The Employees State Insurance Act, ESI Act for short, was enacted by the Government of India in 1948. The major objective of the Act was to provide certain benefits to employees in case of sickness, maternity and injury (during employment) and for providing other benefits in relation to the main objectives.
The ESI Act, 1948 in the first instance, applies to:
- Factories using power in the manufacturing process and employing 10 or more persons
- Non-power using factories or establishments employing 20 or more persons for wages.
The Act contains an enabling provision under which Appropriate Government is empowered to extend the provision of the ESI Act, 1948 to other classes of establishments.
- Agricultural or otherwise
Under these provisions the State Governments have extended the provisions of the ESI Act to the following classes of establishments.
- Hotels & Restaurants
- Cinemas including preview Theaters
- Road Motor Transport Undertaking
- News Paper Establishments
With effect from 1st May 2010 employees of covered units and establishments drawing wages upto Rs. 15,000 per month come under the purview of the ESI Act 1948 for multi dimensional social security benefits.
ESI scheme is financed by contribution raised from employees covered under this scheme and their employers as a fixed percentage of wages. Rates of contribution are as follows:
- Employees contribution 1.75% of wages ( Employees earning up to Rs. 50 per day are exempted from payment of their contribution)
- Employer’s contribution 4.75% of wages.
Social Security Benefits
Various benefits that the insured employees and their dependents are entitled to are as follows
- Medical Benefits
- Sickness Benefits
- Maternity Benefits
- Disablement Benefits
- Dependent Benefits
- Other Benefits (like funeral expenses, vocational rehabilitation, free supply of physical aids etc).
Safeguard for Insured Employees:
- Right to receive payment of any benefit under the Act is not transferable.
- Employer shall not dismiss, discharge or reduce the wages or otherwise punish a covered employee during the period he/she is in receipt of Sickness Benefit or Maternity Benefit etc.
- By reason of his liability to pay his share of contribution under the ESI Act, no employer shall directly or indirectly reduce the wages of a covered employee.
- Right to register their grievances / complaints at any level for immediate redressel.
- Right to approach ESI Court against any action/decision of the Medical Board etc
- Cash Benefits payable under the Act are not liable to attachment or sale in execution of any decree or order of any court
Duties of Employer
- An employer shall apply in Form-01 for coverage under the ESI Act, within 15 days after the Act becomes applicable to a factory or establishment.
- The employer shall submit Declaration Form in respect of all coverable employees in the unit.
- The employer shall deposit both employees’ and employers’ contribution as per specified rates within 21 days of the following month.
- The Employer shall maintain all such records and registers as are required under the Act and produce them for verification / inspection before the authorized officers of the Corporation.
- The employer shall submit half-yearly Return of Contributions (RC) by 12th May/11th November every year with all columns properly filled.
- The employer will report any change in business activity, address, ownership or the management to ESIC authorities forthwith.
- An employer will also ascertain the liability towards ESI dues, while taking over the ownership of a factory/establishment through purchase, gift, lease, license or otherwise as the new owner is liable to discharge past liabilities.
- An employer will also ascertain the liability towards ESI dues, while taking over the ownership of a factory / establishment through purchase, gift, lease, license or otherwise as the new owner is liable to discharge past liabilities.
Is it mandatory for the Employer to register under the Scheme?
Yes. It is the statutory responsibility of the employer under Section 2-A of the Act read with Regulation 10-B, to register the Factory/Establishment under the ESI Scheme within 15 days from the date of its applicability to them.
Whether all the persons employed who are not coverable under the Act are also counted for.
Yes. All the persons employed in the premises including the precincts thereof irrespective of their wages including casual, trainees, contract employees are counted for the purpose of coverage of the Factory. Even the Directors employed are to be counted.
Who are the persons not to be counted for coverage of a factory?
The following persons are not to be counted
a) A proprietor or a partner whether drawing salary or not;
b) A contractor lending the services of his employee;
c) An apprentice engaged under the Apprentice Act, 1961;
d) Persons employed on contract for service, e.g. legal, technical, tax consultants;
e) Persons employed in branch/sales offices etc. away from the factory premises are not to be counted for the purpose of coverage of the factory. However, they are to be covered as employees under Section 2(9), if their wages does not exceed the ceiling limit prescribed.
Who are the persons to be counted for coverage of an establishment?
