculation:

a. payment made on account of un-availed leave at the time of discharge;

13 Instructions were issued vide memo No. Ins.III/2/1/65 dated February 8, 196714 Instructions were issued vide memo no.P-12 / 11 / 4 / 77 – Ins IV dated November 15, 198015 ESIC vs. Willman India Private Limited in case No.210 of 1976 (High Court of Bombay)


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b. fuel allowance;

c. entertainment allowance;

d. shoes allowance;

e. payment made on account of gratuity on discharge / retirement;

f. payment made on encashment of leave;

g. encashment of leave;

h. pay in lieu of notice of retrenchment compensation;

i. fuel allowance;

j. entertainment allowance;

k. shoes allowance;

l. payment made on encashment of leave.

xx. Any sum paid to the person employed to defray special expenses entitled on him by the

nature of his employment.

1.2.2 MIXED TREATMENT OF WAGES

i. Inam / ex-gratia payment:16 Inam represents a payment made by an employer to an

employee as reward for the services rendered for which the employer was not under an

obligation to render the same under the contract of service. This however does not include

payments that have been made to an employee in fulfillment of contract of employment.

This may include ex-gratia payment.

b. Where Inam is being paid for special skill or higher responsibilities/additional duties, it

may be taken as wages and contribution is payable;

c. Where the employer has introduced the scheme of Inam but according to terms and

conditions the employer has no right to withdraw it or revise it, the same may be

treated as wages and contribution is payable;

d. Where the employer has introduced the scheme of Inam and he has right to revise or

withdraw it at his discretion, the payment of Inam under such scheme may not be

treated as wages and contribution is not payable, provided the payment is made at an

interval exceeding two months;

16 Instruction issued vide letter No.D-Ins. 5 (5) / 68 dated February 21, 1975


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e. Where there is no scheme of Inam in writing but still the employer might be making

payment under the head Inam on the basis of some understanding between the

parties, in such cases, the nature of payment and its periodicity may be ascertained

and whether payment of Inam is an ex-gratia payment which is not covered by the

contract of employment. In case the periodicity is more than two months, no

contribution may be payable.

i. Education allowance: employees may be paid monthly education allowance for the children

studying in the school or colleges. Where such education allowance is being paid monthly,

the same is to be considered as wages under section 2 (22) of the ESI Act and contribution is

chargeable on the said amount. In cases where instead of paying the education allowance on

monthly basis, the amount spent as fee is reimbursed to the employees and booked under

education allowance, in such cases no contribution is payable.

ii. Attendance bonus: it is a special allowance being paid by certain companies to their

employees to discourage the workers from absenting from the job. Any amount paid by a

company to its employees as attendance bonus will constitute wages under section 2 (22) of

the ESI Act. However, the periodicity aspect has to be kept in mind. In case the periodicity is

more than two months, the same will not constitute wages and no contribution will be

payable.

iii. Food, milk, tiffin, lunch allowance: each case of payment of food, milk, tiffin and lunch

allowance has to be examined on its merits depending on the following conditions under

which the allowance is payable17:

a. Tiffin, food, milk, lunch allowance paid in cash at a fixed rate irrespective of whether

the person is absent or on authorized leave etc may be treated as wages;

b. Tiffin, food, milk, lunch allowance paid in cash with deduction for leave or absence etc

may not be treated as wages;

c. Tiffin, food, milk, lunch allowance paid in kind i.e. canteen subsidy, food subsidy etc

may not be treated as wages.

17 Instructions were issued vide letter No P-11 / 13 / 97 - Ins. IV dated February 2, 1999.


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1.3 BENEFITS PROVIDED TO AN INSURED EMPLOYEE

Under the ESI Act, an employee in insurable employment is entitled to medical facilities in

the event of specified contingencies. An interesting feature of the ESI Scheme is that the

contributions are related to the paying capacity as a fixed percentage of the workers’ wages,

whereas benefits are provided according to individual needs without distinction. The ESI Act

envisages the following six social security benefits for an insured employee.

1.3.1 MEDICAL BENEFITS

Full medical care is provided to an insured person and his “family”18 members from the day

the employee enters insurable employment. There is no ceiling on expenditure on the

treatment of an insured person or his family member. Medical benefits are available to the

insured employee from day one of his employment.

Note: The income of dependant parents for eligibility to medical benefit should not exceed

Rs 5,000 (five thousand) in a month.

i. Medical benefits to retired insured persons: an insured person who leaves the insurable

employment on attaining the age of superannuation, or retires under a voluntary retirement

scheme or takes premature retirement after being insured for not less than 5 (five) years,

shall be eligible to receive medical benefits for himself and his spouse, subject to: (a) the

production of proof of his superannuation or retirement under a voluntary retirement

scheme or as the case may be, premature retirement and having been in the insurable

employment for a minimum of five years; and (b) the payment of contribution at the rate of

Rs ten per month in lump sum for one year at a time in advance to the concerned office of

the corporation in the manner prescribed by it.

ii. Medical benefits to insured person who ceases to be in insurable employment on account of

permanent disablement: an insured person who ceases to be in an insurable employment on

18 According to Section 2 (11) of the ESI Act, family means all or any of the following relatives of an insured person, namely: (i) aspouse; (ii) a minor legitimate or adopted child dependent upon the insured person; (iii) a child who is wholly dependent on theearnings of the insured person and who is receiving education, till he or she attains the age of twenty-one years or / and anunmarried daughter; (iv) a child who is infirm by reason of any physical or mental abnormality or injury and is wholly dependenton the earnings of the insured person, so long as the infirmity continues; (v) dependant parents, whose income from all sourcesdoes not exceed such income as may be prescribed by the Central Government; (vi) in case the insured person is unmarried andhis or her parents are not alive, a minor brother or sister wholly dependent upon the earnings of the insured person.Note:With effect from June 1, 2010 the age limit of dependent children eligible to obtain dependant benefits has been increasedfrom 18 years to 25.


