EMPLOYEE

COMPENSATION
Handbook
 3.1

3. Employee
Compensation

KEY TERMS
Employee Compensation; Employee; Employer;
Principal Employer; Contractor; Workplace; Accident;
Injury; Fatal Accident; Occupational Disease;
Compensation; Commissioner

WHAT IS Employee COMPENSATION?

I
ncreased and complex industrial activities, and the use of machines have made persons
at the workplace more vulnerable to injury and disease. A majority of workers employed
in a variety of activities are at the subsistence level. Loss of livelihood for them and their
families due to an accident or disease contracted at the workplace is common. Although some
employers support the treatment of their workers or compensate them, the amount is usually
not sufficient.
The law, therefore, makes it mandatory for an employer to give compensation to an employee
in case of injury, death or disease which occurs at the workplace.
This liability to pay compensation in case of injury, death or disease puts the responsibility of
making the workplace safer and less hazardous on the employer. Employees, in turn, feel more
secure at work with the knowledge that they or their families will be compensated in case of a
mishap. This creates a better relationship between employer and employee and contributes to
the efficiency and growth of the industry.
3. Employee Compensation

LAWS FOR COMPENSATION FOR INJURY, DISEASE OR

DEATH OF EMPLOYEES
There are primarily two laws which are applicable in such cases:
1. The Employee Compensation Act, 1923 (ECA)
2. The Employee State Insurance Act, 1948 (ESIA)
There are many similarities in the provisions of the ECA and the ESIA. The principles with regard
to the conditions in which compensation must be given—what is a workplace, when can it be
said that an accident happened in the course of employment, etc. are similar in nature and scope.
 3.2

The Employee Compensation Act, 1923 (ECA)

This law ensures a simple, speedy and effective remedy for disablement, death or disease of
employees:
a. The employer is liable to pay compensation to an employee or his/her dependants when;
b. Personal injury or disease or death has been caused to an employee;
c. Personal injury or death has been caused because of an accident or occupational disease; and
d. Accident or disease has taken place during the course of the Employee’s employment.
The process of compensation under this law begins when an incident/accident takes place.
The process prescribed under the law aims to resolve the matter of compensation quickly
and effectively. If such an accident occurs at the workplace, the injured employee or a
representatives shall send a notice to the employer notifying her/him of the occurrence of such
accident. Within three days of the receipt of this notice, the employer is required to take the
concerned employee for a medical examination. The employer’s liability arises as soon as the
employee is injured.
An employee who has suffered an injury or disease, or the dependants of a deceased employee,
can reach out to the commissioner appointed under the ECA to claim the compensation for the
injury and disability, or death. After conducting due investigation into the matter, the commissioner
can order the employer to pay the requisite compensation to the said employee. If the employer
delays the payment of compensation without a suitable justification, the commissioner can ask
the employer to pay an additional 50% of the total compensation to the said employee.

The Employee State Insurance Act, 1948 (ESIA)

Under this law, employees are covered under an insurance scheme, which is mandatory for
all establishments covered by this law. This has a wider application than the ECA and also
covers matters like maternity benefits and benefits to the family of the employee. These things
are covered by regular contributions made by the employer and the employee to a fund from
which all the expenses are met.

MECHANISM FOR COMPENSATION UNDER THE ECA

Under the ECA, the general principle is that a worker who suffers an injury in the course of
the employment, resulting in a disability, should be entitled to be compensated for the loss
of his/her ability to earn a livelihood. People dependent on the employee should also be
compensated for the loss in case the employee (provider) dies.

Employees Covered under the ECA

A person is an employee if he or she has been asked to work for payment. This is called a
contract of employment. A contract of employment can be express, or implied, written or
oral. [Section 2(dd)(iii)]
Employees who are not covered under the ESIA would fall under the purview of ECA.
The ECA has wide application in various kinds of employment such as construction, shipping,
mining, railways, manufacturing, cattle rearing, and agriculture, among others.
All employees who are engaged in any work listed in Schedule II of the ECA are entitled to
compensation under this law. [Section 2(dd)(iii) & Schedule II, ECA]
 3.3

The following examples give an idea about the wide range of persons/employment covered by
the ECA:
• those employed in the construction, maintenance, repair or demolition of a building more
than one storey or twelve (12) feet height, a dam or an embankment twelve (12) feet height or
more, a road, a bridge, a tunnel or a canal or on a wharf, a quay, a sea wall, etc.;
• those employed in railways in connection with the operation of a lift or a vehicle operated by
steam, or mechanical power or electricity, or in connection with the loading or unloading of
any such vehicle;
• those employed in manufacturing processes as defined under the Factories Act;
• those employed in making, altering, repairing, ornamenting, finishing, or otherwise adapting
for use, transport or sale of any article or part of an article in any premises or any work
incidental to, or connected to such work in any premises outside such premises;
• those employed in the manufacture or handling of explosives in connection with the employer’s
trade or business;
• those employed in mining operations;
• those employed in specified aspects of shipping;
• those employed in setting up, maintaining, repairing, or taking down any telegraph or telephone
line, post or overhead electric line, cable or post. standard or fittings, or fixtures for the same;
• those employed in the construction, working, repair or demolition of any serial ropeway,
canal, pipeline, sewer;
• those employed in blasting, winning natural gas or petroleum, excavation where explosives
have been used;
• those employed in ferry boat capable of carrying more than ten (10) persons;
• those employed in different types of plantations;
• those employed in occupations where animals are used or reared;
• those employed in work of clearing of jungles; or
• those employed in cleaning of sewage or septic tanks with a local authority.
FOR THE FULL LIST, SEE SCHEDULE II, ECA