The words ‘premises’ and ‘precincts’ used in the definition of ‘factory’ have not been used in the notifications issued by the State Governments, while extending the provisions of the Act to the establishments under Sec. 1(5) of the Act. So long as the establishment employs a minimum prescribed number of 20 coverable employees for wages, it will stand covered under the Act whether these employees are employed at one place or at a number of places away from each other, as they are engaged in the organized activity of the same establishment. Thus, all the coverable employees including those working in branches, Regd. Office, sales office etc. whether situated in implemented area or not, including those working outside the territorial limits of India, are to be counted for coverage of the establishment.
Is there any provision for ‘exemption of a factory or establishment’ from ESI coverage?
Yes. If the employees in a factory or establishment are other-wise in receipt of benefits substantially similar or superior to those provided under the ESI Act, on an application made, the State Government may grant exemption to such factory or establishment for a period of one year at a time prospectively. Application for renewal is to be made three months before the date of expiry of exemption period. (Section 87)
How wages are computed for payment of contribution?
The following items are taken in to account for computation of wages for payment of contribution.
a) Basic Pay, Wages, Salary;
b) D.A./HRA/CCA/Overtime/officiating allowance /Night shift allowance/efficiency allowance/Heat, Gas, Dust allowance/Education allowance/Food & Tea allowance/conveyance allowance;
c) Wages/salary/pay for weekly off and public holidays;
d) Commission paid to sales staff;
e) Subsistence allowance paid to an employee during the period of suspension;
f) Attendance Bonus or incentive or exgratia in lieu of Attendance Bonus or production incentive;
g) Regular Honorarium or salary or remuneration paid to a Director;
h) Collection Batta paid to running staff.
i) Actual payments made towards leave Salary, lay off compensation, or wages for strike period.
If the wages of an employee exceeds Rs. 15,000 in a month, can he be treated as not covered and deduction of contribution from his wages is stopped?
If the wages of an employee (excluding remuneration for overtime work) exceeds the wage limit prescribed by the Central Government after April or October for the contribution periods from April to September, and October to March, 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.
What is the effect of increase in wages from a retrospective date?
In case the wages of an employee is increased from a 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. The contribution on enhanced wages is also payable from the month in which such increase is announced. There is no need to pay the contribution on the arrears for the period prior to the month of declaration/announcement/agreement.
What are the penal provisions for non-payment or delayed payment of contribution?
1. The employer is liable for prosecution under Section 85(a) of the Act.
2. The Corporation may levy and recover damages, at the following rates, not exceeding the amount of contribution payable for default or delay in payment of the contribution.
Period of delay Rate of damages in % p.a.
- Less than 2 months- 5 %
- 2 to 4 months: 10 %.
- 4 to6 months: 15 %
- 6 months and above- 25 %.
What are the returns/reports to be submitted by the employer?
1. An annual return in Form 01-A by 31st Jan. of every year to the Regional Office, showing the changes if any during the preceding year.
2. Return of Contributions in quadruplicate for each contribution period to be submitted to the branch office duly enclosing all the paid challans for the six months within 42 days of expiry of each contribution period. i.e. by 11th November for contribution period ended 30th Sept., and 12th May for the contribution period ended 31st March.
3. Reports: Accident report in Form 12 in case any accident takes place, to the branch office within 24 hours of the notice of the Accident.
4. Declaration Forms: in Form 1 for all the employees at the time of coverage of the unit, and thereafter as and when a new employee joins the insurable employment along with a return in Form 3 in duplicate
within 10 days.
How are the employees registered under the Scheme?
At the time of joining the insurable employment, an employee is required to fill in a Declaration Form (form1) and submit a family photo in duplicate to the employer, which is to be submitted to the ESI Branch Office by his employer. The employee is then allotted an insurance number for the purpose of his identification under the scheme and issued a temporary identity card for availing medical benefit for self and family for a period of three months. Thereafter, he is provided with a permanent photo identity card. A person once registered need not register again in case of change of employment. The same registration can be transferred from one place to the other.
Why Registration is necessary?
The benefits provided under the Act are related to the contribution paid by and on behalf of the insured person. Therefore to identify each insured person both for proper recording of the contributions received as also for honoring his claims for benefits, registration of an insured person is necessary.
What is an identity card?
On registration under the scheme, the employee is termed as insured person. He is provided with a ‘temporary identification certificate’ which is valid for a period of 3 months, but may be extended, if necessary till a permanent family photo identity card with family particulars is issued. The identity card serves as a means of identification both for availing medical benefit at the dispensary/hospital and availing cash benefits at the ESI branch Office. The identity card should be signed/thumb impression affixed by the insured person. Any changes in his residence/dispensary/employment are carried out by the Branch Office Manager in the identity card.
How a temporary or casual employee who works for 3 or 4 days and leaves the employment is entitled to the medical care?