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account of permanent disablement caused due to an employment injury shall be eligible to

receive medical benefits for himself and his spouse at the scale prescribed under the ESI Act

till the date on which he would have vacated the employment on attaining the age of

superannuation, had he not sustained such permanent disablement, subject to the payment

of contribution at the rate of Rs ten per month in lump sum for one year at a time in advance

to the concerned office of the ESI Corporation.

1.3.2 SICKNESS (CASH) BENEFITS:

The term sickness as defined in the ESI Act means a condition which requires medical treat-

ment and attendance and necessitates abstention from work on medical grounds. Sickness

benefits on the other hand mean periodical payments to an insured person in case of his

sickness. Unlike medical benefits, sickness benefit is not provided to the members of the

family, as sickness benefit is cash benefit, provided to the insured person for loss of wages

during sickness. In order to qualify for sickness benefit the insured worker is required to

contribute for 78 (seventy eight) days in a contribution period of six months. The daily rate

of sickness benefit in respect of a person during any benefit period shall be 70 % (percentage

seventy) of the “standard benefit rate”19 of that person [Rule 55 (2) of ESI Central Rules,

1950]. Sickness benefits shall not be paid to any person for more than 91 (ninety one) days in

any two consecutive benefit periods. Also, a workman should have paid the contribution for

half the number of days in one contribution period, only then the insured person will be

eligible to get sickness benefit in the corresponding benefit period20 and not earlier.

[The logic behind fixing of 78 (seventy eight) and 91 (ninety one) days of contribution is

based on certain statistics worked by the corporation to give cash benefits.]

a. Extended sickness benefit: this is an additional sickness benefit provided by the ESI

Corporation. An insured person who has completed two years of insurable

employment and contributed for not less than 156 (one hundred fifty six) days during

this period is entitled to extended sickness benefit for a period of 309 (three hundred

and nine) days for the 34 (thirty four) specified long term diseases. This period can be

19 Standard benefit rate means average daily wages obtained by dividing the total wages paid during the contribution period bythe number of days for which these wages were paid.20 Benefit period means the period not exceeding six consecutive months corresponding to the contribution period, as may bespecified in the regulations


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extended up to 730 (seven hundred thirty) days or till the insured person attains the

age of 60 (sixty) years whichever is earlier. The benefit is payable at 140 % (percentage

one hundred forty) of standard benefit rate21 which works out to 70 % (percentage

seventy) of his wages. The insured person and his family are also entitled to medical

benefit during this extended period.

b. Enhanced sickness benefit: to promote the norms of small family, this cash benefit is

paid to the insured person for undergoing vasectomy / tubectomy operation. This is

paid at double the “standard benefit rate”22 i.e. full wages of the person, for a period

of seven days for vasectomy operation and for 14 (fourteen) days for tubectomy

operation. This period can be extended in case of any post operative complications.

c. Procedure for availing sickness benefit: the employee is issued medical certificate from

ESI dispensary / hospital. The medical certificate, issued by the dispensary is deposited

with the local office of ESI corporation from where the employee gets payment.

1.3.3 DISABLEMENT BENEFIT:

Disablement benefit means periodical payments to an insured person suffering from

disablement (temporary23 or permanent) as a result of an “employment injury”24.

Disablement benefits are available to the insured person from day one of his / her

employment and the criteria of contribution period vis-à-vis benefit period is not applicable

in these benefits.

a. Temporary Disablement Benefit: it is a condition resulting from employment injury,

which may render the insured person temporarily incapable of doing his work. A

person who sustains temporary disablement for not less than three days (excluding

the day of accident) shall be entitled to periodical payments at the rate of 90%

(percentage ninety) of wages payable so long as disability continues.25 It is paid till the

temporary disablement lasts and the employee is able to resume his normal duties.

21 Standard Benefit Rate means average daily wages obtained by dividing the total wages paid during the contribution period bythe number of days for which these wages are paid.22 Standard benefit rate means average daily wages obtained by dividing the total wages paid during the contribution period bythe number of days for which these wages were paid23 Temporary disablement means a condition resulting from an employment injury which requires medical treatment and rendersan employee, as a result of such injury temporarily incapable of doing the work which he was doing prior to or at the time of theinjury. Section 2 (21) of the ESI Act.24 Employment injury means a personal injury to an employee caused by accident or an occupational disease arising out of and inthe course of his employment, being an insurable employment. Section 2 (8) of the ESI Act.25 Source: website of Employee State Insurance Corporation. http://www.esic.nic.in/benefits.php


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Entitlement for this benefit begins from the day an employee enters insurable

employment, irrespective of having paid any contribution or not.

b. Permanent Disablement26 : is a condition which reduces the worker’s earning capacity

or it may totally deprive the insured person from the capacity of doing any work. The

insured person is paid monthly periodical payments for a limited period or for life, as

the case may be, from the date following the date of disablement. The daily rate of

permanent disablement benefit shall be 90% (percentage ninety)27 of the standard

benefit rate in the contribution period corresponding to the benefit period in which

the employment injury occurs.

c. Where an employment injury occurs before the commencement of the first benefit

period, the daily rate of disablement benefit shall be as follows:

where a person sustains employment injury after the expiry of the first wage

period in the contribution period in which the injury occurs, 90% (percentage

ninety) of his average daily wages in that wage period; and

where a person sustains employment injury before the expiry of the first

wage period in the contribution period in which the injury occurs, 90%

(percentage ninety) of his wages actually earned or which would have been

earned, had he worked for a full day on the date of accident.

