The Employees' State Insurance Act. 1948 ("Act") is a beneficial legislation passed by the Government of India shortly after the independence for the purpose of providing "certain benefits to the employees in case of sickness, maternity and injury (caused during employment)."1 The Act enumerates a social security and health insurance scheme, the benefits of which can be reaped by employees, primarily employees of factories, in case of sickness or disablement.
Applicability of the Act
The Act is a central Act extending to the whole of India. It has been implemented state wise in stages. All states except Manipur, Sikkim, Arunachal Pradesh and Mizoram have implemented the Employee State Insurance Scheme under the Act ("Scheme")2. And in case of Union Territories, only Delhi and Chandigarh have implemented the Scheme.
The Act applies to all factories other than seasonal factories3, including factories belonging to the Government whose employees aren't otherwise covered by benefits of similar nature as granted under the Act. The Government is further empowered to extend the provisions of this Act to any other class of establishments vide a notification in the Official Gazette to that effect4.
The Act has been extended to shops, hotels5, restaurants, cinemas including preview theatres, road-motor transport undertakings and newspaper establishments; and in some states, private medical and educational institutions are also included to be covered under the Act.6
The Act specifically clarifies that a subsequent decrease in the number of employees below the prescribed limit or subsequent suspension of conducting the manufacturing process of the factory or establishment with the aid of power will not absolve such factory or establishment of its liability under the Act once it has been covered under the Act and such factory or establishment shall continue to be governed by the provisions of the Act7.
All employees in the factories or establishments to which this Act applies shall be covered under the Scheme8.
Factory under the Act
For the purpose of the Act, factory has been defined as:
"any premises including the precincts thereof whereon ten or more persons are employed or were employed on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on or is ordinarily so carried on, but does not include a mine subject to the operation of the Mines Act, 1952 (35 of 1952), or a railway running shed"9
It may also be noted that Courts have at various instances held establishments such as petrol pump10,club11 and establishments engaged in tailoring of clothes12 among others citing that the services rendered by these establishments are manufacturing process under the Act.
Until 2010, the threshold for coverage under the Act was 20 persons employed in factory if such factory conducted its operations without the use of power. Post June 1, 2010, such distinction has been let go of and the minimum number of persons employed has been reduced to 10. It may be noted here that only 14 states or union territories have reduced the threshold limit for coverage of shops and other establishments from 20 to 10 or more persons.
It may be noted that, separate buildings, even though located at a distance when used for one continuous manufacturing process will constitute a single factory under the Act13.
Shop under the Act
The term 'shop' has not been defined under the Act. The Supreme Court in M/s. Southern Agencies, Rajamundry v. Andhra Pradesh Employees State Insurance Corporation14 held that "Where in a premises any economic activity is carried on leading to sale or purchase that premises will have to be held a shop for the purpose of the Act even though there is no actual giving or taking of goods in such premises. If the business carried on in a premises results in having some nexus with the purchase or sale of goods is sufficient to be shop for the purpose of the Act."
Further, in Cochin Shipping Co. Etc. Etc. vs. E.S.I. Corporation15, the Supreme Court while deciding on the scope of the term 'shop' observed that "while construing a welfare legislation like the Act and the notification issued there under a liberal construction should be placed on their provisions so that the purpose of the legislation may be allowed to be achieved rather than frustrated or stultified." In this case, the Supreme Court expanded the definition of 'shop' to include stevedoring, clearing and forwarding operations.
Some of the establishments that the Courts have held as covered under the definition of shop include advertising agencies16, toddy shops17, chit fund18 and establishment providing consultancy service to the clients19.
Employee under the Act
Employee under the Act20 means a person who is employed in or in connection with the work of a factory or establishment for wages. Additionally, it is also required that such person is directly employed by the principal employer (i.e. the owner or occupier of such factory or establishment) or through an immediate employer on the premises of the factory or establishment or under the supervision of the principal employer. Such employee may be appointed on any work of the factory or establishment or any work incidental to connected to the work of such factory or establishment, irrespective of such work being performed in the premises of the factory or establishment or otherwise.