Harish is brought to a construction site by some men he knows, to work as a casual labourer
clearing debris. He is paid by the contractor Radheyshyam at a rate of Rs. 400 per day. His wages
are paid at the end of every week. The contractor maintains a register in which Harish’s name, the
number of hours he has worked and his payment is noted. Harish is Radheshyam’s EMPLOYEE
and he is in an ORAL, EXPRESS contract of employment with Radheyshaam. If he sustains any
injury at the construction site, Radheyshaam will be responsible for compensating him.
After a few weeks, Harish’s wife Neema joins him at the construction site and starts picking up the
3. Employee Compensation

debris. Radheyshaam starts paying her at the rate of Rs. 200 per day. He also pays her a lumpsum
at the end of every week, although her details are not maintained in the register.
One day, a brick falls from a height on Neema’s head while she is working at the worksite, and
she is seriously injured. She is admitted to a hospital for ten (10) days and is able to resume work
only after a month.
Radheyshaam denies a claim to pay compensation for her injury, maintaining that she was working
voluntarily and that he had not employed her. However, since Radheyshaam had accepted her
work on the site and was also paying her wages, Neema was Radheyshaam’s EMPLOYEE and they
had an IMPLIED contract of employment between them.
Hence, Radheyshaam must pay compensation for the accident at the worksite due to which
Neema became unfit to do the work she was doing.
 3.4

Workplaces under the ECA

The ECA applies to all workplaces within India, mentioned in Schedule II. The ECA will cover
all those employees who are not covered by the ESIA. If the employee is covered by the ESIA,
he or she will get the benefits under that law.
It is the duty of the employer to inform all employees of their rights under the employee
compensation mechanism. This information should also be displayed or conveyed to the
employee in writing and digitally, in Hindi, English or the official language of the area where
the workplace is located immediately upon hiring. Any and/or all agreements between the
employer and employee waiving off the Employee right to compensation or reducing the
liability of the employer under this mechanism are null and void as per the law.

Ayyappa Industries has hired several workers at its rice mill to perform various operations.
Ayyappa Industries is bound by the law to inform the workers in writing, by putting up notices in a
conspicuous place or giving it in writing to the workers, what their rights are and what procedures
must be followed in case of injuries/disease arising out of the employment.
Krishnan and four other employees of Ayyappa Industries have given their supervisor a written
statement which says that they are willing to forgo their rights of compensation for injury, death or
disease, if they are paid an additional Rs. 500 per month. After this, Krishnan suffers an injury in
which he loses three fingers of his right hand. Should Krishnan get compensation?
Yes, Krishnan must be compensated because such agreements waiving the rights under the ECA
are not recognized by the law.

Employers covered under the ECA

An employer is a person who hires another person/persons for wages by entering into a contract
of employment for any of the occupations mentioned in Schedule II of the ECA.
An employer may include:
• The Principal Employer;
• A managing agent;
• A legal representative of a deceased employer; or
• A person who has temporarily hired the services of an ‘employee’ of another employer.

Liability of the Principal Employer [Section 12(1), ECA]

The Principal Employer is the person who, for the purpose of his/her business, contracts the
whole or part of the work to another person (contractor) for the execution of the whole or part
of the business. In such cases, any employee of the contractor will finally be the liability of
the Principal Employer in case an accident takes place at the workplace. Under the ECA, the
Principal Employer shall pay compensation to the contractor’s employee just as he would if
the employee was directly employed by the Principal Employer. The compensation amount,
however, shall be calculated on the wages paid by the contractor.
The Principal Employer shall have the right to be indemnified by the contractor for any
compensation paid to the employee. In such a case, the right to indemnity, along with the
quantum of indemnity, shall be determined by the commissioner appointed under the ECA.
This means, that the Principal Employer can recover the money paid to the employee as
compensation, but the employee must be paid in the first instance.
 3.5

Payment of compensation if a contractor has been hired to supply and manage workers
If the work in an establishment is contracted, and a worker employed by the contractor is injured,
the contractor must pay the compensation. However, the Principal Employer is responsible for
paying the compensation if the contractor fails to make the payment. The Principal Employer
is entitled to be indemnified by the contractor for the payment he may make on account of
compensation. The worker has a right to claim the compensation from the contractor as well as
the Principal Employer.

Liability of a Managing Agent

Under the ECA, a managing agent is a person who has been appointed or is acting as the
representative for someone to ensure that the other person’s trade or business is being carried
out. The managing agent, however, does not include an individual manager subordinate to an
employer.
A managing agent is liable to pay the compensation to an employee whom he has directly
employed. It could be possible that this employee does not have any contact with the Principal
Employer. Even so, the employee can claim compensation from both the managing agent and
the Principal Employer. If the Principal Employer is asked to pay, he can be indemnified by the
managing agent.

