ESI ACT: securing employees financially

The Employees State Insurance(ESI) Act enacted on 19th April 1948 is a parliament act passed to secure the employees throughout India socially.

The legislation provides socio-economic security to employees and their dependents.

The act got promulgated to envisage a need for the social insurance scheme to protect workers’ interests in the country.

It protects workers against unforeseeable circumstances like sickness, maternity, permanent physical disability, death due to injury caused during employment, resulting in loss of wages or earning capacity either totally or partially.

During contingency, it provides for a social or financial disability to ensure a dignified life for the work and his dependents.

Definitions of dependent and employee are given under section 2(6-A) and section 2(9) of the above act, respectively.

Applicability Of ESI Act

Section 4 extends the applicability of this act to all factories at the first instance except seasonal factories.

Section 2(12) of the act allows the ESI Act 1948 applicable to all non-seasonal factories employing ten or more persons.

According to Section 1(5), the State Govt. extended the application of the Act to:

  • Shops, Hotel, Restaurants, Cinema including preview theatres,
  • Road-motor transport undertakings,
  • Newspaper establishments,
  • Private Medical Institutions, Educational Institutions and
  • Contract and casual employees of Municipal Corporation/Municipal Bodies employing ten or more persons in the certain States/UTs, where that State Govt. is the appropriate Govt.

Although, the threshold for Coverage of establishments is still 20 Employees in Maharashtra and Chandigarh.

According to Section 1(5), the Central Govt. has extended the application of the act to:

  • Shops, Hotels, Restaurants,
  • Road Motor Transport establishments,
  • Cinema including preview theatres,
  • Newspaper establishments,
  • Non-Banking Financial institutions,
  • Port Trust, Airport Authorities, Warehouse establishments employing 20 or more Persons

The existing wage limit under the Act is Rs.21,000/- per month and Rs.25,000/- per month in the case of Persons with Disabilities with effect from 1st January 2017.

As the scheme introduced under the ESI gets contributory, it’s applicable in all the states and Union Territories except Arunachal Pradesh and Lakshadweep.

How is ESI calculated?

The ESI contribution rate mainly gets calculated on wages paid to an employee.

The ESI calculation is done in two parts, ESI contribution by employee and ESI contribution by the employer.

The ESI contribution rate 2019-20 is 0.75% currently on wages paid, and employers contribution is 3.25% wages paid.

Earlier the ESI calculation is done on the contribution rate of 1.75% as employee’s contribution on wages paid and 4.75% as employer’s contribution on wages paid.

For example:-

If a is an employee working at a factory at a salary of 20000 then,

  • Employee Contribution – 0.75%*20,000 = 150
  • Employer Contribution – 3.25%*20,000 = 650

In total, the overall ESI percentage contribution is 4%, i.e. 800rs of the wages paid or payable to the employee, which should get deducted from the wages paid by the employer. The employer is responsible for making these ESI deductions.

These deductions should be deposited every month through ESI employer’s login portal via SBI net banking by logging in through their particular user id and password.

The contribution period also plays a significant role in providing the employees with the benefit of ESI. There are two contributions periods, six months each.

Employees with average wages up to Rs 137/- are exempted from contribution payment, but employers are liable to contribute their share of contribution in respect of these employees.

As the threshold for the benefit for the ESI scheme is Rs 21000/-.

So, if there is any revision in an employee’s salary in between the contribution period, then he will enjoy the benefit as prescribed hereunder:

Contribution period- 1st April- 30th September and if salary revision is made in any month between this period then,

Benefit period- 1st January- 30th June of the following year.

Contribution period- 1st October- 31st March of next year and if salary revision is made in any month between this period then,

Benefit period- 1st July- 31st December of that same next year.

Benefits of ESI Act

The ESI Act 1948 provides too many benefits for the workers throughout the country to grant them social and financial stability. Some of these benefits are laid under section 46 of this act entitling insured persons and their dependents. These are:-

Medical Benefit-

An employee gets provided with all the required medical care from entering the ESI insurance scheme. This medical care further gets divided into two categories:-

  1. Full medical care- hospitalization services, specialists consultation, drugs, dressing, diets, etc. as required
  2. Extended medical care- Specialist consultation, supply of special machines and drugs, laboratory tests, etc

There is no threshold on expenditure on the treatment of an Insured Person or his dependent.