d. Disablement benefit, when not available: disablement benefits will not be available to

an employee who has crossed the wage ceiling at the time of injury even though

contributions for that period have been paid.28 In another judgment it was held that

disablement benefits under the ESI Act will not be available to an employee who has

received injuries and rendered disabled on the date when his salary was more than the

prescribed ceiling and as such could be entitled only to sickness benefits.29

1.3.4 DEPENDANT’S BENEFITS:

26 Permanent partial disablement means such disablement of a permanent nature, as reduces the earning capacity of an employeein every employment which he was capable of undertaking at the time of the accident resulting in the disablement. Section 2 (15A) of the ESI Act.27 Source: website of Employee State Insurance Corporation. http://www.esic.nic.in/benefits.php28 Employee State Insurance (Rep. by its Regional Director), Chennai vs. M. Ganesan, 2003 LLR 781: 2003 (II) LLN 646: 2003(II) LLJ 895 (Mad HC)29 Employee State Insurance Corporation, Coimbatore vs. N. Marappan, 2010 LLR 52 (Mad HC)


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i. Definition of a dependant: according to Section 2 (6A) of the ESI Act a dependant means any

of the following relatives of a deceased insured person, namely:

a. a widow, a legitimate or adopted son who has not attained the age of 25 (twenty five)

years, an unmarried legitimate or adopted daughter;

b. a widowed mother;

c. if wholly dependent on the earnings of the insured person at the time of his death, a

legitimate or adopted son or daughter who has attained the age of 25 (twenty five)

and who is infirm;

d. if wholly or in part dependent on the earnings of the insured person at the time of his

death:

a parent other than a widowed mother;

a minor illegitimate son, an unmarried illegitimate daughter or a daughter

legitimate or adopted or illegitimate if married and a minor or if widowed and a

minor;

a minor brother or an unmarried sister or a widowed sister if a minor;

a widowed daughter-in-law;

a minor child of a pre-deceased son;

a minor child of a pre-deceased daughter where no parent of the child is alive;

or

a paternal grand-parent if no parent of the insured person is alive.

ii. Dependant’s benefits (paid in cash): dependant benefits are available to the insured person

from day one of his / her employment and the criteria of contribution period vis-à-vis benefit

period is not applicable in these benefits. Dependant benefit is paid to the dependants of

the insured person who dies as a result of an employment injury, in the manner mentioned

herewith. In the case of death of the insured person, the dependants benefit shall be

payable to his widow, children and widowed mother as follows:

a. to the widow during life until remarriage, an amount equivalent to 3/5th (three fifths)

of the full rate and, if there are two or more widows, the amount payable to the

widow as aforesaid shall be divided equally between the widows;

b. to each legitimate or adopted son, an amount equivalent to 2/5th (two fifth) of the full

rate until he attains the age of 25 (twenty five) years. Provided that in the case of a


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legitimate or adopted son who is infirm and who is wholly dependent on the earnings

of the insured person at the time of his death, dependants benefits shall continue to

be paid while the infirmity lasts.

c. to each legitimate or adopted daughter, an amount equivalent to 2/5th (two fifth) of

the full rate. Provided that in the case of legitimate or adopted daughter who is infirm

and is wholly dependent on the earnings of the insured person at the time of his

death, dependants benefit shall continue to be paid while the infirmity lasts.

d. to the widowed mother during life, an amount equivalent to 2/5th (two fifth) of the full

rate. Note: If the total of the dependants’ benefits distributed among the widow or

widows and legitimate or adopted children and widowed mother of the deceased

person as aforesaid exceeds at any time the full rate, the share of each of the

dependants shall be proportionately reduced, so that the total amount payable to

them does not exceed the amount of disablement benefits at the full rate. In case the

deceased person does not leave widow or legitimate or adopted child or widowed

mother, dependants benefits shall be payable to other dependants as follows:

to a parent other than the widowed mother or grand-parent, for life, at an

amount equivalent to 3/10th (three tenths) of the full rate and if there are two

or more parents (other than widowed mother) or grandparents the amount

payable to the parents (other than widowed mother) or grandparents as

aforesaid shall be equally divided between them;

to any other: male dependent, until he attains the age of 18 (eighteen) years or

female dependant, until she attains the age of 18 (eighteen) years or until

marriage, whichever is earlier or if widowed, until she attains 18 (eighteen)

years of age or re-marriage, whichever is earlier at an amount equivalent to

2/10th (two tenths) of the full rate.

Note: If there be more than one dependant the amount payable shall be equally

divided between them.

1.3.5 MATERNITY BENEFIT (PAID IN CASH)


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Maternity benefit is periodical payments to an insured person (female) for specified period

abstention from work, due to confinement30, miscarriage or sickness resulting from

pregnancy or pre-mature birth of child.

i. Confinement: maternity benefit i.e. remuneration paid to an insured women during period

of confinement is paid at standard benefit rate (i.e. full wages of the insured woman) for 12

(twelve) weeks of absenteeism of which not more than 6 (six) weeks shall precede the

expected date of confinement. This payment is subject to contribution of not less than 70

(seventy) days in the immediately preceding two contribution periods.

ii. Confinement expenses: is lump sum payment made to an insured women or an insured

person in respect of his wife to meet the confinement expenses, if the confinement occurs at

a place where necessary medical facilities under the ESI Act are not available. At present the

confinement expense paid is Rs 2,500 (two thousand five hundred) per confinement.

Note: Where the insured woman dies during her delivery or during the period immediately

following the date of her delivery for which she is entitled to maternity benefits, leaving

behind in either case, the child, maternity benefits shall be paid for the whole of that period

but if the child also dies during the said period, then for the days up to and including the day

of the death of the child, to the person nominated by the insured woman.

iii. Miscarriage: maternity benefit is payable to the insured women for miscarriage for a period

of 6 (six) weeks of absenteeism, following the date of miscarriage. This benefit is paid at the

standard benefit rate, subject to payment of contribution by the insured women for not less

than 70 (seventy) days in the immediately preceding two contribution periods.

iv. Sickness arising out of pregnancy: if an insured woman needs medical treatment and

abstention from work due to sickness arising out of pregnancy, miscarriage or premature

birth of child, maternity benefit is payable for a period not exceeding one month of

absenteeism.

v. Wife of an insured person: the wife of an insured person will be entitled to all medical

facilities which include delivery of the child also. But she will not be entitled to cash benefits

which are available to insured women only.