Twenty-eight-year-old Abdul is working for the agent/dealer R. K. Agro Sales, who has been
appointed by the manufacturer Mahindra Gujarat Tractors Pvt. Ltd., under an agreement, to sell
tractors in the area of Latur. While demonstrating a tractor in the field of Jadhav, Abdul suffers
injuries when the tractor turtles over. His wife and minor children claim compensation as his
dependants and legal representatives.
The commissioner awards compensation of Rs. 4,23,580 to be paid by the manufacturer. This is
challenged by the manufacturer. In the appeal, the High Court holds that the amount is rightly
awarded, but the dealer/agent is liable to pay the compensation as he, the managing agent,
employed Abdul. Hence, he is Abdul’s employer and liable to pay the compensation under
the ECA. The compensation should be given to the claimants, and the manufacturer (Principal
Employer) could indemnify himself and recover the compensation amount from the managing
agent, i.e. R. K. Agro Sales.

Liability of a legal representative of a deceased employer

If an employer dies and his business or assets are inherited by another person, this person will
3. Employee Compensation

be liable to pay compensation due to any employee.

If an employer has died, the compensation will be paid from the assets inherited by or run by
any other person. If the assets are inherited, then each person who inherits will be treated as
the employer and will be liable to pay the compensation in proportion to the share inherited
by him.
If the business where the employee is working is run by someone after the death of the employer,
then the person who runs the business will be treated as the employer. Who is liable to pay
compensation will depend on the facts and circumstances of each case.
 3.6

Jagmohan is employed as a watchman in a small factory manufacturing cycle parts. The factory
is owned by a sole proprietor Sitaram. Jagmohan and his family live in a small room adjoining the
factory. Sitaram passes away due to an illness. After his death, Sitaram’s sons do not continue the
business in the factory, but they inherit the factory as the legal heirs. Jagmohan continues his the
job as a watchman.
One night Jagmohan is attacked by thieves and is grieviously injuries. He files a claim for
compensation against Sitaram’s sons. They refuse, saying that they are not Jagmohan’s employers,
and also that they are not running the business anymore.
However, Sitaram’s sons are ordered to pay compensation to Jagmohan, as they are the legal
representatives of the deceased employer. They are liable to the extent of the assets inherited by
them.
If Sitaram’s business was continued by any other person, such as a manager, that person would
have become the employer and would have had to pay the compensation from the assets of the
business.

Liability of a person to whom the services of an employee are temporarily

lent or let on hire
If the services of an employee are temporarily lent or let on hire to another person by the
person with whom the employee has entered into a contract of service or apprenticeship, the
other person will be responsible for compensating the employee in case of an accident while
the employee is working for him.

Zila Sahkari Kendra Bank Maryadit, a cooperative bank, owned a jeep. The bank had employed
Dara Khan as the jeep’s driver. The jeep was requisitioned by the District Election Officer for
election duty. As the jeep was requisitioned under a statute, the bank had no option but to comply.
On 5.5.1999, the driver Dara Khan, while performing his duties as the driver of the jeep, stayed
at the residence of the District Election Officer, where the septic tank was being cleaned. There
was a gas leak from the said septic tank. On instructions of the District Election Officer, Dara Khan
entered the septic tank to help the other workers. During the process, an accident took place,
resulting in Dara Khan’s death.
The Government of Madhya Pradesh, for whose purpose the jeep had been requisitioned, was
required to pay compensation to Dara Khan, because his services were being used and was under
the complete control of the requisitioning authority. The Government of Madhya Pradesh was,
therefore, the employer at the time of Dara Khan’s death.

Does a small company which employs people, but is not registered under
any Act, also have to pay compensation under the ECA?
Yes. It does not matter if the company is incorporated. In most cases, the size of the establishment
or the number of employees is not relevant. Only the fact that someone has been employed to
do a certain type of work listed under the law is sufficient for the employer to be liable to pay
compensation.
 3.7

The Government of Gujarat, through its Public Works Department (PWD), had undertaken
the Kadana Dam Project. In order to execute this work, the state government employed a
contractor—Cementation Company Limited.
Once the power to build a dam across the river was sought to be exercised by undertaking the
Kadana Dam Project, and was to be executed through the PWD, all activity connected with the
execution of the Kadana Dam Project became the business or trade activity of the state government.
The activity of the PWD is ordinarily the activity of undertaking construction, which may be of
roads, canals, embankments or a dam. Once it became the activity of the state government, a
contractor was engaged to carry out the activity.
This was ordinarily part of the business activity of the Principal. Since the Principal wanted to build
a dam, it was the business activity of the Principal. The Principal employed a contractor to carry
out part of the construction of the dam work, which was also categorized as business activity of
the Principal. The court held that the state government was a Principal Employer and liable to pay
compensation under this law.

Can any state government or government department be held liable to pay

compensation under this law?
Yes, a state government or a government department can be held liable either as a direct
employer or as the Principal Employer if it gets the work done through a contractor.

Aziz works as a crane operator at a construction site. The crane tilts into a pit of loose soil and
Aziz gets a head injury and multiple fractures. He is hospitalized for two months. Aziz is entitled
to get compensation from the employer under ECA.
Somnath had been working in a marble cutting unit for three years. He started falling sick and
was diagnosed with silicosis. The cause of silicosis was inhalation of marble dust. He gradually
became very sick and could not work anymore. Somnath is entitled to get compensation from the
employer under ECA.
Pankaj works as an electrical helper at a construction site. He got electrocuted and died. Pankaj’s
dependants are entitled to get compensation from the employer under ECA.