Medical care is for retired and permanently disabled insured persons under the ESI scheme and their spouses on payment of an annual premium of Rs.120/-.

Sickness Benefit-

The benefit is for the worker’s compensation. It’s at the rate of 70 per cent of wages during the periods of certified sickness for a maximum period of 91 days in a particular year.

A patient must be eligible to receive a sickness benefit by making the contribution under the ESI scheme for 78 days in a contribution period of 6 months.

Extended Sickness Benefit-

Sickness Benefit can get extended up to two years in the case of 34 long-term diseases mentioned in the list reviewed by ESI corporation from time to time at the rate of 80 per cent of wages.

Enhanced Sickness Benefit-

Enhanced Sickness Benefit is payable for seven days and 14 days for male and female workers, respectively.

It is double the standard sickness rate, i.e. equal to the full wage of the insured workers undergoing sterilization.

Maternity Benefit-

Maternity Benefit payable for confinement is for 12 weeks on the production of forms 21 and 23.

It is payable for termination of pregnancy, or miscarriage is payable for 26 weeks, which is extendable by a further one month on sickness arising out of pregnancy, confinement, premature birth.

On the death of the insured woman during confinement leaving behind a child, maternity benefit is extendable up to one month.

Maternity benefit is payable at the rate of 100 per cent of average daily wages subject to the contribution made for 70 days in the preceding two contribution periods.

Temporary Disablement Benefit-

It is for the employees who suffered employment injury or any occupational disease resulting in temporary incapability to work.

‘Employment injury’ is defined under section 2(8) of the ESI act.

Even if the insured worker hasn’t paid any contribution just after entering insurable employment, he is entitled to temporary disability benefit at the rate of 90% of wage till the period of continuance of disability.

Permanent disablement benefit-

This benefit is provided only to insured persons who have suffered permanent disablement due to employment injury, causing earnings loss.

The benefit gets paid at the rate of 90% of that employee’s wages, in the form of monthly payment depending upon the extent of loss of earning capacity as certified by a Medical Board.

It is provided to those persons or their spouses if they have completed five years in insurable employment.

Dependants Benefit-

It is payable to the employee’s dependents under section 52 of the act read with provision 6-A of section 2, in cases where death occurs due to employment injury or occupational hazards.

It gets paid at the rate of 90% of the wage payable to the insured employee. And it is in the form of monthly payments to the dependents.

Other Benefits

Funeral Expenses-

An amount of Rs.15,000/- should be paid to the dependents or to the person who performs the last rites of his dependents from the very starting of entering into insurable employment.<

Confinement Expenses-

Rs 1000/- paid to an insured woman or a wife of an insured person if delivery of her child occurs due to lack of medical facilities.

Vocational Rehabilitation-

It provided to permanently disabled Insured Persons under 45 years of age having 40 per cent or more disablement for undergoing vocational rehabilitation training.

Physical Rehabilitation-

It is for physical disablement due to employment injury.

Old Age Medical Care-

For Insured persons retiring on attaining the age of superannuation or under voluntary retirement scheme or early voluntary retirement scheme and person who have to leave service due to permanent disability, those people and their spouses will be provided medical care under this rule on payment of Rs. 120/- per annum.

Rajiv Gandhi Shramik Kalyan Yojana-

The scheme of Unemployment allowance got introduced on 1st April 2005. An Insured Person who becomes unemployed after being insured for three or more years, due to the closure of factory or any other establishment or permanent invalidity are entitled to:

  • Unemployment Allowance- It is equal to 50% of wage for a maximum of up to two years.
  • Medical care for self and family from ESI Hospitals/Dispensaries during the insured person’s unemployment allowance.
  • Vocational Training provided for upgrading skills- Expenditure on fee/travelling allowance borne by employees’ state insurance corporation.