30 Confinement means labour resulting in the issue of a living child or labour after 26 (twenty six) weeks of pregnancy resulting inthe issue of a child whether dead or alive.


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Note: in case the insured woman does not want that delivery should take place at ESI

Hospital where facilities exist and she wants to go to a nursing home, she cannot claim

reimbursement of expenses incurred for delivery.

1.3.6 OTHER BENEFITS

i. Funeral expense: funeral expense is payable to the eldest surviving member of the family of

the insured person who has died, towards the expenditure on the funeral of the deceased

insured person. This payment is subject to a maximum of Rs 10,000 (ten thousand). The

person who died should be an insured person on the date of death. Funeral benefit is

available to the insured person from day one of his / her employment and the criteria of

contribution period vis-à-vis benefit period is not applicable in these benefits.

ii. Unemployment Allowance (Rajiv Ghandi Shramik Kalyan Yojana): this scheme of

unemployment allowance was introduced with effect from April 1, 2005. An insured person

who become unemployed after being insured for three or more years, due to closure of

factory/establishment, retrenchment or permanent invalidity is entitled to:

a. Unemployment allowance equal to 50 % (percentage fifty) of wage for a maximum

period of up to one year.

b. Medical care for self and family from ESI hospitals/dispensaries during the period

insured person receives unemployment allowance.

iii. Old Age Medical Care: for insured person retiring on attaining the age of superannuation or

under voluntary retirement scheme and person having to leave service due to permanent

disability on payment of Rs 120 (one hundred twenty) per annum.

iv. Rehabilitation Allowance: rehabilitation allowance is paid for each day for which insured

person remains admitted in artificial limb centre for fixation / repair or replacement of

artificial limb. This is paid at double the standard benefit rate.

1.4 BENEFITS TO AN EMPLOYER

1.4.1 EXEMPTION FROM THE MATERNITY BENEFIT ACT, 1961

Section 50 of the ESI Act read with Rule 56 of ESI Rules and also Regulations 87 to 95

provides that an insured person will be entitled to maternity benefit from the ESI


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Corporation. Hence an employer shall be exempted from the applicability of Maternity

Benefit Act, 1961.

1.4.2 EXEMPTION FROM EMPLOYEES COMPENSATION ACT, 1923

Section 53 of the ESI Act provides that an insured person or his dependant shall not be

entitled to receive or recover, from the employer, any compensation or damages under the

Employees Compensation Act, 1923 or any other law for the time being in force or

otherwise, in respect of an employment injury31sustained by the insured person as an

employee under the ESI Act. Thus an employer under the ESI Act will not be liable to pay

compensation on accident. Section 61 of the ESI Act further provides that when a person is

entitled to any benefits provided by the ESI Act, he shall not be entitled to recover any

similar benefits admissible under the provisions of any other enactments.

1.4.3 An employer is exempted from provisions of medical care (in kind), medical allowance (in

cash) or reimbursement of medical expenses in respect of employees and their dependants

who are covered under the ESI Act. The employer is authorized to recover from his covered /

coverable employees or their contractors, any cash contribution payable on their part.

1.5 STEP-BY-STEP PROCEDURE TO ESI COMPLIANCE

31 Section 2 (8) defines employment injury as a personal injury caused to an employee by accident or an occupational diseasearising out of and in the course of his employment, being an insurable employment, whether the accident occurs or theoccupational disease is contracted within or outside the territorial limits of India.


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Step 1 The factory or establishment to which the ESI Act applies is to be registered by

submitting Form 01 called the Employer’s Registration Form, not later than 15

(fifteen) days after the ESI Act becomes applicable to the factory / establishment.

The Company can submit application online for registration at www.esic.nic.in.

Step 2 On receipt of the above mentioned form, the regional office will examine the

coverage aspect of the factory / establishment thereafter allotting a code number

for the factory / establishment. This code number is required to be indicated by the

employer in all correspondence with the Regional Office of the ESI Corporation.

Step 3 After obtaining code number, the employer should determine the employees who

are covered under the ESI Act (with reference to the definition as given in section 2

(9) of the ESI Act) and get them to fill Form 1 (declaration form) including temporary

identification certificate mentioned in the aforesaid form. In case a new employee

has been previously registered under the ESI Act then no fresh declaration form is

required to be filled in respect of such person and the insurance number already

allotted to him will hold good.

Obtain codenumber for theestablishment

Obtain insurancenumber for each

employeecovered under the

ESI Act

Payment ofcontribution

Periodical returnsto be sent by anemployer to the

appoptiateauthority


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Step 4 All declaration forms without detaching temporary identification certificate,

together with form 3 must be filed within ten days of the date on which the

particulars for the declaration form were furnished.

Note: With the implementation of information technology, the aforesaid form shall

now be submitted online. Please visit www.esic.nic.in for details on online filing.

Step 5 On receipt of the above mentioned declaration form, the appropriate office shall

promptly allot an insurance number in respect of each employee to whom

declaration form has been received. The temporary identification certificate along

with insurance numbers marked thereon shall be detached and returned to the

employer along with one copy of form 3. The temporary identification number will

enable the insured employee to avail medical facilities. The temporary identification

certificate is valid for three months but can be revalidated for a further period of

three months by the appropriate office, in case the permanent identity card is not

received within three months.

Step 6 If the insured person is in need of medical care before the temporary identification

certificate is issued to him, or if issued he loses his temporary identification

certificate, it is obligatory on part of the employer to issue a certificate of

employment (ESIC 86) to him on demand.

Step 7 In the meanwhile, on receipt of permanent identity cards from the appropriate

office, the employer will hand over the same to those employees who have been in

service for three months or more. However, if the employee has not been in service

for three months or more then such card would not be issued to him and be

returned to the appropriate office from which it was received. This card is prepared

by the appropriate office in form 4.