Circumstances when compensation is payable [Section 3, ECA]

Every employer must pay compensation under the ECA in the following circumstances:
• There is an accident at the workplace, in which an employee is injured and suffers a
disability as a result of the accident. This disability should last for more than THREE DAYS.
3. Employee Compensation

• The employee contracts a disease which can be attributed to the work he/she was doing
(occupational disease).
• An accident or disease results in the death of the employee.
The ECA lists the exact nature of injuries that entitle the employee to claim compensation from
the employer. [Section 4 and Schedule I of the ECA]

Circumstances when compensation may not be payable

An employee shall not be entitled to compensation in case of:
• An injury that has not resulted in permanent or partial disability for more than three days
from the date of accident.
 3.8

• An injury which is the result of the employee being drunk or under influence of drugs.
• An injury caused due to the employee willfully disobeying a safety guard provided for the
safety of the employees.
• An injury which is a result of the employee willfully disobeying an order at the workplace
which had been given to the employee to ensure his/her safety.
However, in case the employee dies due to the accident, the above factors will not absolve the
employer from paying compensation. This means, that in every case of death, compensation has
to be paid to the dependants regardless of the reasons due to which the accident took place.

What is an Accident?
An accident is any mishap or untoward event that is unexpected and leads to the worker getting
injured or losing his/her life. Compensation can be claimed if the employee is not responsible
for or has no contribution in the accident occurring. The employment must contribute to the
injury or death.

What is ‘willfully disobeying’?

‘Willfully disobeying’ safety instructions means purposely disregarding safety instructions.
However, if safety instructions are issued or written, but not provided for, then the employee
will be compensated if there is an accident, because he has not ignored the safety instructions
on purpose.
Whether the employee ‘willfully disobeyed’ any safety guard or orders for safety will be a
matter to be decided from the facts in each case.
Mere negligence of the worker cannot be regarded as willful disobedience by the workman
to an order expressly given. Contributory negligence on the part of the employee does not
exonerate the employer from liability to pay compensation if the accident could not have been
avoided by the exercise of ordinary care and diligence.
However, the workman may not be entitled for any compensation if it is found that he added
danger to the work being undertaken by him. If an employee voluntarily undertakes to do
something which he is not ordinarily called upon to do and which involves extra danger, the
employer may not be liable for the risks arising from doing that act or work. However, if such
work is done under instructions from the employer, then the employer will be liable to pay
compensation.

Ravi is employed at a factory producing steel. During his orientation, he is made aware of the
safety procedures to be followed at the workplace. One of these safety procedures, put up on
a notice board at the Ravi’s workplace, clearly states that before beginning work on the milling
machine, the employee must ensure that there are safety guards present. If there are no safety
guards present, the employee must inform the floor manager or the factory mechanic of the same.
However, before beginning work on the milling machine, Ravi noticed the absence of a safety
guard, but did not report it. He proceeded to work on the machine. There was an accident and
Ravi lost a finger. Will Ravi be compensated?
Yes, Ravi will be compensated for his injury. The employer did not have a safety guard installed
on the machine most of the time. The employer also had a history of poor maintenance and
providing insufficient safety gear. The employer had written the rule and put it on display only
to safeguard himself from paying compensation in case of an accident. Therefore, Ravi’s conduct
did not contribute to his injury.
 3.9

The employment must be a cause for the accident in order to say that the accident arose out
of the employment of the deceased. The cause should also be a proximate cause and not a
remote cause.

Sundar works as a machine operator in a factory in Surat. He goes on leave for two weeks. While
returning, he meets with an accident during the journey and dies. Although Sundar was coming
back to re-join his job, it cannot be said that the accident was in the course of his employment.
Sundar’s dependants will not be entitled to get compensation from his employer.
Harish, a cashier in a company in Ahmedabad, was also travelling on the same vehicle as Sundar
and was going to Surat to make a payment for the company. He also died in the accident. Harish’s
employer, however, will be liable to pay compensation to his dependants as Harish was travelling
for work and the accident happened in the course of his employment.
Kundan, a taxi driver hired by Astra Tours, got into an altercation with another driver Kedar
while handing over duty. Kedar hit Kundan and Kundan died as a result of the injury. This is an
accident arising in connection with Kundan’s employment and the employer, Astra Tours, will have
to compensate Kundan’s dependants for his death.

If the employee, in the course of his employment, has to be in a particular place, and by
reason of his being in that particular place, he has to face a danger and the accident is caused
by reason of that risk, then a causal connection is established between the accident and the
employment. The danger must be incidental to his employment.

What is Workplace?
The workplace includes all the places and activities related to the work which the employee
is doing for the employer.
The workplace is not confined merely to a building or a worksite where the employee reports
for work. It includes all areas where the employee is present because of his employment. This
would include:
• The actual area or place where the employee works.
• Any place other than the actual place where the employee is present in connection with
the work.
• Any place other than the actual place to which the employee is sent on instructions of the
employer.
• Coming to or going from the workplace, provided the nexus between the place where the
accident happened and the workplace can be established.
3. Employee Compensation

Joseph works in a factory. He and other workers get a short break of 15 minutes twice a day and
a long one-hour break once a day. During these breaks, he and the other workers usually go out of
the factory and stand or sit outside the factory gate. Here, some workers smoke a cigarette, while
others have tea or play cards.
During one such break, a sudden windstorm resulted in a tree falling over Joseph and another
worker. Both had several fractures, which rendered them unable to work for two months.
Joseph and his co-worker are liable to be compensated for the injuries arising out of this accident
as the accident happened ‘in the course of employment’, even though it was neither caused by
nor due to the nature of the work done by them. The accident happened at the workplace. The
employer cannot say that at the time of the accident they were standing outside the premises and
were hit due to natural causes. There was a close and proximate connection between the place
where the employees were present and the accident.
 3.10

CALCULATION OF COMPENSATION
[Section 4 & Section 5 Read with Schedule IV, ECA]
The ECA lays down clear guidelines for calculation of compensation, which must be paid to an
employee in the case of injury, disease or death. The following factors are taken into account
for calculating compensation:
• The date of the accident.
• The wages of the employee on the date of the accident.
• The duration of the employment.
• The nature of the injury.
• Whether death occurred due to the accident.

