ESIC Act, 1948- Applicability, Wages and Contribution

 1. ESI SCHEME AND APPLICATION

ESI Scheme for India is an integrated social security scheme tailored to provide Social Production to workers and their dependents, in the organised sector, in contingencies, such as Sickness, Maternity and Death or Disablement due to an employment injury or Occupational hazard.

Applicability

♣ Sec 2(12) Non –seasonal Factories using power in and Employing ten (10) or More persons

♣ Non –seasonal and non‐power using factories and establishments employing twenty(20) or more persons

♣  Sec 1(5), the scheme has been extended to shops,hotels, restarunts,cinemas including preview theatres, road-motor transports undertakings and newspaper establishments employing 20 or more persons

NOTE:   The existing wage limit for coverage under the Act is Rs. 15,000/- per month ( w.e.f. 01/05/2010).

2. CASE LAWS ON APPLICABILITY OF ACT

♣ Factory – Hotel-Kitchen manufacturing process – Whether hotel falls within the purview of definition of factory?

 Yes. G.L. Hotels Ltd. v. T.E. Sarin, (1993) 4 SCC 363: 1994 SCC (L&S) 3: 1993 LLR 945 (SC)

♣ Applicability of provisions of the Act – Non-applicability of the provisions of the Act to an establishment in the cities of Calcutta and Bombay – Whether it can be contended that provisions of the Act cannot be made applicable to similar establishment in Madras? No. Such a contention has no legal foundation.

Employees’ State Insurance Corporation v. Oxford University Press, 1993 LLR 450 (Mad HC)

♣ A club having kitchen will be treated as a factory and its employees will be covered under ESI Act.

Cricket Club of India v. Employees’ State Insurance Corporation, (1994) 69 FLR 19: (1994) 1 LLN 644: 1994 LLR 333: 1993-1 LLJ 642 (Bom HC)

♣ A company providing air-cooling facilities to the tenants of a building by engaging more than 10 employees will attract applicability of ESI Act.

Employees’ State Insurance Corporation v. Tiecicon Pvt. Ltd, Bombay, (1996) 1 LL) 504: 1995 LLR 768 (Bom HC)

♣ ESI Act will be applicable to a co-operative society having more than 20 employees.

Sindhi Sehiti M.P. Transport Coop. Society Ltd., Bhopal v. Regional Director, Employees’ State Insurance Corporation, Indore, 1997 LLR 543 (MP HC).

♣ A godown away from the factory will come within the expression ‘premises of the factory’ for applicability and coverage under the ESI Act. .

Narashimha Mills Ltd., Coimbatore v. Regional Director, Employees’ State Insurance Corporation, Madras, 2000 LLR 784 (Mad HC).

♣ A notification issued by a State Government under the ESI Act will extend to all branches of the said establishment situated even outside the State.

Transport Corporation of India v. Employees’ State Insurance Corporation, 2000 LIC 203: AIR 2000 SC 238: (2000) 1 SCC 332: (2000) 1 LLJ 1: 2000 LLR 113 (SC).

3. DETAILED ANALYSIS ON MEANING OF WAGES

Wages means 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 authorised 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 :‐

a). Any contribution paid by the employer to any pension fund or Provident fund, or under this                                act;

b). Any traveling allowance or the value of any traveling concession;

c). Any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment ; or

d). Any gratuity payable on discharge.

The above definition has three parts

1. All remuneration paid or payable in cash to an employee following from the term of employment (including agreement) express or implied. The periodicity of payment is not relevant in this case.

2. Any additional remuneration even if not flowing from any agreement or settlement but paid at intervals not exceeding two months.

3. The exceptions as provided in Clause (a) to (d) above. Any remuneration paid or payable under para 1 and 2 is wages and chargeable to contribution whereas any amount paid towards items mentioned in clause (a) to (d) are not wages and therefore no contribution is chargeable on the amount

TO BE DEEMED AS WAGES

• Basic pay
• Dearnes Allowance
• House rent allowance
• City compensatory allowance
• Overtime wages (but not to be taken into account for determining the coverage of an employee)
• Production incentive
• Bonus other than statutory bonus
• Nightshift allowance
• Children education allowance
• Heat, Gas & Dust allowance

NOT TO BE DEEMED AS WAGES

• Contribution paid by the employer to any contribution any
• Sum paid to defray special expenses
• Gratuity payable on discharge
• Pay in lieu of notice retrenchment
• Benefits paid under the ESI Scheme
• Encashment of leave Encashment
• Payment of Inam which does mean part of employment
• Washing allowance for livery
• Conveyance amount towards reimbursement for duty related journey

4. CASE LAWS ON “MEANING OF WAGES”

♣ Payment of ‘incentive bonus’ to the employees under ‘incentive bonus scheme’ will come within the purview of wages as defined by the Act.

Madhya Pradesh State Road Transport Corporation v. Employees’ State Insurance Corporation, 1991 LLR 17 (MP HC)

♣ The term ‘wages’ under the Act will include ‘incentive bonus’ within its definition.

Madhya Pradesh State Road Transport Corporation v. Employees’ State Insurance Corporation, 1991 LLR 311: 1991 (62) FLR 369: 1991 CLR 924 (MP HC)

♣ Payment of daily ‘Bhatta’ or allowance to bus conductors will not amount to ‘wages’ under the Act.

Regional Director, Employees’ State Insurance Corporation v. Vinod, 1991 LLR 610 (Kar HC)

‘♣ Wages’ – Meaning of – Employer introduced voluntary scheme for payment of production bonus to its employees – Subject to a ceiling of Rs. 100 per month ¬Management also entitled to withdraw the scheme at any time – Whether payment of production bonus to the employees under the Production Bonus Scheme fell within the definition of wages under section 2(22) of the ESI Act?

Yes. Reliance placed on the judgment of the Supreme Court.

1. Shourie Duplicators (Pvt.) Ltd. v. Employees’ State Insurance Corporation, 1992 LIC 104: 1992 LLR 70: 1991 (63) FLR 8730 1992 (1) LLN 170, 1992 (2) LLI443 (Del HC).

2. Harihar Poly fibres v. Employees’ State Insurance Corporation, (1984) 4 SCC 324: AIR 1984 SC 1680: (1984) 2 LLN 747: 1984 LIC 1570: 1984 (65) FJR 199 (SC).

♣ ‘Inam’ or incentive given to contractual labour by the principal employer will not amount to ‘wages’.

Eagle Flask Industries Ltd. v. Employees’ State Insurance Corporation, (1997) 76 FLR 43: (1997) 1 LLN 599: 1997 LLR 235: 1997-1 CLR 624 (Bom HC).

5. CONTRIBUTION

The Scheme is primarily funded by contribution raised from Insured Employees and their employers

Payable such as

1. Employees’ Contribution –1.75% of the Wages

2. Employers’ Contribution –4.75% of the Wages

TOTAL ‐6.5 % of the Wages

Note: Employees in receipt of an average daily wage of Rs.100/‐or Less, are exempted from Payment their share of contribution. Employers will however contribute their own share in respect of these employees.

Collection of Contribution

An employer is liable to pay his contribution in respect of every employee and deduct employees contribution from wages bill and shall pay these contributions at the above specified rates 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.

Work is a celebration only when both partners – the worker and industry – thoroughly benefit from it.

(Written by- CA Gagandeep Singh- Labour Laws Consultant, Mob No. 8960490499, Mail id: cagagan16@gmail.com)