An employee is subject to an upper wage limit to be eligible for the benefits under the Act. The existing wage limit is Rs. 15000/- which is now proposed to be extended to Rs. 21,000 by an amendment to that effect. (Proposal notification issued on 6.10.16).
An employee working for such person who is temporarily lending services on hire to the principal employer pursuant to a contract of service is also entitled to the benefits of the Act. It is hence evident that, employees engaged by a contractor are covered under the scope of 'employee' under the Act. However, for the inclusion of such employee, the relationship of the principal employer and employee is determined and the principal employer is entitled to supervise over the works of the employee.21 The term 'supervision' for the purposes of this Act has been defined by the Supreme Court as, "when the employee is put to work under the eye and gaze of the principal employer, or his agent, where he can be watched secretly, accidentally, or occasionally, while the work is in progress, so as to scrutinize the quality thereof and to detect faults therein, as also put to timely remedial measures by directions given finally leading to the satisfactory completion and acceptance of the work, that would be supervision, for the purposes of Section 2(9) of the Act."22
Even those employees who are paid daily wages or those who are part time employees are employees for purposes of the Act.23 However, a person rendering services as a freelancer shall not be considered an employee under the Act.24
Further, an apprentice who is not engaged as an apprentice under the Apprentice Act, 1961 shall also be covered under the Act. Thus, a person who is undergoing apprenticeship training pursuant to a contract of apprenticeship, but does not qualify the following requirements, will be entitled to the benefits under the Act:
- not less than 14 years of age, and
- satisfies the prescribed standards of education and physical fitness for the trade in respect of which he is an apprentice.
Employer under the Act
Principal Employer under the Act25 refers to the owner or the occupier of the factory. In case of any establishment under the control of the Government, principal employer refers to such authority appointed by the Government for this purpose or where no authority is appointed, the head of the department of Government under whose control the establishment is would be considered as the principal employer. And in case of any other establishment the principal employer shall be such person who is responsible for the supervision and control of the establishment.
When employees are engaged through a contractor, the term used for contractor under the Act is 'immediate employer26'. Immediate employer is a person who has undertaken upon himself or under the supervision of the principal employer undertaken the execution of the work on the premises of a factory or an establishment under the Act.
The liability of payment of contribution under the Scheme is primarily on the principal employer. The principal employer shall be entitled to recover the contribution paid by him from the immediate employer subject to the provisions of the Act.
Wages under the Act
The term 'wages' is defined27 under the Act to mean and include all the remuneration paid or is payable to an employee in cash. The fulfilment of the terms of the employment, whether express or implied, is a precondition for any such remuneration to be considered as wages under the Act.
Any payment made to the employee by way of leave encashment or in relation to lock-out, strike (which is not illegal) or layoff will also be included in the calculation of wages. Further, any amount/additional remuneration paid to the employee with not more than two months' interval shall also be construed as wages under the Act. House Rent Allowance, Night Shift Allowance, Heat, Gas and Dust Allowance and Incentive Allowance have all been held to be included in the definition of wages28.
The Act also clarifies that the following amounts will not be included in the calculation of total wages paid to the employee:
1. Contribution of the employer to the pension fund or provident fund or under the Scheme, paid to the employee.
2. Gratuity paid/payable to the employee on his discharge/termination.
3. Payment to the employee in respect of conveyance/travel or any allowance paid to the employee in this regard by the employer.
4. Any amount paid to the employee against any special expenses incurred by him in relation to the nature of his employment.
There have been numerous instances where the inclusion of certain payment/allowance to the employee in the definition of wages has been disputed. Owing to the beneficial nature of this legislation, the courts have at more times than less given a wide interpretation of the definition of wages under the Act. In the words of Chinnappa Reddy, J.:29
"The Employees State Insurance Act is a welfare legislation and the definition of `wages' is designedly wide. Any ambiguous expression is, of course, bound to receive a beneficial construction at our hands too. Now, under the definition first, whatever remuneration is paid or payable to an employee under the terms of the contract of the employment, express or implied is wages; thus if remuneration is paid in terms of the original contract of employment or in terms of a settlement arrived at between the employer and the employees which by necessary implication becomes part of the contract of employment it is wages."