The date of the accident

The amount of compensation will be calculated according to the date of the accident. For
example, if an employee was injured on 28th July, 2017, but applied for compensation after
three months, the number of loss of working days will be calculated from the date of the
accident. His loss of wages will also be calculated on the basis of the wages that he was being
paid at the time of the accident.

The wages of the employee on the date of the accident

The amount of loss of livelihood/dependency that has been incurred due to the injury or death
will be based on the wages that the employee was receiving.

The duration of the employment of the employee

The wages will be calculated according to the time period that the employee was working
with the employer, during whose employment the accident took place. The wages will be
calculated in different ways in the following circumstances:
a. where the employee was in service for twelve (12) months or more; or
b. where the employee was working for less than one month; or
c. any other not covered by the above.

The nature of the injury

Injuries suffered by an employee could be of the following types:
• Injury/injuries causing permanent partial disability.
• Injury/injuries causing permanent total disability.
• Injury/injuries causing temporary disability.
The nature of the injury will be a relevant factor in determining the amount of compensation.
The compensation for injuries/disability listed in Part A&B of Schedule I will be determined
accordingly. Non-schedule injuries (those which do not result in permanent partial
disablement or permanent total disablement) will be calculated according to the loss of
earning capacity caused by the injuries. Generally, a medical examination indicates the
extent of injury and disability, and the earning capacity is computed by the commissioner
accordingly.
 3.11

Guidelines for calculating compensation

The following guidelines should be kept in mind while calculating compensation:
• Compensation is calculated from the date of the accident or the date when the employee
was injured.
• The employer cannot stop the payment of compensation on the excuse that either settlement
with employee or a decision of the commissioner for correct amount is awaited.
• It is the duty of the employer to have the employee claiming compensation medically
examined for the disability suffered, as soon as possible. Immediately thereafter, the
employer must release the payment of compensation. However, this does not prejudice
the worker from later claiming compensation of a higher amount.
• The employee will be reimbursed by the employer for medical expenses incurred, which
will be in addition to the compensation amount.

50 per cent of the monthly wages of the deceased employee

DEATH multiplied by at the relevant factor or an amount of Rs. 1,20,000,
whichever is more

TOTAL
PERMANENT percentage of the amount payable for total permanent disability as
DISABILITY per injury given in the schedule of the Act

PERMANENT
PARTIAL percentage of the amount payable for total permanent disability as
DISABLEMENT per injury given in the schedule of the Act

half the monthly payment of 25 per cent of monthly wages of the

TEMPORARY employee payable on the 16th day from the injury, and then every
3. Employee Compensation

DISABLEMENT half a month for the period of disability or 5 years, whichever period
is shorter

In case the actual wage is less than the prescribed minimum wage of the employee, the actual
wage shall not be considered while calculating compensation. Instead, the calculation shall
be made on the basis of the prescribed minimum wage.
In order to ascertain the amount or quantum of compensation, a doctor’s certificate showing
or determining the extent of disability suffered by the worker will be considered sufficient
proof.
 3.12

Scenario 1: In case of Death

Rakesh was working as a deckhand on a ship. When his ship was en-route, he slipped and fell into
the sea, and drowned. At the time of his death, Rakesh was thirty (30) years old and was getting
Rs. 8,000 as monthly wages from his employer.
Rakesh’s employer is liable to pay compensation to Rakesh’s dependants on the basis of the
formula gievn below:
• ½ of the monthly wages x relevant factor in Schedule IV of ECA
• ½ of the monthly wages would be: ½ x 8,000 = 4,000
• Relevant factor would be 207.98 (as given for age 30 years in Schedule IV)
Thus, the final compensation to be paid:
4,000 x 207.98 = Rs. 8,31,920

Scenario 2: In case of Permanent Total Disablement

Suresh, aged thirty (30), was a truck driver employed by a construction company. Suresh was
transporting cement to a construction site of the company and met with an accident on the way.
As a result of the accident, Suresh sustained severe injuries which required the amputation of his
right hand and left foot. Due to this, he could no longer work as a driver. At the time of accident
Suresh was drawing Rs. 10,000 as monthly wages from his employer.
Suresh’s employer is liable to pay Suresh compensation on the basis of the formula given below:
• 60% of Suresh’s monthly wages x relevant factor (as provided in Schedule 1 of ECA)
• 60% of Suresh’s monthly wages would be - 0.6 x 10,000 = 6,000
• Relevant Factor would be 207.98 (as given for age 30 years in Schedule IV)
Thus, final compensation to be paid:
6,000 x 207.98 = Rs. 12,47,880
To decide whether disablement caused by an accident is total or partial, the Supreme Court in
the case of Pratap Narain Singh Deo v. Srinivas Sabata [1976 SCR (2) 872] conveyed that if the
disablement caused by an accident incapacitates the injured for all work which he was capable
of performing at the time of the accident, then such disablement would be permanent in nature.
In this case, the Supreme Court held that a carpenter is said to be permanently and totally disabled
when the carpenter lost his left hand above the elbow due to the injury, and thus, became unfit to
undertake carpentry work as the same cannot be done with one hand.