If he leaves the employment before his registration process is completed, the employer may provide him with a ‘certificate of employment’ consisting of his date of employment, date of leaving, family particulars etc. in form ESIC-86. Based on this certificate, that person and his family can avail ‘medical benefit’ for a period of 3 months.
How to get medical benefit when an insured person is leaving for another station for a temporary period?
While leaving the station, the insured person may obtain a certificate of employment from his employer in ESIC-105, and carry the same with him along with his identity card. Based on this, the insured person can avail the medical benefit in any ESI Dispensary/Hospital across the country.
If the insured person’s family is residing in another place in the same State or another State, how the family can avail the medical benefit?
If the family is residing in any other place either in the same State or different State, based on the declaration of the insured person and certified by the employer, the family is provided with a ‘family identity card’ for receiving medical benefit from ESI Dispensary in the area in which it is residing.
What are the other benefits admissible to an employee?
1. Full Medical care as and when needed.
2. Cash benefit to compensate his/her loss of wages during his abstention from work due to sickness including prolonged sickness, maternity and disablement.
3. Provision of Artificial limbs, spectacle, hearing aids, cervical collar, wheel chair etc. as a part of medical treatment as and when needed.
4. Un-employment allowance during the period of closer of the Factory/estt, retrenchment or permanent invalidity arising out of non-employment injury for a period of six months at 50% of his wages. Medical benefit is also admissible during this period for self and family.
5. Vocational rehabilitation training is provided to improve his skills to find out alternate employment
What are the benefits admissible to an employer covered under the Scheme?
1. The employer is getting an employee protected by ESIC in all respects, which can concentrate on his work without any worry and contribute to more production.
2. The employer is relieved from providing any medical care to the employee and his family.
3. The employer is relieved from payment of any compensation under the Workmen’s’ Compensation Act for any Accident.
4. Employer is relieved from payment of Maternity Benefit to woman employees under the State Maternity Benefit Act.
5. The Employer’s share of contribution paid is exempted from income tax payment.
What is the benefit admissible to the family members?
1. Family members are also entitled to full medical care as and when needed.
2. The family members are also entitled to artificial limbs, artificial appliances etc. as a part of medical treatment.
3. The medical benefit is also admissible to the family during the period the insured person is in receipt of employment allowance. In case he dies during that period, his family continues to receive the medical benefit till the end of those six months.
4. Reimbursement of expenditure incurred on the funeral of the deceased employee.
5. In case of the death of the insured employee due to employment injury, the spouse, widowed mother and children are entitled to Dependants’ benefit.
6. Any benefit due to the insured employee at the time of death is paid to the nominee.
What is maternity benefit?
Maternity benefit is periodical payments to an insured person for specified period of abstention from work, due to confinement, miscarriage or sickness out of pregnancy, pr-mature birth of child or miscarriage or confinement.
What is confinement? How long the maternity benefit is admissible in case of confinement?
Confinement means labour resulting in the issue of a living child or labour after 26 weeks of pregnancy resulting in the issue of a child whether alive or dead. Maternity benefit at double the standard benefit rate (full wages) is payable for 84 days, subject to payment of contribution for not less than 70 days in the immediately preceding two contribution periods. The benefit can be claimed at any time prior to six weeks before the expected date of confinement or from the date of confinement as per the condition
What is medical bonus?
Medical Bonus is lump sum payment made to an insured woman or an insured person in respect of his wife per each confinement to meet the confinement expenses, if the confinement occurs at a place where necessary facilities under the ESI Scheme are not available. At present the confinement expenses paid is Rs.2500/- per each confinement.
What are funeral expenses? To whom it is paid?
A lump sum payment not exceeding Rs. 5,000/- towards expenditure on the funeral of a deceased insured person, is paid either to the eldest surviving member of the family or if he has no family or not residing with his family at the time of death, to the person who actually performs the funeral of the deceased insured person.
What is the benefit admissible after retirement of an employee?
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 an insured person for not less than 5 years, shall be eligible to receive medical benefit for himself and his spouse subject to production of proof thereof, and payment of a nominal contribution of rupees one hundred and twenty for one year. In case the insured person expires, his spouse is entitled to the medical benefit for the remaining period for which the contribution was made, and she can continue to received the medical benefit on payment of the contribution @ 120/p.a. for further period. This medical benefit is also admissible to an insured person who ceases to be in employment on account of permanent disablement caused due to employment injury for himself and his spouse on payment of similar contribution till the date on which he would have vacated the employment on attaining the age of superannuation, had he not sustained such permanent disablement.