CONTRIBUTIONS UNDER THE ACT
The E.S.I. Scheme being contributory in nature, all the employees in the factories or establishments to which the Act applies shall be insured in a manner provided by the Act.30 The contribution payable to the Corporation in respect of an employee shall comprise of employer's contribution and employee's contribution at a specified rate.31
The contributions payable in respect of each wage period shall ordinarily fall due on the last day of the wage period, and where an employee is employed, for part of the wage period, or is employed under two or more employers during the same wage period, the contributions shall fall due on such days as maybe specified in the regulations. Failure to pay on the due date on which the contribution becomes due, the principal employer shall be liable to pay simple interest at the rate of twelve percent per annum or any other higher rate as maybe specified in the regulations.32
The principal employer in the case of an employee directly employed by him, is entitled to recover from the employee the employee's contribution by deduction from his wages and not otherwise. The expenses of remitting the contributions to the Corporation shall be borne by the Corporation.33
Currently, the employee's contribution rate (w.e.f. 1.1.97) is 1.75% of the wages and that of employer's is 4.75% of the wages paid/payable in respect of the employees in every wage period. Employees in receipt of a daily average wage upto Rs.100/- are exempted from payment of contribution. Employers will however contribute their own share in respect of these employees.
An employer is liable to pay his contribution in respect of every employee and deduct employee's contribution from wages bill and shall pay these contributions to the Corporation within 21 days of the last day of the Calendar month in which the contributions fall due. The Corporation has authorized designated branches of the State Bank of India and some other banks to receive the payments on its behalf.34
The principal employer shall pay in respect of every employee, whether directly employed by him or through an immediate employer, both the employer's contribution and employee's contribution.
The principal and the immediate employers are required to maintain such registers or records in respect of the factory or establishment as required under the regulations. Further, the principal and the immediate employers shall submit the returns paid by it in such format as required by the Corporation containing the particulars relating to the persons employed.35
The Corporation may appoint persons as Social Security Officers and assign local limits to these officers for the purposes of ascertaining the correctness of the particulars submitted in the returns. Their duties also allow them to enter into any factory or establishment at such reasonable time and examine records relating to the employment of persons and payment of wages.
BENEFITS UNDER THE ACT
Insured persons and their dependants are entitled to benefits under the Act which are medical benefits as well as cash benefits. The benefits under the Act scheme are periodical payments to: -
1. Any insured person in case of sickness certified by duly appointed medical practitioner.
2. An insured woman in cases of confinement, miscarriage or sickness arising out of pregnancy, confinement, pre mature birth of child birth or miscarriage.
3. An insured person suffering from disablement as a result of an employment injury sustained as an employee under this Act.
4. Such dependants of an insured person who dies as a result of an employment injury sustained as an employee under this Act.
5. Medical treatment for and attendance on insured persons.
6. Payments 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. The funeral expenses upto Rs. 10,000/- shall be given to the eldest member of the family.36
The insured employee is provided free treatment. Special aids like artificial limbs, hearing aids, artificial dentures, pacemakers etc. can be provided as part of medical care under the ESI scheme.
ESIC has established its own dispensaries and hospitals. The employee can go there and get medical treatment, while at some places the ESIC has formed a panel of private doctors. The State Government can also provide medical benefits through its own hospitals.37
For benefits under sickness the benefit at standard benefit rate is obtained if employee is unable to go to work.38
Under disablement benefit, temporary disablement benefit is available to employee during disablement. In case of permanent disablement, the employee gets disablement throughout life, depending upon loss of earning capacity of workers which is determined by a Medical Board. Vocational rehabilitation upto Rs. 45 per day and physical rehabilitation upto 100% of wages is available in case of physical disablement due to employment injury.