Scenario 3: In case of Permanent Partial Disablement

Mohan, aged thirty (30), was working as a welder in a factory. One day, while welding, sparks
flew into Mohan’s right eye and burnt 90% of his cornea, resulting in total loss of vision in his
right eye. No injuries were caused to his left eye. At the time of the accident, Mohan was receiving
Rs. 6,000 as monthly wages from his employer.
In this case of permanent partial disablement, the formula for calculating compensation will be as
given below:
Compensation = Percentage of loss in earning capacity according to relevant entry in Schedule I
of ECA
Earning capacity = 60% of monthly salary x relevant factor (as provided in Schedule IV of ECA)
• 60% of monthly salary is Rs. 3,600
• Relevant Factor is 207.98 (as given for age 30 years in Schedule IV)
 3.13

Therefore, earning capacity =

3,600 x 207.98 = Rs. 7,48,728
Mohan’s employer is liable to pay compensation to Mohan on the basis of the below calculation:
• Percentage in loss of earning capacity is 30 per cent (as provided in entry no. 26 of Schedule I)
Therefore, Compensation = 30% of 7,48,728 = Rs. 2,24,618

Scenario 4: In case of Temporary Disablement

Swami was working at a construction site. While lifting bricks, Swami’s foot slipped and a few
bricks fell on his right foot, fracturing his right ankle. As per the medical report, Swami would not
be able to return to work for at least sixty (60) days. At the time of the injury, Swami’s monthly
wages were Rs. 5,000.
Swami’s employer is liable to pay compensation to Swami on the basis of the formula given below:
• 25% of Swami’s monthly wages, which will be Rs. 1,250 to be paid on every 16th day till the
time Swami continues to be disabled.
Thus, Swami’s employer will be liable to pay, on every 16th day, an amount of Rs. 1,250 for the
period of rest.

MODE OF SETTLING COMPENSATION [Section 8, ECA]

The payment of compensation under the ECA can be made in the following ways:

Scenario 1: When a male employee has been injured, not resulting in death
If a male employee is injured, the compensation amount can be agreed upon and paid directly
to the employee. The employer must calculate the quantum of the compensation to be paid.
This amount must be reported to the commissioner, who may then ascertain whether the
amount is sufficient, and may direct additional payment.
The employee may also claim compensation for any disability suffered due to an occupational
disease, that is, illness resulting from the workplace environment or employment. In this case,
medical examination shall be required to certify the disease, which should be one listed under
the ECA.
3. Employee Compensation

Scenario 2: A female employee has been injured, not resulting in death and
is to be paid a lumpsum
When a female employee is injured and a lumpsum amount is to be paid, it can be done only
by depositing it with the commissioner.

Scenario 3: An employee, male or female has been injured, and death

resulted from the injury
Where death results from an injury at the workplace, the employer shall deposit the compensation
with the commissioner. The commissioner will issue a receipt for the deposit, which serves as
proof of payment of compensation. The commissioner will ensure that the correct amount of
 3.14

compensation has been deposited and will then distribute the amount to the dependants of the
deceased employee.
The employer may pay up to three months’ wages to the dependant of the deceased employee
as temporary relief. This amount can be later adjusted against the compensation decided by
the commissioner.

What will happen if the employer pays some amount of the lumpsum
directly to the injured female or dependants of a deceased male employee?
Any such sum paid directly to a woman employee or to the dependants of a deceased employee
will not be counted as a proper payment. The commissioner will order the total calculation of
compensation and the whole amount will have to be paid again.
No payment of any ‘ex-gratia’ amount will be taken into account as payment of compensation
in such cases.

Jamnagar Municipal Corporation paid Rs. 50,000, as ex-gratia payment, to Prabhaben

Rajeshbhai, the widow of a deceased worker. Thereafter, a further amount of Rs. 1,57,237 was
paid as per office order. In all, it came to Rs. 2,20,146.
The commissioner gave credit only of amount of Rs. 1,57,237, which was paid vide cheque to the
widow of the deceased and did not give credit of the ex-gratia amount of Rs. 50,000.
This was correctly done by the commissioner as any payment in the case of compensation for
death of an employee can be made only through the commissioner. Any payment made through
any mode except through the commissioner will not be treated as settlement of compensation and
will not be off-set against the total amount.

What happens if the employer does not deposit the amount

of compensation?
Wherever compensation is to be paid, it must be paid as soon as it becomes due.
In case the amount is disputed or cannot be paid directly, the employer must deposit the same
with the commissioner to the extent calculated by him. If he does not deposit the amount with
the commissioner within one month from the date when it becomes due, he will be liable to
pay interest on the arrears.
If the commissioner feels that there was no reasonable cause for non-deposit, he may impose
a penalty up to fifty (50) per cent of the amount of compensation.
It should be remembered that if the employer is insured for this amount, the interest and penalty
will not be paid by the insurance company, as the responsibility of paying the compensation
lies with the employer. He is to deposit the amount and then claim it from the insurance
company.

