Employees' State Insurance (ESI) Act, 1948

The Employees' State Insurance Act, 1948 (the ESI Act) is a social welfare
legislation to provide certain benefits to employees in case of sickness, maternity
and employment injury. It aims to bring the concept of “social insurance” in
India

Applicability

ESI Act is applicable to

• all factories (excluding seasonal factories)
• all establishments such as corporate organizations, restaurants, cinema
theatres, offices, medical and other institutions, and where 10 or more people
are employed.
ESI applies only in establishments falling in areas notified by the ESI scheme

If employees in a government establishment are getting similar or superior

benefits from some other sources, ESI provisions are not applicable.
Establishments covered under ESI Act are exempt from provisions of Workmen’s
Compensation Act 1923, and Maternity benefits Act, 1961

Govt may extent it to other establishments by Gazette notification.

The employer is liable to get factory or establishment registered with the

Employees' State Insurance Corporation (ESIC) within 15 days of the Act
becoming applicable to it, and obtain the employer's code number.

All employees, including casual, temporary or contract employees drawing

wages less than Rs 25,000 per month, are covered under the ESI Act. (Sn
2(9))(Limit increased from Rs 15,000 to 25,000 in Oct 2016, and from 10,000 to
Rs 15,000 in May 1, 2010).

Wages include all emoluments capable of being expressed in monetary terms,

EXCLUDING
• payment for overtime work
• bonus
• leave encashment

DVC Jakati v Regional Director, ESIC (1982): Employee count is not limited to
employees actually working on the floor of the factory. It includes employees
doing incidental or preliminary work connected with work of the factory.
Regional Director ESIC v South India Floor Mills (1986): Employee includes
casual employees also

Venkateshwara Rao v State of AP (1980): Principal employer is liable to make

contributions of employees hired by contractor also.

ESIC v Bhag Singh (1989): The proprietor ran petrol pump and adjacent garage
as separate units, and both employed less than 10 employees, but together
employee count was greater than 10. Court held two premises would have to be
considered as a single establishment as it was doing connected works.

Administration

The ESI Corporation administers the ESI Act and disburses the benefits

The ESI Corporation has a board headed by a chairman, with elected and
nominated members, and having 4 year tenure. There is also a standing
committee drawn up from members of the board to act as an executive body for
administration of the scheme. Tenure of standing committee is 2 years.

There is also a Medical benefit Council headed by Director General, Health

Services (ex-officio chairman), with a four year term, to oversee all matters
related to administration of medical benefits.

Employees Insurance Court (Sn 74): Each court shall have jurisdiction over
notified local areas, and decide on disputes, such as
1. who is the principal employees
2. is an employee liable to pay contribution (liable to be covered)
3. amount and disbursement of benefits
4. dispute between principal employer and corporation, or between employer
and employee with regards to compensation
The court is headed by a judicial officer of minimum five years standing.
Decisions of Employees Insurance Court can be appealed to High Court

Contribution
ESI is a contributory scheme, and mandatory for all eligible emplopyees.

The employer is required to contribute at the rate of 4.75% of the wages paid/
payable in respect of every wage period. The employees are also required to
contribute at the rate of 1.75% of their wages.
It is the responsibility of the employer to deposit such contributions (employer's
and employees') in respect of all employees (including the contract labour) into
the ESI account.

Employee cannot draw the following pairs of benefit at the same time. Employee
can choose only one
• Sickness benefit and maternity benefits
• Sickness benefit and disablement benefit for temporary disablements
• Maternity benefit and disablement benefit for temporary disablements

Permanent partial disablement = reduction of earning capacity in every

employment injured was capable of performing at time of injury
Permanent Total Disablement = disablement of total nature incapacitating an
employee from all work he was capable during the time of injury
Temporary Disablement = Employment injury which requires medical treatment
and renders the worker from doing the work he was capable of doing prior to the
injury, on a temporary basis.
Regional Director ESIC v P Raju (1994): Toddy tapper met with accident. ESI
Medical Board fixed disablement at 40%. ESI court enhanced it to 100% as he
was incapable of doing all works he was capable of doing before accident. Kerala
HC affirmed decision of ESI Court.

Regional Director ESIC v Lakshmi (1979): Employee travelling in company

provided bus and suffering accident deemed to be in course of employment

Salient Features of the 2010 Amendment to ESI Act

The Government enacted as the Employees' State Insurance (Amendment) Act,
2010, which has come into effect June 1, 2010. The salient features of the ESI
(Amendment) Act are as under:
• facilitating coverage of smaller factories;
• enhancing age limit of dependent children for eligibility to dependants benefit;
• extending medical benefit to dependant minor brother/sister in case of insured
persons not having own family and whose parents are also not alive;
• streamlining the procedure for assessment of dues from defaulting employers;
• providing an Appellate Authority within the ESI Corporation against
assessment to avoid unnecessary litigation;
• continuing medical benefit to insured persons retiring VRS scheme/ premature
retirement;
• treating commuting accidents as employment injury;
• streamlining the procedure for grant of exemptions;
• third party participation in commissioning and running of the hospitals;
• opening of medical/ dental/ paramedical/ nursing colleges to improve quality of
medical care;
• making an enabling provision for extending medical care to other beneficiaries
against payment of user charges to facilitate providing of medical care from
underutilised ESI Hospitals to the BPL families covered under the Rashtriya
Swasthaya Bima Yojana introduced by the Ministry of Labour & Employment
w.e.f. 1.4.2008;
• reducing duration of notice period for extension of the Act to new classes of
establishments from six months to one month;
• empowering State Governments to set up autonomous Corporations for
administering medical benefit in the States for bringing autonomy and efficiency
in the working.

Dependants benefit

Dependants benefit [family pension] is payable to dependants of a deceased insured person

where death occurs due to employment or occupational disease. - A widow can receive this
benefit on a monthly basis for life or till remarriage. - A son or daughter can receive this
benefit till 18 years of age. - Other dependants like parents including a widowed mother can
also receive the benefit under certain condition. - The rate of payment is about 70% of the
wages shareable among dependants in a fixed ratio. - The first instalment is payable within a
maximum of 3 months following the death of an insured person and thereafter, on a regular
monthly basis.