The incentive provided to employers in the Private Sector for providing regular employment to persons with disabilities

The threshold wage for Physically Disabled Persons for availing ESI scheme benefits is Rs 25,000/-.

The Central Government bears the part of the contribution paid by the Employers for three years.

ESI finance

ESI scheme is a self-financing and contributory scheme that raises funds from covered employers and employees and helps them in contingencies.

As per provisions of this Act, the State Governments contribute 1/8th of the total expenditure of medical benefit within a per capita ceiling of Rs. 1500/- per Insured Person per annum.

Any additional expenditure incurred by the State Governments, over and above the limit, is borne by the State Governments concerned.

Case study

Western Indian Plywood v. P. Asokan

Is a person entitled to compensation in case of employment injury from the employer under the workmen compensation act and ESIC simultaneously?

In the case of Western Indian Plywood v. P. Asokan, the supreme court laid down that an employee gets barred from getting dual compensation from both the ESIC and the employer.

Section 53 of the ESI Act, 1948 bars the employee from availing compensation from the employer under any other than this act, including the workmen compensation act.

Pithavadian & Partners v. Deputy Director, Regional Office ESIC

Are persons rendering professional services come under the purview of this act?

In the case of Pithavadian & Partners v. Deputy Director, Regional Office ESIC, petitioners filed a petition in Madras high court against the defendant, who directed the petitioner to contribute Rs 2,77,974/- to ESIC.

The Madras high court held that the petitioner is a partnership firm consisting of professional architects governed by the architect act, 1972 and architect (professional and conduct) regulations, 1980.

An architect is a professional and neither a businessman nor a trader, so the person rendering professional services cannot be termed as a businessman to bring his office under the ambit of the term ‘shop’.

Coverage of cooperative societies regional director, ESIC v. Tulsiani chambers premises cooperative society

Are cooperative societies rendering services to their members come under the purview of this act and can be considered an ‘industry’ or ‘shop’?

In this case, the Bombay high court held that the cooperative societies rendering services to its members are domestic like water supply, operation of lifts, cleaning, security, etc., are essential services. The mere provision of services by society to its members cannot get termed as a commercial activity or trade or business.

So, it does not come under the purview of this act and cannot get under the terms ‘industry’ or ‘shop’.

ESIC Coimbatore v. N. Marappan

Are the employees whose salary has crossed the prescribed limit entitled to disability benefit under the ESI scheme from ESIC?

In the case of ESIC Coimbatore v. N. Marappan, the Madras High court decided that the ESI act does not apply to those employees whose salary is above the prescribed limit on the date of injury, which resulted in his disability. He is not entitled to disablement benefits under this act.

Conclusion

The ESI Act, 1948, read with ESI(Central) Rules, 1950 and ESI(General) Regulations, 1950, provides financial security to the insured persons.

It also provides for any contingency to all the insured workers.

While this act protects employees in case of any employment injury, it also protects the employers from getting jeopardized twice against paying compensation to the employees.

Apart from providing the employees with all types of benefits, It also prescribes the provision for the establishment, constitution, power and duties of ESI corporations and medical benefit council.

The act also provides provision for the appointment of a social security officer for the efficient implementation of the provisions under this act by recording grievances of policyholders, performing periodic inspections, etc.

FAQs

Which section of the ESI Act prescribes the provision for applying certain provisions of the Income-tax Act, 1961?

Section 45-H.

In which case the Karnataka High Court observed that a CA firm renders professional services and cannot come under the expression of 'shop' under the ESI Act?

Coverage of CA firm Singhvi Dev and Unni Chartered Accountants v Regional Director, ESIC & Ors. 2010.

Which section provides that it should get presumed that the accident has arisen in the course of employment in case of lack of evidence?

Section 51-A.

Which section of the act provides for the establishment of an employees' insurance court?

Section 74.

What is the maximum punishment for failure to pay contributions under this act?

According to section 85 of this act, the maxim punishment for failure to pay contributions will be imprisonment extending up to three years.

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