What will happen if the employer sells or transfers his assets to someone
else before the compensation is paid?
If any liability to pay compensation has accrued before the transfer of assets, payment of
compensation is a ‘first charge’ on any immovable assets even after they are transferred.
 3.15

If the injured
If the injured
employee is male, and
If the injured employee (male or
the injury does not
employee is female female) dies from the
lead to death or
accident
disability

compensation to compensation to compensation to

be paid directly to be deposited with be deposited with
the employee commissioner commissioner

employer
calculates the commissioner commissioner
amount of issues receipt for issues receipt for
compensation due deposit deposit
to the worker

employer reports commissioner

commissioner calls
the compensation distributes
upon dependant or
amount to compensation
dependant applies
the labour to the female
for compensation
commissioner employee

labour
commissioner
commissioner
distributes
determines if the
compensation to
compensation
the dependant
amount is sufficient

if compensation
is insufficient,
shortfall to be
paid directly or
through deposit to
commissioner
3. Employee Compensation

TIME LIMIT FOR CLAIM

What happens if there is no claim made by the employee or his
dependants? [Section 10A ECA]
An employee or a dependant must apply for compensation to the commissioner within 2
(two) years from the date of accident. If the employee or dependant has any good reason
for not having raised a claim within this time period, the commissioner can excuse the delay.
If the delay cannot be excused, the employee or a dependant could lose their right to claim
compensation.
 3.16

In case the employee has an occupational disease and is asking for compensation, the time
limit for claim will be 2 years from the date of finding out about the disease. Occupational
diseases are listed under the ECA, and are specific to the employment they are listed with.
If the commissioner receives information of the accident, he can also by himself (suo motu)
find facts and ask the employer to pay compensation. He can do so even where the information
is from a third source and not from the employee or the dependant.

Who are the dependants who will get compensation?

The following legal heirs are considered as dependants under the ECA:
• A widow; a minor son; an unmarried daughter; a widowed mother.
• A major son or daughter, in case they are wholly dependent on the worker due to an infirmity.
• The following legal heirs who are wholly or partly dependent on earnings of the worker at
time of his/her death:
a widower
a parent other than a widowed mother; a minor illegitimate son, an unmarried illegitimate
daughter or a daughter who is married/widowed and a minor
a minor brother or an unmarried sister, or a widowed sister if a minor
a widowed daughter in-law
a minor child of a pre-deceased son
a minor child of a pre-deceased daughter where no parent of the child is alive
a paternal grandparent if no parent of the worker is alive
However, dependency of the person claiming the compensation under the ECA must be
proved before the commissioner. At the time of death of the worker, the concerned legal heir
must be wholly, or in part, dependent on the earnings of the worker. In case there are multiple
dependants, the claim may be made by them jointly, and the compensation will be distributed
by the commissioner accordingly.

Sarita worked on a road construction site. One day, while shifting gravel for the foundation of the
road, an electricity pole on the side of the road fell on her. The pole struck her on her head and
she died as a result of that injury. She was survived by two children and a husband. Her husband
claimed for compensation as her legal heir. Under the ECA, is Sarita’s husband eligible for the
compensation?
No, Sarita’s husband is not eligible for compensation, as he works and is not dependent on
Sarita. Under the ECA, a dependant and a legal heir are distinct. Any person dependent on
the deceased employee for sustenance is qualified to receive compensation. In this case, the
children shall receive the compensation amount, and as per ECA, the commissioner may release
the compensation either by putting it in a fixed deposit or by paying the same.
Pinky died of an injury at her workplace. She was survived by her widowed mother and husband.
Of the two, Pinky’s mother was entirely dependent on her earnings. Hence, after Pinky’s death,
her mother claimed the compensation before the commissioner. However, her mother died before
the proceedings for the payment of compensation could be concluded. Should the compensation
now be given to Pinky’s husband, who was her legal heir?
No, in such a case, the husband will not receive the compensation amount. This is because the
right to be compensated is of the dependant. Pinky’s mother was her dependant and so she was
entitled to the compensation. It became due to her on the date of Pinky’s death. Pinky’s sister
is the legal heir of the dependant i.e. Pinky’s mother. She can continue the proceedings on her
mother’s behalf and claim the compensation.
 3.17

What are the consequences of not paying compensation? [Section 31 ECA]

Where the employer fails to:
• maintain the notice book required under ECA; or
• send a report of the fatal accident in time; or
• respond to the commissioner’s notices; or
• file any return or report required; or
• inform the employee of his rights under ECA,
he may have to pay a penalty for it.
The commissioner can also recover from the employer any arrears in compensation by way of
attachment of property.
The penalty for each failure is punishable with a fine which ranges from Rs. 50,000 -
Rs. 1,00,000.

SHOULD THE EMPLOYER TAKE ACCIDENT INSURANCE

FOR EMPLOYEES?
The liability of an employer is well established towards payment of compensation, even if the
employees were hired through a contractor. Therefore, the employer must ensure coverage of
such risk. It may be done by taking an insurance policy to protect against such risk. The employer
must make an informed decision in the matter.