Note: Now the ESI Corporation has gone online with the information technology

(“IT”) roll out of “Project Panchdeep”. With this IT roll out the ESI Corporation is now

issuing smart cards named ‘Pehchan Card’ separately for self and family of the

insured person with biometric details of the concerned person, which will be valid in

any ESI hospital / dispensary throughout the country for availing the medical


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benefits. Two identical cards are issued to the insured person and his family, which

will enable them to avail of treatment anywhere in the country. With this card, an

insured person or his family members may step in to any ESI dispensaries, ESI

hospitals, ESI branch offices during working hours and avail hassle free

facilities/services. One card is with insured person and the other with the family

which would enable the family to avail treatment even when they are away at

different locations. The card will have the photographs of all the family members

and their biometric details. The Pehchan Card is valid for lifetime across all ESIC

hospitals and dispensaries in the country subject to certain conditions. A unique

number will be assigned to each member so that he can continue using the card

even in case of a change in job.

Step 8 After completing the above mentioned formalities the employer shall start paying

contributions to the ESI Corporation in respect of all employees entitled to insurance

cover. These contributions shall be paid within 21 (twenty one) days of the last day

of the calendar month in which the contributions fall due. The ESI Corporation has

authorized designated branches of the State Bank of India and some other banks to

receive the payments on its behalf.

Step 9 Employer to maintain a register of employees: As per Regulation 32 of the Employee

State Insurance (General) Regulations, 1950 every employer shall maintain a register

of employees in form 6 in respect of every employee of the factory or

establishment. The register of employees is required to be preserved after it is filled

for a period of five years from the date of last entry therein. Also, the immediate

employer shall maintain a register in Form 6 in respect of every employee engaged

by him and submit the same to the principal employer before the settlement of any

amount payable to him under sub-section (1) of section 41 of the ESI Act.


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1.6 RETURNS, FORMS, RECORDS TO BE MAINTAINED AND SUBMITTED

S. No Compliance requirements Sourceverification

Due date Responsibilityfor

compliance

Total number of employees____________

Total number of apprentices___________

Total number of employees drawingwages of Rs. 15,000 and below_______________

ONE TIME RETURN ON COVERAGE

1.

2.

Registration of factory /establishment:

(In order to obtain employer’s codenumber).

(Section 2A of the ESI Act andRegulation 10 B of the Employee StateInsurance (General) Regulations, 1950)

Any change in particulars in the abovementioned form should be intimatedto the regional office of the ESICorporation.

(Regulation 10 C of the Employee StateInsurance (General) Regulations, 1950)

Form 01 Not later than15 days afterthe ESI Actbecomesapplicable tothe factory orestablishment.

To be submittedwithin 2 weeksof such change.

Employer

Employer

3. Declaration Form: Establishment shallparticulars concerning employee at thetime of enrolment as member under

Form 1 Within 10 daysof the date onwhich the

Employer


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the ESI Act.

Note: While submitting this form, donot detach temporary identificationcertificate.

(Regulation 11, 12 and 14 of theEmployee State Insurance (General)Regulations, 1950)

particulars forthe declarationform werefurnished.

4. Return of declaration forms: To besent along with the above mentionedDeclaration Form (Form 1).

(Regulation 14 of the Employee StateInsurance (General) Regulations, 1950)

Form 3 Within ten daysof the date onwhich theparticulars forthe declarationforms werefurnished.

Employer

5. Family Declaration Form: Everyinsured person who has not furnishedthe particulars of his family at the timeof his registration shall furnish to theemployer, particulars in respect of hisfamily. The employer shall then sendthe form to the appropriate regionaloffice.

(Regulation 15 A of the Employee StateInsurance (General) Regulations, 1950)

Form 1(A) Within 10 daysof the date onwhich theparticulars werefurnished.

Insuredperson /employer

REGULAR RETURNS

6. Return of contribution: The employershall send a return of contributions inquadruplicate along with receiptedcopies of challans for the amountsdeposited in the bank, to theappropriate office in respect of allemployees for whom contributionswere payable.

Form 5 To be filedwithin 42 daysfrom the end ofeachcontributionperiod to whichit relates, i.e. byNovember 11for contribution

Employer


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period endedSeptember 30and May 12 forthe contributionperiod endedMarch 31.

7. Statement of advance payment ofcontribution: An employer may opt forpayment of amount in advancetowards contribution to be adjustedagainst contributions payable by him(including employees’ contribution) fora wage period.


Form 5 A As may beprescribed, bythe DirectorGeneral, a sixmonthlystatement ofcontributionspayable andpaid in advancewith thebalance left atthe end of eachmonth alongwith return ofcontributions tothe appropriateregional officeof thecorporation.

Employer

8. Payment of contribution: Thecontributions (both employer andemployee share) shall be paid within21 days of the last day of the calendarmonth in which contribution becomesdue.


NA Within 21 daysof the calendarmonth in whichcontributionbecome due.

Employer

RECORD MAINTENANCE

9. Identity Cards: Check whether you (theemployer) have obtained from the ESICAuthorities identity cards for each

Form 4 After allotmentof insurancenumber.

Issued by theESICorporation


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insured employee who has been issuedan insurance number. These identitycards are to be given to the concernedinsured employees who have been inservice for three months.

(Regulation 17 and 95 A of theEmployee State Insurance (General)Regulations, 1950)

10. Family identity cards: The family of aninsured person shall become entitledto medical benefit from the day theinsured person himself becomesentitled to medical benefits.

(Regulation 95A of the Employee StateInsurance (General) Regulations, 1950)

Form 4 A As and whenrequired.

Issued by theESICorporation asand whenappropriate

11. Register of employees: The employershall maintain in respect of everyemployee of the factory /establishment a register of employees.

(Regulation 32 of Employees StateInsurance (General) Regulations, 1950)

Form 6 This registershall bemaintained andpreserved for aperiod of fiveyears from thedate of lastentry therein.

Employer

12. Maintenance of an accident book: Anemployer shall maintain an accidentbook in which the appropriateparticulars of any accident causingpersonal injury to an employee may beentered.


Form 11 The accidentbook shall bepreserved for aperiod of fiveyears from thedate of lastentry therein.

