The Employee’s State Insurance (Central) Third Amendment Rules, 2016 (“ESI Rules”) were notified by the Ministry of Labour and Employment, Government of India on December 22, 2016, thereby amending the salary or wages threshold for coverage of an employee under the Employee’s State Insurance Act, 1948 (“ESI Act”) with effect from January 1, 2017. The ESI Act inter alia applies to factories and commercial establishments and provides for social security insurance for employees in case of sickness, maternity and employment injury. In Karnataka, the ESI Act applies to establishments with 10 or more employees.
The eligibility limit of an “employee” has been amended under the ESI Rules, whereby an employee who now earns wages of Rs. 21,000/- or under per month should be mandatorily enrolled under employee insurance under the ESI Act. This is an increase from the earlier wage cap of Rs. 15,000/- per month, thereby extending the coverage of the ESI Act.
It is relevant to note that the cap mentioned in the ESI Act applies to “wages”. The definition of “wages” under the ESI Act refers to “all remuneration” payable other than (i) pension or provident fund contributions; (ii) travel allowance; (iii) allowance to cover special expenses incurred during the course of duty; and (iv) gratuity payable on termination. It also excludes all reimbursable expenses incurred by the employee for the purpose of employment. In our experience, such excluded remuneration normally covers not more than 20-30% of total remuneration. This means that it could potentially cover employees earning remuneration of Rs 30,000 and below.
The amendment will lead to inclusion of more employees under ESI, who will now be subject to monthly ESI deductions. It will be interesting to see how employees react to the increased coverage, mainly because the quality of government-run hospitals which offer ESI Act services tends to be somewhat poor and even lower level employees often refuse to use such hospitals. This causes statutorily covered employees to question whether the ESI contributions are actually worthwhile.
1. This Act is extended in area wise to factories using power and employing 10 or more persons and non-power using manufacturing units and establishments employing 20 or more person upto Rs 21,000.00 per month w.e.f. 1st January 2017
2. It has also been extended upon shops, hotel, restaurants, roads, motor transport undertaking, equipment maintenance staff in hospitals
3. The factories and establishments shall continue to be administered by this Act despite the number of persons employed therein at any time falls below the aforesaid limit
4. Employees employed by a contractor are directly covered under ESI Act and the Schemes thereto
The ESI Act covers employees earning wages upto Rs. 21000.00 per month, engaged either directly or through contractor
Therapeutic, sickness, extended illness for certain disease, enhanced sickness, old age care dependents, maternity, beside funeral expenses, rehabilitation allowance, medical advantage to insured person and his or her spouse, medical bonus & Physical Aids
1. Employers' 4.75%
2. Employees' 1.75%
1st April to 30th September
1st October to 31st March
THE ESI SCHEME TODAY (as on 31.3.2009)
No. of implemented Centers 782
No. of Employers covered 1.25 crore
No. of Insured Person 1.29 crore
No. of Beneficiaries 5 crore
No. of ESI Hospitals 145
The total amount of contribution (employee's share and employer's share) is to be deposited with the authorized bank through a challan in the prescribed form in quadruplicate on or before 21st of month following the calendar month in which the wages fall due
If a person joined insurable employment for the first time, say on 5th January, his first contribution period will be from 5th January to 31st March and his corresponding first benefit will be from 5th October to 31st December
To be deemed as:
1. Basic pay
2. Dearness allowance
3. City compensatory allowance
4. Overtime wages (but not take into account for determining the coverage of an employee)
5. Payment for day of rest
6. Production incentive
7. Bonus other than statutory bonus
8. Night shift allowance
9. Heat, Gas & Dust allowance
10. Payment for un-substituted holidays
11. Meal/foods allowances
12. Suspension allowance
13. Lay-off Compensation
14. Children education allowance(not being reimbursement for actual tuition fee)
1. Contribution paid by the employer to any pension/provident fund or under ESI Act
2. Sum paid to defray special expenses entailed by the nature of employment Daily allowance paid for the period spent on tour
3. Gratuity payable on discharge
4. Pay in lieu of notice of retrenchment compensation
5. Benefits paid under the ESI Scheme
6. Encashment of leave
7. Payment of Inam which does not form a part of the terms of employment
8. Washing allowance for livery
9. Conveyance
Different punishment have been prescribed for different types of offences as follows
In terms of Section 85: (i) (six months imprisonment and fine Rs.5000), (ii) (one year imprisonment and fine)
In terms of Section 85-A: Imprisonment upto five years imprisonment and but not less to 2 years
Section 85-C (2) of the ESI Act, which are self explanatory. Besides these provisions, action also can be taken under section 406 of the IPC in cases where an employer deducts contributions from the wages of his employees but does not pay the same to the corporation which amounts to criminal breach of trust.