Salim, a daily wage labourer, suffered a fall at a construction site, which resulted in paralysis in
the limbs. This made him unable to work for a living. Salim was working for a contractor who had
been hired by Rajiv to build a home for him. Salim claimed compensation from Rajiv before the
commissioner’s office. Will Rajiv be liable for such compensation?
Yes, the home-owner, Rajiv shall be liable to pay the compensation to Salim. He is the Principal
Employer, which means even though the contractor hired Salim, Rajiv is the ultimate employer
of the contractor. The fact of the contractor being hired for the personal purpose of building a
home is not relevant. Rajiv, however, can, after the payment of compensation, claim the same as
indemnity from the contractor. To do so, he can initiate a claim with the commissioner.

Where the employer has paid compensation to an injured employee as a Principal Employer,
the amount paid can be claimed from the contractor. The employer seeking indemnity from the
3. Employee Compensation

contractor, should make an application to the commissioner for the same. The commissioner
will then make the contractor reject or admit the indemnity. The contractor has a further
right to move an application in such proceedings to call upon indemnity as a principal from
a sub-contractor to cover the indemnity amount claimed by the Principal Employer. The
commissioner may issue notice calling upon such sub-contractor to join the proceedings. If
the commissioner is satisfied with the claim of the Principal Employer, the indemnity amount
may be recovered from the contractor, or the sub-contractor, as the case may be.
 3.18

PROCESS FOR COMPENSATION UNDER THE ECA

The mechanism of the ECA only comes into play once an accident has occurred at the
workplace or on site (where the worker was working for the employer). The rules under the
Act clearly state that it is the duty of the employer to ensure that payment of compensation is
speedy and effective. The commissioner is considered the nodal authority as well as the quasi-
judicial authority for cases under the ECA. The commissioner’s decision is final and binding.

THE COMMISSIONER
The commissioners of Employee Compensation are appointed by the relevant state government to
administer the mechanism under the ECA in a given area, within the territory of the state.
The proceedings related to a workplace accident can be brought before the commissioner for the
area in which:
• the accident takes place, or
• the injured employee or the dependant of the deceased employee resides, or
• the registered office of the employer is located.
Amongst all these options, the jurisdiction of the commissioner, under whom the place of accident
is situated, shall prevail.

The employee is not allowed to have two court proceedings under the ECA for the same claim.
This means that with respect to the workplace accident and compensation, employee cannot
approach both the commissioner’s office and the civil courts. If either forum is chosen by the
employee, the other shall be barred from being approached.

Relevant provision: Section 3 (5) provides that

Nothing herein contained shall be deemed to confer any right to compensation on a
*[employee] in respect of any injury if he has instituted in a Civil Court a suit for damages
in respect of the injury against the employer or any other person; and no suit for damages
shall be maintainable by a *[employee] in any court of law in respect of any injury (a) if he
has instituted a claim to compensation in respect of the injury before a commissioner; or (b)
if an agreement has been come to between the *[employee] and his employer providing for
the payment of compensation in respect of the injury in accordance with the provisions of
this Act.

Notice to employer by employee and medical examination

When an accident occurs at the workplace and an employee is injured in the accident, the
employer should be notified. As soon as the employer has been notified, he/she must assist the
injured employee to file a notice of the incident. This is done to keep a record of the incident
in the notice book maintained by the employer.
The notice filed to record the incident should contain details such as the name and address of
the person injured, the cause of injury and date on which the accident occurred. The notice
should also be shared with the contractor, if any, and any other such offices who had been
hired by the employer to supervise the employees at the workplace. [Section 10 (2)]
In case the employee has given a notice of the accident, the employer shall, within three days,
offer medical examination to the employee free of charge. [Section 11 (1)]
 3.19

The examination can be conducted either at the workplace, or where the employee resides, at
the prescribed time and venue. A female employee shall not be examined by a male medical
practitioner, except in the presence of another woman. [Rule 14, 15 and 18 of Workmen’s
Compensation Rules, 1924]

Date of Accident
The date of accident is an important aspect of the compensation claim and notice filed by
an Employee. The notice regarding the accident should be filed as soon as possible after the
accident takes place. This will allow the employee to file for claim of compensation with the
Commissioner within two years of the accident. [Section 10 (1) ECA]

Notices etc. to Commissioner in case of fatal accident/accident of female

employee
In the case of a fatal accident or a non-fatal accident involving a female worker, the employer
has to file a notice, within seven (7) days of the accident, with the commissioner’s office in the
prescribed Form EE. [Rule 11, Workmen’s Compensation Rules, 1924]
Where it comes to the knowledge of a commissioner that a fatal accident has occurred and
no report has been filed by the employer, a notice may be issued to the employer, asking
him to file within thirty (30) days a statement of facts and circumstances of the fatal accident.
[Section 10A (1)]
Independent of the processes above, upon knowledge of any accident, the employer has a
right to present his facts to the commissioner, even where the employee has not presented
a compensation claim. The employer or his subordinate can present to the commissioner a
memorandum supported by an affidavit embodying the results of any investigation or enquiry,
which has been made into the circumstances or cause of accident. [Rule 12, Workmen’s
Compensation Rules, 1924]
In the case of a fatal accident, the employer shall deposit the compensation amount with the
commissioner in Form A. The receipt issued in Form B shall be proof of the payment of such
amount of compensation to the dependants. The total amount payable is subject to the final
decision of the commissioner. In case the compensation is being paid towards an injured
female employee or one who is legally disabled by injury, the deposit of compensation shall
be in Form AA. [Rule 6 (1) Workmen’s Compensation Rules, 1924] 3. Employee Compensation
Notes
Notes