An occupational disease is an employment injury if an employee employed in a specified employment contracts any disease peculiar to that employment, it will be deemed to be an employment injury.39
The right to receive any payment of benefit under this Act shall not be transferable or assignable. 40When a person is entitled to receive benefits under this Act, he shall not be entitled to receive any similar benefit admissible under the provisions of any other enactment.41 Further persons are not to commute cash benefits in the form of a lump sum payment under this Act.
The Act also disallows persons from combining benefits for the same period for eg. both sickness benefit and maternity benefit. In such event, when a person is entitled to more than one benefit he shall be entitled to choose which benefit shall he receive.42
Employers are not allowed to dismiss, discharge, reduce or punish an employee during the period the employee is in receipt of sickness benefit or maternity benefit.
Making wrong / false statements made by the Insured Persons with a view to take any benefit which is not admissible to him under the Act is an offence punishable under Act with imprisonment for a term which may extent to six months or with fine which may extend to Two thousand rupees or with both.
Section 85 deals with penalties for non-compliance with the various provisions of the ESI Act and Regulations made there under, such as non-payment of contribution, non-submission of Returns, non-Production of records, non-submission of Declaration Forms in respect of their employees, obstruction of Inspector or any other official of the corporation in discharging his duties etc. Such non-compliance with any of the provisions of the Act constitutes an offence committed by the employer of a covered Factory / Establishment which is punishable under the aforesaid section of the Act. Where any person is guilty of any non-compliance with any of the requirements of this Act or the rules or the regulations in respect of which no special penalty is provided, he shall be punishable especially where he commits an offence of failure to pay any contribution which he is liable to pay with imprisonment for a term which may extend to three years but which not be less than one year, and shall also be liable to a fine of ten thousand rupees.
Such imprisonment shall not be less than six months in any other case and shall also be liable to a fine of five thousand rupees. The court is at liberty for any adequate and special reasons to be recorded to impose a sentence of imprisonment for a lesser term;
Where a person commits any offence under the other clauses of the aforesaid section such as deduction of wages, reduction of wages, it shall be punishable with imprisonment for a term which may extend to one year or with fine which may extend to four thousand rupees, or with both.
The Government may exempt any factory or establishment or class of factories or establishments in any specified area from the operation of this Act for a period not exceeding one year and may from time to time renew any such exemption for periods not exceeding one year at a time. However, this exemption may be granted only if the employees' in such factories or establishments are otherwise in receipt of benefits substantially similar or superior to the benefits provided under this Act.43
The Government may also exempt any persons or class of persons, or any such factories or establishment belonging to the Government or any local authority from the operation of this Act.
ESIC as a social security scheme aims to provide insurance cover to those who aren't financially capable of obtaining such cover for themselves. However, the provision of quality healthcare services to the insured hasn't seen the light of day yet. From an administrative point of view, dual powers have been conferred on the state governments as well as the ESIC resulting in a constant struggle for superiority between the two authorities. Many a times, the insured are compelled to avail services of the hospitals recognised under the Scheme which are farther and at inconvenient locations from the recipients, despite the services being available at closer and more convenient locations. Further, the lack of awareness of the treatment options under this Scheme among the insured adds to the concerns that hinder in the provisions of quality healthcare services to the insured. While, less than half of the insured under the Scheme do not use the facilities of the Scheme because of the low quality care, many of the insured aren't even aware of the benefits of the Scheme. Their employers also do not disseminate the information to their employees that are covered by the insurance.
Recent times have seen increased government initiatives to overcome the challenge of providing quality healthcare services under the public sector. The 15% increase in government spending on the social sector with a focus on the healthcare was a welcome development. Also, under the Digital India initiative, the Minister of State for Labour and Employment, has inaugurated the first phase of the tele-medicine services of the ESIC. These services aim to provide specialist medical assistance from a distance to the insured workers. However, one shall have to wait and see whether these initiatives succeed in effectively delivering quality healthcare services to all the persons insured under this Scheme.