Employer

OCCASIONAL RETURN

13. Addition / deletion in familydeclaration form: An insured personshall intimate any change in his family

Form 2 Within 10 daysof the date onwhich the

Employer


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to the employer. The employer shallforward the same to the appropriateoffice of ESIC.

(Regulation 15 B of the Employee StateInsurance (General) Regulations, 1950)

particulars ofthe changewere furnished.

14. Medical certificate in respect ofsickness or a spell of temporarydisablement.

(Regulation 57, 58, 59 and 89 B of theEmployee State Insurance (General)Regulations, 1950)

Form 7 As and whenrequired.

Insuredperson

15. Intermediate certificate when sicknessor temporary disablement hascontinued for not less than 28 days andis expected to continue longer.

(Regulation 61 and 89 B of theEmployee State Insurance (General)Regulations, 1950)


Insuredperson

16. Form for claim for sickness maternityor temporary disablement by aninsured person.

(Regulation 63 and 89 B of theEmployee State Insurance (General)Regulations, 1950)


Insuredperson

17. Accident report from employer: It shallbe the duty of the employer to reportan accident to the nearest branchoffice and to the nearest insurancemedical officer when information of aaccident.


Form 12 Immediately ifthe injury isserious i.e. it islikely to causedeath, orpermanentdisablement orloss of member.In other casewithin 24 hoursof receipt of

Employer


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notice.

18. Claim for permanent disablement:Claim shall be made by an insuredperson who has been declaredpermanently disabled.


Form 14 As and whennecessary.

Insured Person/ beneficiary

19. Claim for dependant’s benefits: To besubmitted by the dependant or theirlegal representative or in case of aminor his guardian to the appropriatebranch office.




20. Claim for periodical payments: ofdependant’s benefit, submitted by thedependent whose claim fordependents benefit is admitted.




21. Notice of pregnancy: to be given to theappropriate branch office by theinsured women.



Insuredperson

22. Certificate of expected confinement/miscarriage: claim for maternitybenefit commencing beforeconfinement.



Insuredperson

23. Claim for maternity benefit and noticeof work.


Insuredperson


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(Regulation 88, 89 and 91 of theEmployee State Insurance (General)Regulations, 1950)

24. Claim for maternity benefit after thedeath of an insured women leavingbehind the child.


Form 20 As and whenrequired butwithin 30 daysof death of theinsured women.

Insuredperson /

beneficiary

25. Funeral expenses claim.

(Regulation 95 E of the Employee StateInsurance (General) Regulations, 1950)


Insuredperson /

beneficiary

26. Life certificate for permanentdisablement benefit.



Insuredperson /

beneficiary

27. Declaration and certificate fordependents benefit.

(Regulation 107 A of the EmployeeState Insurance (General) Regulations,1950)


Insuredperson /

beneficiary

OTHER MISCELLANEOUS FORMS

28. Wage / contributory record fordisablement benefit.

ESIC 32 As and whennecessary.

Employer

29. Certificate of re-employment /continuous employment.


Employer

30. Application for change in particulars ofinsured persons regarding change ofbranch office / dispensary.


Insuredperson /

beneficiary

31. Declaration form regarding payment tothe legal heir / representative of the


Insuredperson /


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deceased insured person. beneficiary

32. Particulars of contribution in casereturn of contribution in respect of aninsured person not sent.


Employer

33. Application for duplicate identity card. ESIC 72 As and whennecessary.

Insuredperson /

beneficiary

34. Certificate of employment. ESIC 86 As and whennecessary.

Employer

35. Certificate of entitlement. ESIC 105 As and whennecessary.

Employer

36. Certificate of continuous employmentfor extended medical and sicknessbenefit.


Employer

37. Claim for conveyance allowance and /or compensation for loss of wages foran insured person appeared before themedical board.


Insuredperson /

beneficiary

1.7 FREQUENTLY ASKED QUESTIONS (FAQ’S)

1.7.1 HOW TO GET MEDICAL BENEFIT WHEN AN INSURED PERSON IS LEAVING FOR ANOTHER

STATION FOR A TEMPORARY PERIOD?

Now the ESI Corporation has gone online with the roll out of IT project called “Project

Panchdeep”. With this IT roll out the ESI Corporation is now issuing smart cards named

‘Pehchan Card’ separately for self and family of the insured person with biometric details of

the concerned person, which will be valid in any ESI hospital / dispensary throughout the

country for availing the medical benefits. Two identical cards are issued to the insured

person and his family, which will enable them to avail of treatment anywhere in the country.

With this card, an insured person or his family members may step in to any ESI dispensaries,

ESI hospitals, ESI branch offices during working hours and avail hassle free facilities and

services. One card is with insured person and the other with the family which would enable

the family to avail treatment even when they are away at different locations. The pehchan


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card is valid for lifetime across all ESIC hospitals and dispensaries in the country subject to

certain conditions. A unique number will be assigned to each member so that he can

continue using the card even in case of a change in job.

1.7.2 IS THERE ANY PROVISION FOR EXEMPTION FROM PAYMENT OF EMPLOYER’S

CONTRIBUTION?

To encourage employers from employing more employees with disability, an employer is

exempted from payment of employer’s share of contribution on the wages paid to the

employees with disability drawing monthly wages up to Rs 25,000 (twenty five thousand).

The employer’s share is reimbursed to the ESI Corporation by the Central Government for a

maximum period of three years from the date of commencement of the contribution period.

1.7.3 BENEFITS NOT TO BE COMBINED

Section 61 of the ESI Act lays down a prohibition against receiving two benefits at the same

time. An insured person shall not be entitled to receive for the same period the following

combination of benefits simultaneously: (a) sickness benefit and maternity benefit; (b)

sickness benefit and disablement benefit for temporary disablement; or (c) both maternity

benefits and disablement benefit for temporary disablement. The insured person entitled to

more than one benefit shall have an option to choose one of the two benefits.

1.7.4 AUTHORITY FOR CERTIFYING ELIGIBILITY OF CLAIMANTS

The authority which is to certify eligibility of claimants shall be the appropriate branch office

in respect of sickness, maternity, temporary disablement benefits and funeral expenses and

the appropriate regional office, in respect of permanent disablement and dependants

benefits.

1.7.5 ONCE COVERED, NO GETTING OUT

By an amendment of the ESI Act in 1989, it has been provided that factory or an

establishment to which the ESI Act applies shall continue to be governed by the ESI Act,

notwithstanding that the number of persons employed therein falls below the limit specified

by or under the ESI Act. It has also been clarified that while calculating the number of

employees for the purpose of coverage, contractor’s employees working in connection with


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work of the establishment are required to be included. Casual or temporary employees will

also be liable to be covered under the ESI Act from the date of their joining the service.

1.7.6 CONTRIBUTION AND DEDUCTIONS

The ESI Act is applicable to employees employed for wages of up to Rs 15,000 (fifteen

thousand only) a month. Wage limit for disabled employees is Rs 25,000 (twenty five

thousand) per month. In case the employee whose wages exceed Rs 15,000 (fifteen

thousand) per month at any time after and not before the beginning of the contribution

period32, he / she shall continue to be an employee covered under the ESI Act until the end

of contribution period.

i. Employee’s contribution: a sum equal to 1.75 % (percentage one decimal seven five) of the

salary payable to an employee; and

ii. Employer’s contribution: a sum equal to 4.75 % (percentage four decimal seven five) of

salary payable to an employee.

iii. Employees earning up to 100 (hundred)33 a day as wages are exempted from payment of

their part of contribution.

There are different categories of employees like monthly-rated employees who are paid a

monthly salary, the others are daily-rated employees and piece-rated employees. Their

coverage for the purpose of the ESI Act shall be determined as under:

i. Monthly rate employees: Mr. X is a monthly rated employee and his gross salary is more than

the wage ceiling of Rs 15,000 (fifteen thousand). He was paid salary for 20 (twenty) days

which worked out to an amount which was less than the prescribed ceiling during that

month. His status would continue to be an ‘excluded employee’, even though the actual

salary received fall within the wage ceiling.

ii. Daily rated employees: Mr. Z is a daily rated employee and remains engaged for 22 (twenty

two) days in a month. His actual wages during the month works out to less than Rs 15,000

(fifteen thousand). He will be treated as a ‘covered employee’.

32 Contribution period means the period not exceeding six consecutive months as may be specified in the ESI Act or theregulation there under.33 Source: website of Employee State Insurance Corporation, http://www.esic.nic.in/contribution.php.


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iii. Piece rated employee: Mr. P is a piece rated employee. If he works for 24 (twenty four) days

in a month and earns wages below Rs 15,000 (fifteen thousand) he will be treated as

‘covered employee’.

iv. Substitute Worker: Mr. Y is a substitute worker not having an independent wage structure

employed for two spells during a month against short leave / absence of another monthly –

rate employee and his total wages work out to be within the wage ceiling (less than Rs

15,000), he would be treated as a ‘covered employee’.

1.7.7 WILL AN EMPLOYEE CONTINUE TO BE COVERED UNDER THE ESI ACT EVEN IF HE CROSSES

THE WAGE CEILING AS PRESCRIBED UNDER THE ESI ACT?

In case the average wage for a month is more than Rs 15,000 (fifteen thousand) per month,

the employee is not coverable under the scheme but in case the employee is already

covered under the scheme, he will continue to remain covered till the end of contribution

period.

1.7.8 CONTRIBUTION PERIODS AND BENEFIT PERIOD

Contribution period means the period not exceeding six consecutive months and benefit

period means the period not exceeding six consecutive months corresponding to the

contribution period. There are two contribution periods of six months duration each in a

year, in respect of an insured employee, with corresponding benefit period of six months

each as under:

Contribution period Corresponding benefit period

April 1 to September 30 January 1 to June 30 of the following year

October 1 to March 31 July 1 to December 31 of the calendar year

In the case of a person who becomes an employee within the meaning of the ESI Act for the

first time, the first contribution period shall commence from the date of such employment in

the contribution period current on that day and the corresponding benefit period for him

shall commence on the expiry of the period of nine months from the date of such employ-

ment.


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1.7.9 IF THE SALARY OF AN EMPLOYEE EXCEED RS 15,000 (FIFTEEN THOUSAND) PER MONTH,

CAN HE BE TREATED AS NOT COVERED?

If the salary of an employee exceeds Rs 15,000 (fifteen thousand) per month after start of

contribution period, he continues to be an employee till the end of that contribution period

and contribution is to be deducted and paid on the total wages earned by him.

1.7.10 WHAT IS THE MANNER OF PAYMENT OF CONTRIBUTION?

The total amount of contribution (both employer and employee’s shares) in respect of all

employees for each month is to be deposited with authorized bank branches in cash or by

cheque through a challan or demand draft in the prescribed form in quadruplicate. The

payment can also be made online after generating online challan by giving necessary details

in online register of employees.

1.7.11 WILL DELAYED PAYMENT OF CONTRIBUTION ATTRACT ANY INTEREST?

Contribution shall be paid in respect of an employee within 21 (twenty one) days of the last

day of the calendar month in which the contribution falls due (Regulation-31). If the

employer fails to pay contribution within the limit prescribed as mentioned above, it shall be

liable to pay simple interest at the rate of 12 % (percentage twelve) per annum in respect of

each day of default or delay in payment of contribution. Interest on delayed payment of ESI

contributions will accrue from the date when it was payable i.e. after 21st of the following

month which is the last date of payment34.

In addition, under the provisions of Regulations 31 C read with section 85 B (1) of the ESI Act,

the ESI Corporation is empowered to recover damages as under:

S.No Period of delay Rate of damages in %per annum

1. Less than two months 5 %

2. Two to four months 10%

34 Employee State Insurance Corporation vs. M/s 4 Aces Restaurant, 2007 LLR (SN) 670: 2007 (115) FLR 566: 2007 (2) LLJ 903(Ker HC).


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3. Four to six months 15%

4. Six months and above 25%

1.7.12 WHAT IS THE EFFECT OF INCREASE OF SALARY FROM RETROSPECTIVE DATE?

In case the salary of an employee is increased from retrospective date resulting in crossing

the wage limit prescribed, its effect on coverage of that employee is only after expiry of the

contribution period during the currency of which such increase is announced or declared. In

other words an employee, who crosses the prescribed ceiling limit in any month at any time

after commencement of the contribution period, continues to be an employee till the end of

that contribution period.

1.7.13 VOLUNTARY COVERAGE OF AN ESTABLISHMENT – NOT PERMISSIBLE.

Unlike the EPF Act, there is no provision for voluntary coverage under the ESI Act.

1.7.14 PRINCIPAL EMPLOYER35 TO PAY CONTRIBUTION IN THE FIRST INSTANCE

As per the ESI Act the principal Employer shall pay in respect of every employee, whether

directly employed by him or through an immediate employer, both the employer’s share of

contribution and the employee’s share of contribution. Additionally, the employer will not

be permitted to deduct the employer’s contribution from any wages payable to the

employee or otherwise to recover it from him.

1.7.15EMPLOYER NOT TO DISMISS OR PUNISH EMPLOYEE DURING PERIOD OF SICKNESS

Section 73 of the ESI Act lays down that an employer shall not dismiss, discharge or reduce

or otherwise punish any employee:

i. during the period he or she is in receipt of sickness benefits or maternity benefits;

ii. who is receiving disablement benefit for temporary disablement; or

iii. who is under medical treatment for sickness; or

iv. who is absent from work as a result of illness arising out of pregnancy or confinement.

35 Principal Employer in a factory means the owner or occupier of the factory and includes the person named as the as themanager of the factory under the Factories Act, 1948, the person so named.


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1.7.16 MEDICAL BENEFITS TO AN INSURED PERSON WHO CEASES TO BE IN INSURABLE

EMPLOYMENT ON ACCOUNT OF PERMANENT DISABLEMENT

An insured person who ceases to be in insurable employment on account of permanent

disablement caused due to employment injury shall be eligible to receive medical benefits

for himself and his spouse till the date on which he would have vacated the employment on

attaining the age of superannuation, had he not sustained such permanent disablement,

subject to the payment of contribution at the rate of Rupees ten per month in lump sum for

one year.

1.7.17 MEDICAL BENEFITS TO RETIRED INSURED PERSON

An insured person who leaves the insurable employment, on attaining the age of

superannuation, takes premature retirement, or retires under a voluntary retirement

scheme, shall be eligible to receive medical benefits for himself and his spouse, subject to

the payment of contribution at the rate of Rs 10 (ten) per month in lump sum for one year.

1.7.18 INCOME LIMIT OF DEPENDANT PARENTS FOR ELIGIBILITY TO MEDICAL BENEFITS

Only those dependent parents whose income from all sources does not exceed Rs 5,000 (five

thousand) per month shall be eligible for medical benefits under the ESI Act.

1.7.19 BENEFIT PAYABLE UP TO AND INCLUDING DAY OF DEATH

If a person dies during any period for which he is entitled to cash benefit under the ESI Act,

the amount of such benefit up to and including the day of his death shall be paid to any

person nominated by the deceased person in writing in such form as may be specified in the

regulations or, if there is no such nomination, to the heir or legal representative of the

deceased person.

1.7.20 AVAILABILITY OF ESI BENEFITS AWAY FROM THE PLACE OF WORK

If an insured person who is temporarily away on leave for a period of up to 3 (three) months

from his place of employment to another area where medical care under the Scheme is

available, he can get medical treatment if he takes certificate of temporary residence from

the employer.


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1.7.21 AVAILABILITY OF BENEFIT – EVEN WHEN CONTRIBUTIONS ARE NOT PAID

Non-payment of contributions would not affect for availing of ESI benefits by an employee.

1.7.22 ACCIDENTS HAPPENING WHILE COMMUTING TO PLACE OF WORK

An accident happening to an employee while commuting from his residence to his place of

employment for duty or from the place of employment to his residence after performing

duty, shall be deemed to have arisen out of and in the course of employment if nexus

between the circumstances, time and place in which the accident occurred and the

employment is established.

1.7.23 BAR AGAINST RECEIVING OR RECOVERING COMPENSATION OR DAMAGES UNDER ANY

OTHER LAW

An insured person or his dependents shall not be entitled to receive any compensation

under the Employees Compensation Act, 1923, or any other law in respect of an

employment injury sustained by the insured person as an employee under the ESI Act.

Additionally, when a person is entitled to any of the benefits provided by the ESI Act, he shall

not be entitled to receive any similar benefit admissible under the provisions of any other

enactment.

1.7.24 CLUBBING OF BRANCHES FOR COVERAGE

The ESI Act will apply on all branches of an establishment when total number exceeds 20

(twenty).36

1.7.25 EMPLOYEES ENGAGED BY A CONTRACTOR

Employees engaged by a contractor are squarely to be covered under the ESI Act and the

Scheme thereto. Additionally, workers employed directly or through a contractor to run a

canteen in an establishment or factory shall be covered under the ESI Act provided their

wages are less than Rs 15,000 (fifteen thousand) per month. Casual or temporary employee

will also be liable to be covered under the ESI Act from the date of their joining the service.37

36 Duvent Fans (P) Ltd vs. Regional Director, ESI Corporation, Bangalore, 2001 LLR 783 (Kant HC)37 Regional Director Employee State Insurance Corporation vs. Fashion Fabrics, 1991 LLR 324 (Ker HC).


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For further information please contact:

[email protected]

Disclaimer:

This handbook is not an advertisement or any form of solicitation. This

handbook has been compiled for general information of the public and does

not constitute professional guidance or legal opinion. Readers should

obtain appropriate professional advice.

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